-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GcQCms3I/OGN+28gWM11umf6alCbklvLFjV9nyYQh9om12vV8GblfOh3JijjmpGv dYuPekPEMTNNezekbI3eKQ== 0000912057-00-054429.txt : 20001222 0000912057-00-054429.hdr.sgml : 20001222 ACCESSION NUMBER: 0000912057-00-054429 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYCO INTERNATIONAL LTD /BER/ CENTRAL INDEX KEY: 0000833444 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 000000000 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13836 FILM NUMBER: 793362 BUSINESS ADDRESS: STREET 1: 90 PITTS BAY ROAD STREET 2: THE ZURICH CENTRE SECOND FLOOR CITY: PEMROKE HM 08 BERMU STATE: D0 BUSINESS PHONE: 4412928674 MAIL ADDRESS: STREET 1: C/O TYCO INTERNATIONAL (US) INC STREET 2: ONE TYCO PARK CITY: EXETER STATE: NH ZIP: 03833 FORMER COMPANY: FORMER CONFORMED NAME: ADT LIMITED DATE OF NAME CHANGE: 19930601 10-K405 1 a2030822z10-k405.txt 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
001-13836 (COMMISSION FILE NUMBER) TYCO INTERNATIONAL LTD. (Exact name of registrant as specified in its charter) BERMUDA NOT APPLICABLE (Jurisdiction of Incorporation) (IRS Employer Identification No.)
THE ZURICH CENTRE, SECOND FLOOR, 90 PITTS BAY ROAD, PEMBROKE, HM 08, BERMUDA (Address of registrant's principal executive office) 441-292-8674* (Registrant's telephone number) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON SHARES, PAR VALUE $0.20 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K. /X/. The aggregate market value of voting common shares held by nonaffiliates of registrant was $98,909,627,685 as of December 6, 2000. The number of common shares outstanding as of December 6, 2000 was 1,748,649,762. DOCUMENTS INCORPORATED BY REFERENCE See pages 22 to 24 for the exhibit index. ------------------------ * The executive offices of Registrant's principal United States subsidiaries are located at One Tyco Park, Exeter, New Hampshire 03833. The telephone number there is (603) 778-9700. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS INTRODUCTION Tyco International Ltd. ("We" or "Tyco") is a diversified manufacturing and service company that, through its subsidiaries: - designs, manufactures and distributes electrical and electronic components and multi-layer printed circuit boards; - designs, engineers, manufactures, installs, operates and maintains undersea cable communications systems; - designs, manufactures and distributes disposable medical supplies and other specialty products; - designs, manufactures, installs and services fire detection and suppression systems and installs, monitors and maintains electronic security systems; and - designs, manufactures and distributes flow control products and provides environmental consulting services. See Notes 19 and 20 to the Consolidated Financial Statements for certain segment and geographic financial data relating to our business. Tyco's strategy is to be the low-cost, high quality producer and provider in each of our markets. We promote our leadership position by investing in existing businesses, developing new markets and acquiring complementary businesses and products. Combining the strengths of our existing operations and our business acquisitions, we seek to enhance shareholder value through increased earnings per share and strong cash flows. I. ELECTRONICS Tyco is the world's leading supplier of passive electronic components. Our products and services include: - designing engineering and manufacturing of electronic connector systems, fiber optic components, wireless devices, heat shrink products, power components, wire and cable, relays, sensors, touch screens, identification and labeling products, switches and battery assemblies; and - designing and manufacturing of multi-layer printed circuit boards, backplane assemblies, electronic modules and similar components. Tyco Electronics has combined the historical leadership of AMP Incorporated ("AMP") in the interconnect industry with other companies such as Raychem Corporation ("Raychem"), Siemens Electromechanical Components GmbH & Co. KG ("Siemens EC") and the Electronic OEM Business of Thomas & Betts ("T&B"). Tyco Electronics designs, manufactures and markets a broad range of electronic, electrical and electro-optic passive and active devices and an expanding number of interconnection systems and connector-intensive assemblies, as well as wireless products including semi-conductors, radar sensors, global positioning satellite systems, silicon and gallium arsenide semiconductors, broadband Local Multipoint Distribution Systems ("LMDS") and microwave sub-systems. Tyco Electronics' products have potential uses wherever an electronic, electrical, computer or telecommunications system is involved, and are becoming increasingly critical to the performance of these systems as voice, data and video communications converge. Tyco Electronics manufactures and sells more than 200,000 parts in over 450 global product lines, including terminals, fiber optic, printed circuit board and cable connectors and assemblies, cable and cabling systems, and related application tools and application tooling equipment. 1 Tyco Electronics' customers include original equipment manufacturers ("OEMs") and their subcontractors, utilities, government agencies, distributors, value-added resellers, and customers who install, maintain and repair equipment. These customers are found in the automotive, power technology, personal computer, communications, networking, industrial and consumer industries. Tyco Electronics serves over 200,000 customers located in over 55 countries, covering many diverse markets. Tyco Electronics is a global marketing, sales, engineering and manufacturing company which produces interconnection systems, passive and active electronic components, and has a strong local presence in the geographical areas in which it operates, such as the Americas, the Asia-Pacific region, Europe and the Middle East. The markets that Tyco Electronics operates in are highly competitive. Tyco Electronics faces competition across its product lines from other companies ranging in size from large, diversified manufacturers to small, highly specialized manufacturers. The acquisition of Raychem in the last quarter of fiscal 1999 significantly expanded our product line and complemented existing products and services. Raychem develops, manufactures and markets a variety of high-performance products for electronic OEMs, subcontractors and distributors with telecommunications, computer, consumer, automotive, energy and industrial markets. Raychem designs, manufactures and distributes products such as circuit protection devices, heat-shrinkable tubing and molded parts, wire and cable, and computer touchscreens. In addition, Raychem designs and manufactures fiber optic and copper cable accessories, energy cable accessories and heat-tracing products and provides design, engineering and installation services. Siemens EC, acquired in November 1999, is the world market leader for the manufacture and sale of relays and is one of the world's leading providers of electro-mechanical components to the communications, automotive, consumer and general industry sectors. The Electronic OEM business of T&B, acquired in July 2000, designs and manufactures electronic connectors for the telecommunications, computer and automotive industries. T&B's product categories are comprised of: high-density material interconnect systems used in thermal management, backplane systems and laptop computers; PCB mounted electromechanical components, including switches, sockets and I/O connectors; and a variety of connectors for safety systems, I/O devices, wire harnesses and power distribution centers used in the automotive industry. T&B's products also include the most advanced high density/high frequency related metalized particle interconnect technology. These products are used in telecom equipment and other components such as high density chip carrier sockets and other high frequency related systems. In November 2000, we agreed to acquire the Lucent Power Systems ("LPS") business unit of Lucent Technologies, Inc. LPS provides a full line of energy solutions and power products for telecommunications service providers and for the computer industry. LPS products include AC/DC and DC/DC switching power supplies, batteries, power supplies and back-up power systems. Also included in Tyco Electronics is Tyco Printed Circuit Group ("TPCG"), one of the largest independent manufacturers of complex multi-layer printed circuit boards and backplane assemblies in the United States. TPCG manufactures multi-layer boards, including highly sophisticated, precision tooled, custom laminated boards with layer counts up to 68. TPCG also produces sophisticated flexible-rigid circuit boards for use in commercial, aerospace and military applications. TPCG's backplane facilities produce soldered, press-fit and surface mount backplane assemblies. In addition, these facilities provide turnkey manufacturing services including full "box build" products. Printed circuit boards and backplane products are manufactured on a job order basis to the customers' design specifications. The majority of sales are derived from high-density multi-layer boards. TPCG markets its products primarily through a direct sales force and, to a lesser extent, through a network of independent manufacturers' representatives. Customers are OEMs and contract manufacturers in the communications, computer, aircraft, military and other industrial and consumer electronics industries. We compete with several other large independent and captive companies that 2 manufacture printed circuit board products primarily in the United States. Competition is on the basis of quality, reliability, price and timeliness of delivery. II. TELECOMMUNICATIONS Tyco's 86% owned subsidiary, TyCom Ltd. ("TyCom"), is a leading independent provider of transoceanic fiber optic networks and services. TyCom's products and services include: - design, engineering, manufacture and installation of undersea cable communications systems; - service and maintenance of major undersea cable networks; and - design, manufacture and installation of a global undersea fiber optic network, known as the TyCom Global Network-TM- ("TGN"). TyCom plans to operate, maintain and sell bandwidth capacity on the TGN. TyCom, a Bermuda Company, was incorporated on March 8, 2000 as a wholly-owned subsidiary of Tyco to serve as the holding company for its undersea fiber optic cable communications business. TyCom is the world's only fully-integrated source for the design, engineering, manufacturing, installation and servicing of undersea cable communications systems. TyCom designs and builds both repeatered and non-repeatered fiber optic cable systems. Repeaters are specialized undersea equipment designed to house and protect optical amplifiers that amplify voice, video and data signals as they travel across fiber optic cable. Used typically in systems spanning between 300 and 12,000 kilometers, repeaters provide the ability to amplify optical signals without first converting these signals to their electrical equivalents. Non-repeatered systems, which allow for even greater circuit capacity and reduced transmission costs, support short haul systems of several hundred kilometers. TyCom has designed, manufactured and installed over 300,000 kilometers of undersea optical cable. TyCom Integrated Cable Systems, Inc. is the primary supplier of cable and cable assemblies to TyCom. It also manufactures underwater electrical power cables and electro-mechanical cables for unique field operations. Temasa, acquired during the prior fiscal year, provides a portion of the cable installation and maintenance operations of TyCom, and is based in Spain. TyCom is designing, building and installing its own global undersea fiber optic network, known as the TyCom Global Network ("TGN") and plans to operate, maintain and sell bandwidth capacity on the TGN. In July 2000, TyCom sold approximately 14 percent of its common shares in an initial public offering. Net proceeds from the offfering were approximately $2.1 billion, which will be used primarily toward the deployment of the TGN. TyCom's principal operating subsidiaries include TyCom (US) Inc. (formerly Tyco Submarine Systems Ltd.), TyCom Integrated Cable Systems Inc. (formerly Simplex Technologies) and Telecomunicaciones Marinas, S.A. ("Temasa"). TyCom Laboratories, the research and development group of TyCom, includes a world class research and development facility populated by acclaimed engineers and state of the art equipment to facilitate forward looking design work. TyCom Laboratories' intellectual property portfolio includes many key enabling technologies involving terminal transmission and power equipment, optical signal amplifiers, cable and fiber, network management systems and software, installation and repair technologies and network integration. TyCom operates one of the world's largest fleet of ships deployed worldwide to design, maintain, install and service undersea fiber optic transmission systems. TyCom also uses a variety of other undersea tools, including robotic vehicles for undersea cable burial and retrieval operations. TyCom's sales and marketing personnel consist of professionals with extensive telecommunication, technical or service backgrounds, and are located in offices in Bermuda, France, Singapore, the United Kingdom and the United States. 3 As a supplier of undersea fiber optic cable systems, TyCom competes on a worldwide basis primarily against two other providers: Alcatel-Alsthom and KDD Submarine Cable Systems Inc. ("KDD"). Other smaller players compete on a more limited basis, either as subcontractors to other providers or as suppliers of regional or non-repeatered systems. Alcatel, like TyCom, is vertically integrated and produces its own cable, whereas KDD utilizes a Japanese cable manufacturer. Participants in this market compete on the basis of, among other things, price, technology, time-to-market, the provision of financing and regional and long-term relationships. In the future, we will be offering less of our cable system design, manufacturing and installation capacity to our customers, and our existing competitors and potential new cable system suppliers will play a more significant role in the undersea cable system market. As a provider of undersea cable maintenance, TyCom competes primarily with Global Marine Systems Ltd., a subsidiary of Global Crossing Ltd. as well as Alcatel and KDD. There are a number of companies that are pursuing the deployment of global fiber optic networks, including Global Crossing, FLAG Telecom, Teleglobe, 360networks and 1Cybernetworks. There are other companies that are or will be selling bandwidth capacity on various shorter distance undersea cable networks. As TyCom deploys the TGN, it will face competition in the sale of bandwidth capacity from existing and planned fiber optic cable networks, as well as satellite providers and, on certain routes, terrestrial networks. In addition, the first phase of the TGN will compete with certain of TyCom's customers, including Global Crossing, 360networks, and various participants in cable system consortia. The planned expansion of the TGN beyond the first phase will likely also result in competition with these customers as well as some of TyCom's other customers. Bandwidth customers, such as large telecommunications service providers, often have ownership interest in networks that may cause them to favor purchasing capacity on their own networks rather than on the TGN. III. HEALTHCARE AND SPECIALTY PRODUCTS Tyco has a strong leadership position in the medical products and plastics industries. Our products include: - a wide variety of disposable medical products, including wound care products, syringes and needles, sutures and surgical staplers, incontinence products, electrosurgical instruments and laparoscopic instruments; - flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives, and plastic garment hangers; and - ADT Automotive's auto redistribution services (which was sold on October 6, 2000). The principal divisions in the Healthcare and Specialty Products segment are Tyco Healthcare Group, Tyco Plastics and Adhesives and ADT Automotive. TYCO HEALTHCARE GROUP The Tyco Healthcare Group consists of four primary business units including Kendall Healthcare, Tyco Healthcare International, U.S. Surgical Corporation and ValleyLab. Kendall Healthcare, which is comprised of Kendall, Sherwood-Davis & Geck, Kendall-LTP, Graphic Controls and Confab, manufactures and markets worldwide a broad range of needles, syringes, electrodes and wound care, specialized paper and film, vascular therapy, urological care, incontinence care and other nursing care products to hospitals and to alternate site healthcare customers. Its Confab unit sells store brand baby diapers and incontinence and feminine hygiene products through retail outlets in the United States and Canada. Kendall Healthcare distributes its products in the United States through its own sales force and through a network of more than 250 independent distributors. The sales force is divided into five 4 groups: vascular therapy products, medical and surgical products, alternate site markets, Kendall-LTP and Confab. Tyco Healthcare's competitors include Johnson & Johnson, Becton Dickinson, Bard and Smith and Nephew, among others. Kendall Healthcare, which operates throughout the United States, is the industry leader in gauze products with its Kerlix-Registered Trademark- and Curity-Registered Trademark- brand dressings. Kendall Healthcare's other core product category consists of its vascular therapy products, principally anti-embolism stockings, marketed under the T.E.D.-Registered Trademark- brand name, sequential pneumatic compression devices sold under the SCD-Registered Trademark- brand name and a venous plexus foot pump. Kendall Healthcare pioneered the pneumatic compression form of treatment and continues to be the leading participant in the pneumatic compression and elastic stocking segments of the vascular therapy market. Kendall Healthcare is also an industry leader in the adult incontinence market serving the acute care, long-term care and retail markets. It offers a complete line of disposable adult briefs, underpads, baby diapers and other related products. Kendall-LTP, which includes Graphic Controls, manufactures and sells a variety of disposable medical products, specialized paper and film products. These include medical electrodes and gels for monitoring and diagnostic tests and hydrogel wound care products, which are used primarily in critical care, physical therapy and rehabilitative departments in hospitals. Graphic Controls also sells operating room kits, sharps containers and other operating room related products. Tyco Healthcare International is responsible for the manufacturing, marketing, distribution and export of the Tyco Healthcare Group products outside of the United States. Tyco Healthcare International markets directly to hospitals and medical professionals, as well as through independent distributors. With a presence in more than 75 countries, its operations are organized primarily into three geographic regions, Europe, Latin America and the Asia-Pacific region, although the mix of product lines offered varies from country to country. U.S. Surgical, a leader in innovative wound closure products and laparoscopic instrumentation, develops, manufactures and markets its products to hospitals throughout the world. Its products include surgical staplers, sutures, disposable laparoscopic instrumentation, in addition to numerous other products used in surgical and medical specialties including spine surgery, cardiovascular surgery, cancer biopsies and orthopedic surgery. ValleyLab is a leading manufacturer and marketer of electrosurgical and ultrasonic surgical products used in open and minimally invasive surgical procedures. Additional product lines relate to radio frequency energy and vessel sealing technology. In October 2000, we acquired Mallinckrodt Inc. ("Mallinckrodt"), a global company whose products are used primarily for respiratory care, diagnostic imaging and pain relief. Mallinckrodt is the leader in the global respiratory care markets, alternate care markets, diagnostic imaging, and bulk pharmaceuticals. Mallinckrodt's products are sold to hospitals and alternate care sites, clinical laboratories, pharmaceutical manufacturers and other customers on a worldwide basis. TYCO PLASTICS AND ADHESIVES Tyco Plastics & Adhesives consists of Tyco Plastics, A&E Products, Tyco Adhesives and Ludlow Coated Products. TYCO PLASTICS Tyco Plastics manufactures polyethylene based films, packaging products, bags and sheeting in a wide range of size, gauge, strength, stretch capacity, clarity and color. Tyco Plastics extrudes low density, high density and linear low density resin purchased in pellet form, incorporating such additives 5 as color, slip and anti-block. Manufacturing facilities are located in all regions of the US to insure proper customer service and competitive transportation costs. Tyco Plastics Products include: Ruffies-Registered Trademark-, a national brand consumer trash bag sold to mass merchants, grocery chains and other retail outlets and Film-Gard-Registered Trademark-, a leading plastic sheeting product sold to consumers and professional contractors through do-it-yourself outlets, home improvement centers and hardware stores. A wide range of Film-Gard products are sold for various uses, including painting, renovation, construction, landscaping and agriculture. Tyco Plastics sells it product directly to the retailer for resale, to distributors for resale or directly to end-users. Tyco Plastics competes with other nationally recognized brands and also many smaller regional producers on the basis of price, delivery, breadth of product line and specialized product capabilities. LUDLOW COATED PRODUCTS Ludlow Coated Products produces protective packaging and other materials made of coated or laminated combinations of paper, polyethylene and foil. Coated packaging materials provide barriers against grease, oil, light, heat, moisture, oxygen and other contaminants. The division produces structural coated and laminated products such as plastic coated kraft, linerboard and bleached boards for rigid urethane insulation panels, automotive components and wallboard panels. Other product applications include packaging for photographic film, frozen foods, health care products, electrical and metallic components, agricultural chemicals, cement and specialty resins. Ludlow is also the dominant supplier of thin wall insulative sheathing and a major producer and supplier of breathable housewrap for the building industry. Ludlow markets its laminated and coated products through its own sales force and through independent manufacturers' representatives. Ludlow competes with many large manufacturers of laminated and coated products on the basis of price, service, marketing coverage and custom application engineering. It has various specialized competitors in different markets. TYCO ADHESIVES The Tyco Adhesives division manufactures and markets specialty adhesive products and tapes for industrial applications, including external corrosion protection products for oil, gas and water pipelines. Other industrial applications include tapes and adhesive films and laminations used in the automotive industry for wire harness wraps, sealing and other purposes, in the aerospace industry, in the heating, ventilation and air conditioning (HVAC) industry and in the medical industry. Tyco Adhesives also produces duct, foil, strapping, packaging and electrical tapes and spray adhesives for industrial and consumer markets worldwide and manufacturers cloth and medical tapes for Tyco Healthcare and others. Tyco Adhesives' Betham division develops and markets custom pressure sensitive adhesives and coatings, principally for the automotive, medical and specialty markets. Tyco Adhesives generally markets its corrosion protection products directly to its customer base, working with international engineering and construction companies and the owners and operators of pipeline transportation facilities. Tyco Adhesives sells its other industrial products either directly to major end users or through diverse distribution channels, depending upon the industry being supplied. Products are sold under the Polyken-Registered Trademark-, Nashua Tape-Registered Trademark-, Raychem-Registered Trademark-, Betham-Registered Trademark- and National-TM- brand names. A&E PRODUCTS A&E Products Group L.P. manufactures and sells garment hangers throughout the world and associated apparel products and packing materials to garment manufacturers and merchants in the Americas. The majority of A&E Products' clientele are garment manufacturers, national, regional and local retailers, as well as merchants. 6 Garment manufacturers place their apparel on A&E hangers before shipping to retail outlets. Retailers purchase customized hanger designs created and manufactured for them exclusively by A&E Products as well as a standard line of hangers to save time and money. A&E Products also produces a line of plastic hangers available for sale to the private customer. In addition to the manufacturing and selling of new hangers, A&E Products also operates hanger-recycling facilities in the United States and Europe. Used hangers are bought from various retailers; they are then sorted, processed and repackaged for sale back to the general marketplace. ADT AUTOMOTIVE In October 2000, we sold our ADT Automotive business, which performed auto redistribution services. IV. FIRE AND SECURITY SERVICES Tyco is the world's leading provider of fire protection and electronic security services. Our products and services include: - designing, installing and servicing of a broad line of fire detection, prevention and suppression systems; - providing electronic security installation and monitoring services; and - manufacturing and servicing of fire extinguishers and related products. FIRE PROTECTION CONTRACTING AND SERVICES Operating under several trade names including Grinnell, Wormald, Mather & Platt, Total Walther, O'Donnell Griffin, Dong Bang, Ansul and Tyco, we design, fabricate, install and service automatic fire sprinkler systems, fire alarm and detection systems, and special hazard suppression systems in buildings and other installations. Tyco's fire protection contracting and service business utilizes a worldwide network of sales offices. We install fire protection systems in both new and existing structures. Typically, the contracting businesses bid on contracts for fire protection installation which are let by owners, architects, construction engineers and mechanical or general contractors. In recent years, the business of retrofitting existing buildings has grown as a result of legislation mandating the installation of fire protection systems and also as a result of lower insurance premiums available to structures with automatic sprinkler systems. We continue to focus on system maintenance and inspection, which has become a more significant part of the business. The majority of the fire suppression systems installed by Tyco are water-based. However, we are also the world's leading provider of custom designed hazard fire protection systems which incorporate various specialized non-water agents such as foams, dry chemicals and gases. Systems using agents other than water are especially suited to fire protection in certain manufacturing, power generation, petrochemical, offshore oil exploration, transportation, telecommunications, mining and marine applications. We hold exclusive manufacturing and distribution rights in several regions of the world for INERGEN-Registered Trademark- fire suppression products. INERGEN is an alternative to the ozone depleting agent known as halon and consists of a mixture of three inert gases designed to effectively extinguish fires without polluting the environment, damaging costly equipment or harming people. In Australia, New Zealand and Asia, Tyco also engages in the installation of electrical wire and related electrical equipment in new and existing structures and provides specialized electrical contracting services, including applications for railroad and bridge construction, primarily through its O'Donnell Griffin division. 7 Substantially all of the mechanical components (and, in North America, a high proportion of the pipe) used in the fire protection systems installed by us are manufactured by us. We also have fabrication plants worldwide that cut, thread and weld pipe, which is then shipped with other prefabricated components to job sites for installation. We have developed our own computer-aided-design technology that reduces the time required to design systems for specific applications and coordinates the fabrication and delivery of system components. Generally, competition in the fire protection business varies by geographic location. In North America, Tyco competes with hundreds of smaller contractors on a regional or local basis for the installation of fire suppression and fire alarm and detection systems. Many of the regional and local competitors employ non-union labor. In Europe, Tyco competes with many regional or local contractors on a country by country basis. In Australia, New Zealand and Asia, we compete with a few large fire protection contractors as well as with many smaller regional or local companies. Tyco competes for fire protection contracts primarily on the basis of price, service and quality. ELECTRONIC SECURITY SERVICES We provide electronic security services principally under the ADT trade name and also under other trade names including Alarmguard, Thorn Security, Total Walther, Holmes Protection, CIPE, CAPS, Zettler, Sonitrol, TEPG and Armourguard. We provide electronic security services primarily in North America, Europe, the Middle East, the Asia-Pacific region and Latin America. Electronically monitored security systems involve the installation and use on a customer's premises of devices designed to detect or react to various occurrences or conditions, such as intrusion, movement, fire, smoke, flooding, environmental conditions (including temperature or humidity variations), industrial operations (such as water, gas or steam pressure and process flow controls) or other hazards. These detection devices are connected to a microprocessor-based control panel which communicates through telephone lines to a monitoring center, often located at remote distances from the customer's premises, where alarm and supervisory signals are received and recorded. In most systems, control panels can identify the nature of the alarm and the areas within a building where the sensor was activated. Depending upon the type of service for which the subscriber has contracted, monitoring center personnel respond to alarms by relaying appropriate information to the local fire or police departments, notifying the customer or taking other appropriate action, such as dispatching employees to the customer's premises. In some instances, the customer may monitor the system at its own premises or the system may be connected to local fire or police departments. We provide electronic security services to both commercial and residential customers. Our commercial customers include financial institutions, industrial and commercial businesses, facilities of federal, state and local government departments, defense installations, and health care and educational facilities. We provide residential electronic security services primarily in North America and Europe, with a growing presence in the Asia-Pacific region. Our customers are often prompted to purchase security systems by their insurance carriers, which may offer lower insurance premium rates if a security system is installed or require that a system be installed as a condition to coverage. We also offer event monitoring and inspection services. We are the global leader for the supply of event monitoring in the security industry. In addition to the traditional monitoring of a burglar alarm system, Tyco monitors fire alarms, heating services, medical alert systems, and activity where around the clock monitoring and response is required. We also offer regular inspection and maintenance services so that systems will function appropriately and are upgraded as technology or risk profiles change. Our electronic security systems and products are tailored to our customers' specific needs and include electronic monitoring services that provide intrusion and fire detection, as well as card or keypad activated access control systems and closed circuit television ("CCTV") systems. Systems may be monitored by the customer at its premises or connected to one of our monitoring centers. In either case, we usually provide support and maintenance through service contracts. It has been our experience 8 that commercial and residential contracts are generally renewed after their initial terms. Contract discontinuances occur principally as a result of customer relocation or closure. Systems installed at commercial customers' premises may be owned by us or by our customer. We usually retain ownership of standard residential systems, but more sophisticated residential systems are usually purchased by our customers. We market our electronic security services to commercial and residential customers through a direct sales force and an authorized dealer network. Commercial customers are serviced by a separate national accounts sales force. We also utilize advertising, telemarketing and direct mail to market our services. The electronic security services business in North America is highly competitive, with a number of major firms and approximately 12,000 smaller regional and local companies. Tyco also competes with several national companies and several thousand regional and local companies in Europe, the Middle East, the Asia-Pacific region and Latin America. Competition is based primarily on price in relation to quality of service. We believe that the quality of our electronic security services is higher than that of many of our competitors and, therefore, our prices may be higher than those charged by our competitors. In December 2000, we agreed to acquire Simplex Time Recorder Co. ("Simplex"). Simplex manufactures fire and security products and communications systems including control panels, detection devices and system software. Simplex also installs, monitors and services fire alarms, security systems and access control systems. MANUFACTURING Our Ansul subsidiary manufactures and sells various lines of dry chemical, liquid and gaseous portable fire extinguishers and related agents for industrial, government, commercial and consumer applications. Ansul also manufactures and sells special hazard fire suppression systems designed for use in restaurants, marine applications, mining applications, the petrochemical industry, confined industrial spaces and commercial spaces housing electronic and other delicate equipment. Ansul also manufactures spill control products designed to absorb, neutralize and solidify spills of various hazardous materials. Our Fire and Security Services segment manufactures certain alarm, detection and activation devices and central monitoring station equipment which is both installed by our own units and sold to other installers of alarm and detection devices. Otherwise, we do not manufacture the electronic security system components which we install, although we do provide our own specifications to manufacturers for certain security system components and undertake some final assembly work in respect of more sophisticated systems. These products are manufactured primarily outside of the United States. V. FLOW CONTROL PRODUCTS AND SERVICES Tyco is the world's leading manufacturer of industrial valves and controls. Our products and services include: - a full line of valves and related products for industrial and process control including butterfly, gate, globe, check, ball, plug, safety relief, knife-gate, instrumentation, sampling, and other valves as well as actuators, positioners, couplings and related products, which are used to transport, control and sample liquids, gases, powders and other substances; - pipe and tubular products, made primarily from steel, ductile iron and plastic and utilized in the mechanical tubing, construction, automotive, water distribution, fencing products and other markets; 9 - electrical raceway products, including steel conduit, pre-wired armored cable, flexible conduit, steel support systems and fasteners, cable tray and cable ladder; - a broad range of consulting, engineering, construction management and operating services for the water, wastewater, environmental, transportation and infrastructure markets; and - fire sprinkler devices, specialty valves, steel pipe, plastic pipe and fittings and pipe couplings used in commercial, residential and industrial fire protection systems. MANUFACTURING AND SERVICES VALVES AND CONTROLS Tyco Flow Control manufactures a wide variety of standard and highly specialized valves and related products on a worldwide basis in a variety of configurations, body types, materials, pressure ratings and sizes. The group also manufactures related equipment and products such as valve actuators, gauges, positioners, valve control systems, vapor control products, heat tracing and leak detection systems and other related products. These products are manufactured in Tyco's facilities located throughout North America, Europe, South America and the Asia-Pacific region. The group's valves and related products are used in power generation, chemical, petrochemical, oil and gas, water distribution, wastewater, pulp and paper, commercial irrigation, mining, industrial process, food and beverage, plumbing, HVAC and other applications. Tyco Flow Control also provides engineering, design, inspection, repair and commissioning services. Tyco's valves and related products are sold under several trade names, including Keystone, Grinnell, Hindle, KTM, Flow Control Technologies, Gachot, Richards, Sapag, Winn, Vanessa, Raimondi, Fasani, Sempell, Descote, Klein, Biffi, Morin Actuators, Westlock Controls, Crosby, Anderson Greenwood, Yarway, Valvtron, Neotecha, Belucci, Intecva, Bayard, Belgicast, Whessoe Varec and many others. Tyco Flow Control sells heat tracing products and services under the Raychem HTS, Tracer Industries, Accutron and Isopad names. PIPE AND TUBULAR PRODUCTS Tyco Flow Control manufactures steel pipe and tubular products at a number of locations in North America, the United Kingdom, Brazil and Australia. Allied Tube & Conduit ("Allied") is the leading North American manufacturer of steel tubular products including (i) mechanical tubing in a wide assortment of shapes and sizes for a variety of industrial and commercial applications, (ii) tubing products for the residential, industrial and commercial fence market, and (iii) light wall steel trusses and studs for the residential and commercial construction industry. Other specialty products include steel signposts, welded steel fittings, welded and roll formed carbon steel tubing and shapes, and stainless steel razor tape. Tyco Flow Control manufactures and distributes welded and drawn steel tube products in the United Kindgom under the trade names of Newman Monmore, Newman Phoenix, Tyco Tube Components and HUB LeBas. We manufacture specialty steel strip products under the JB&S Lees, Firth Cleveland Steel Strip and Ductile Stourbridge trade names and also in Brazil under the trade name of Frefer. In Australia, Tyco Flow Control manufactures ductile and steel pipe, steel fittings, valves and related products primarily for the water industry at several locations under the trade name Tyco Water. We also manufacture a line of plastic pipe and fittings in Australia and Malaysia. ELECTRICAL PRODUCTS Tyco Flow Control manufactures electrical raceway and related products in North America, Europe and the Asia-Pacific region. Our products include steel electrical conduit, pre-wired armored cable, flexible electrical conduit, metal framing systems, cable tray and cable ladder and related products 10 utilized in the construction, industrial and original equipment markets. In North America, Allied is the leading manufacturer of steel electrical conduit and AFC Cable Systems is the leading manufacturer of steel and aluminum pre-wired armored cable. Georgia Pipe manufactures plastic conduit. Allied manufactures metal framing and support systems and electrical cable tray and cable ladders in North America and sells them under the Powerstrut, Unistrut and T.J. Cope trade names. We also manufacture metal framing and support products in Europe, which we sell under the Unistrut trade name. In Australia and Asia, we manufacture and sell these products under the Unistrut, A.C.S. and other trade names. We manufacture specialty fastening products in the United Kingdom under the Lindapter trade name. ENGINEERING SERVICES Through its Earth Tech subsidiary, the Flow Control group provides a broad range of environmental, consulting and engineering services. Earth Tech's principal services consist of full-spectrum water, wastewater, environmental and hazardous waste management services. These services include infrastructure design and construction services for institutional, civic, commercial and industrial clients; design, construction management, project financing and facility operating services for water and wastewater treatment facilities for municipal and industrial clients; and transportation engineering and consulting. Earth Tech operates through a network of offices in the United States, Canada, the United Kingdom and Brazil. FIRE PROTECTION PRODUCTS The Flow Control group manufactures, sells and distributes a wide variety of products utilized by fire protection contractors and fabricators of fire protection systems. These products include a complete line of fire sprinkler devices, valves, plastic pipe and pipe fittings and ductile iron pipe couplings. We sell these products to third parties as well as to our fire protection contracting businesses on an arms-length basis. We manufacture our products in the United States, the United Kingdom, Germany, China and Malaysia and sell them under the Central Sprinkler, GEM Sprinkler, Star Sprinkler and Spraysafe trade names. In North America, Allied also manufactures and sells a complete line of steel pipe for use in fire protection systems. SALES AND DISTRIBUTION We sell valves and related products in some locations directly by an internal sales force and in other geographical areas by a network of independent distributors and manufacturer's representatives. The valve industry is highly fragmented and we compete against a number of international, national and local manufacturers as well as against specialized manufacturers on the basis of price, delivery, breadth of product line and specialized product capability. Allied competes for the sale of steel pipe and tube with other United States and non-United States producers. The group's pipe and tubular products manufactured in the United Kingdom, Australia and Brazil compete primarily with other local and national producers in those countries. Competition is based on price, service and breadth of product line. Competition for fence products is principally from national and regional United States producers and to a lesser extent from non-United States companies on the basis of price, service and distribution. Allied competes with many small regional manufacturers for the sale of specialized industrial tubing on the basis of price and breadth of product line. The group's electrical raceway and related products are sold through independent distributors and agents. Competition for electrical products is from local and national companies in each country on the basis of price, delivery and service. Earth Tech competes with a number of international, national, regional and local companies on the basis of price and the breadth and quality of their services. 11 For fire protection products in the United States, Central Sprinkler maintains a network of distribution facilities which stock and sell a full line of fire protection products directly to contractors and installers. GEM Sprinkler and Star Sprinkler sell fire protection products through a network of independent distributors. In Canada, Central America, South America and the Asia-Pacific region, we sell fire protection products through independent distribution and in some cases directly to fire protection contractors. In Europe and the Middle East, we operate a number of company owned distribution facilities which stock and sell a full line of fire protection, mechanical and other flow control products. Competition for the sale of fire products is based on price, delivery, breadth of product line and specialized product capability. The principal competitors are specialty products manufacturing companies based in the United States, with other smaller competitors in Europe and Asia. BACKLOG At September 30, 2000, we had a backlog of unfilled orders of approximately $8,214.8 million, compared to a backlog of approximately $7,581.1 million as of September 30, 1999. We expect that approximately 86% of our backlog at September 30, 2000 will be filled during the year ending September 30, 2001. Backlog by industry segment is as follows ($ in millions):
SEPTEMBER 30, ------------------- 2000 1999 -------- -------- Telecommunications.......................................... $2,941.7 $3,535.4 Electronics................................................. 2,335.7 1,439.1 Flow Control Products and Services.......................... 1,711.4 1,516.5 Fire and Security Services.................................. 1,134.9 986.6 Healthcare and Specialty Products........................... 91.1 103.5 -------- -------- $8,214.8 $7,581.1 ======== ========
The decrease in backlog within the Telecommunications segment is due to TyCom devoting a substantial portion of its resources to designing and manufacturing the TGN and therefore taking on less work as a supplier of undersea fiber optic cable systems for others. Within the Electronics segment, backlog increased principally due to an increase in demand for the products manufactured by AMP and Raychem, and to a lesser extent, the effect of acquisitions. Within the Flow Control Products and Services segment, the increase was principally due to increased backlog at Earth Tech, related to new contract bookings and water and waste water facility contracts, and an increase in demand for its valves and control products. Within the Fire and Security Services segment, backlog increased principally due to long-term service contracts in the Australian fire protection business and, to a lesser extent, the effect of acquisitions. Backlog in the Healthcare and Specialty Products segment is not indicative of the level of sales activity. Backlog in this segment generally represents unfilled orders which are shipped shortly after puchase orders are received. PROPERTIES Our operations are conducted in facilities throughout the world aggregating some 74.8 million square feet of floor space, of which approximately 39.9 million square feet are owned and approximately 34.9 million square feet are leased. These facilities house manufacturing, distribution and warehousing operations as well as sales and marketing, engineering and administrative offices. The Electronics segment has manufacturing facilities in North America, Central and South America, Europe and Asia. The group occupies some 31.6 million square feet, of which 18.9 million square feet are owned and 12.7 million square feet are leased. 12 The Healthcare and Specialty Products segment has manufacturing facilities in North America, Europe and Asia. The group occupies some 20.5 million square feet, of which 11.9 million square feet are owned and 8.6 million square feet are leased. The Flow Control Products and Services segment has manufacturing facilities, warehouses and distribution centers throughout North America, Europe, Australia, Asia and Central and South America. The group occupies some 7.8 million square feet, of which 5.8 million square feet are owned and 2.0 million square feet are leased. Within the Fire and Security Services segment, the fire protection contracting and service business operates through a network of offices located in North America, Central America, South America, Europe, the Middle East and Asia-Pacific regions. Fire protection components are manufactured at locations in North America, the United Kingdom, Germany, Australia, New Zealand and South Korea. The electronic security services business operates through a network of monitoring centers and sales and service offices and other properties in North America, Europe, the Asia-Pacific region and Latin America. The environmental services business operates through a network of offices throughout North America. The group occupies some 13.4 million square feet, of which 2.5 million square feet are owned and 10.9 million square feet are leased. The Telecommunications segment has manufacturing and storage facilities in North America, Hawaii, St. Croix, Guam and Spain, and sales and administrative offices in Bermuda, North America, Singapore, Spain and France. The group occupies some 1.5 million square feet, of which 0.8 million square feet are owned and 0.7 million are leased. In the opinion of management, Tyco's properties and equipment generally are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. See Note 17 to Consolidated Financial Statements for a description of our rental obligations. RESEARCH AND DEVELOPMENT The amounts expended for Tyco-sponsored research and development during Fiscal 2000, Fiscal 1999, and Fiscal 1998 were $527.5 million, $450.5 million and $511.4 million, respectively. Customer-funded research and development expenditures were $18.6 million, $4.6 million and $6.8 million, respectively. Approximately 7,900 full-time scientists, engineers and other technical personnel are engaged in our product research and development activities. Research activity at TyCom involves the continuing design and development of processes for the next generation of undersea fiber optic cable. Activity at Tyco Electronics focuses on new product development and a continual expansion of technical capabilities. Tyco Healthcare focuses on acquiring rights to new products and technologies to complement existing product lines and applying expertise to refine and successfully commercialize such products and technologies. Research activity in the Fire and Security Services and Flow Control Products and Services segments is related to improvements in hydraulic design which controls the motion of fluids, resulting in new sprinkler devices and flow control products. Research and development activity at the specialty packaging companies involves new product applications. RAW MATERIALS We are one of the largest buyers of steel and plastic resin in the United States. Other principal materials include copper, brass, plastic, gold, polyethylene resin and film, polypropylene, electronic components, chemicals and additives, thin and flexible copper clad materials, paper, ink, foil, adhesives, cloth, wax, pulp and cotton. Certain of the materials used in the Fire and Security Services segment and the Flow Control Products and Services segment, principally certain valves and fittings and security 13 systems, are purchased for installation in fire protection systems or for distribution. Materials are purchased both inside and outside of the United States from a large number of independent sources. There have been no shortages in materials which have had a material adverse effect on our businesses. PATENTS AND TRADEMARKS We own a number of patents which principally relate to electrical and electronic products, healthcare and specialty products, fire protection devices, electronic security systems, flow control products, pipe and tubing manufacture, and cable manufacture. We also own a number of trademarks and are a licensee under a number of patents. Although these have been of value and are expected to continue to be of value in the future, in the opinion of management, the loss of any single patent or group of patents would not materially affect the conduct of the business in any of our segments. The patents and licenses have remaining lives of from one to twenty years. Kendall, part of Tyco Healthcare, sells certain products under trade names owned by its suppliers and packages certain products under customer trademarks and labels. EMPLOYEES Tyco employed approximately 202,000 persons at September 30, 2000, of which approximately 90,000 are employed in the United States and 112,000 outside the United States. These amounts exclude approximately 13,000 persons who work for Mallinckrodt Inc., which we acquired in October 2000. We have collective bargaining agreements with labor unions covering approximately 36,000 employees at certain of our North American, European and Asia-Pacific businesses. We believe that our relations with the labor unions and with our employees are generally satisfactory. In April 1994, following lengthy negotiations, contracts between our Grinnell Corporation ("Grinnell") subsidiary and a number of local unions affiliated with the United Association of Plumbers and Pipefitters were not renewed. Employees in those locations, representing 64 percent of Grinnell Fire Protection's North American union employees at the time of their strike in 1994, continue to be on strike. Grinnell has continued to operate with former union members who have crossed over and with replacement workers. The labor action is still pending. The action has not had, and is not expected to have, any material adverse effect on our business or results of operations. ENVIRONMENTAL MATTERS We make a substantial effort to operate our facilities in compliance with laws relating to the protection of the environment. Compliance has not had and is not expected to have a material adverse effect upon our capital expenditures, earnings or competitive position. We believe that, consistent with applicable laws and regulations, we exercise due care and take appropriate precautions in the management of wastes. We have received notification from the United States Environmental Protection Agency, and from certain state environmental agencies, that conditions at a number of sites where we and others disposed of hazardous wastes require cleanup and other possible remedial action. We also have a number of projects underway at several of our manufacturing facilities in order to comply with environmental laws. In addition, we remain responsible for certain environmental issues at manufacturing locations sold by us. These projects relate to a variety of activities, including solvent and metal contamination clean up and oil spill equipment upgrades and replacement. These projects, some of which are voluntary and some of which are required under applicable law, involve both remediation expenses and capital improvements. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon our experience with the foregoing environmental matters, we have concluded that there is at least a reasonable possibility that remedial costs will be incurred with respect to these issues 14 in an aggregate amount in the range of $32.9 million to $95.2 million. As of September 30, 2000, we had concluded that the most probable amount which would be incurred within this range was $68.3 million, $35.4 million of such amount is included in accrued expenses and other current liabilities and $32.9 million is included in other long-term liabilities in the Consolidated Balance Sheet. Based upon information available to us, at those sites where there has been an allocation of the liability for cleanup costs among a number of parties, including Tyco, and such liability could be joint and several, management believes it is probable that other responsible parties will fully pay the cost allocated to them, except with respect to one site for which we have assumed that one of the identified responsible parties will be unable to pay the cost apportioned to it and that such party's cost will be reapportioned among the remaining responsible parties. In view of our financial position and reserves for environmental matters of $68.3 million, we have concluded that our payment of such estimated amounts will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. ITEM 2. PROPERTIES See Item 1. "Business--Properties" for information relating to the Company's owned and leased properties. ITEM 3. LEGAL PROCEEDINGS SECURITIES LITIGATION Beginning on December 9, 1999, Tyco and two Tyco executive officers were named as defendants in thirty-eight substantially identical class action lawsuits that were filed in various federal courts seeking damages on account of alleged violations of the securities laws in connection with Tyco's financial disclosures concerning certain mergers and acquisitions and Tyco's accounting therefor. All of the cases have been consolidated for pretrial purposes before the United States District Court for the District of New Hampshire. The Court has selected lead plaintiffs. A Second Amended Class Action Complaint and Jury Trial Demand was filed on November 2, 2000, purporting to name two additional Tyco officers and a Tyco Director as defendants. In the Second Amended Complaint, plaintiffs seek certification of a class of persons who purchased or acquired Tyco securities during the period from October 1, 1998, through December 8, 1999, as well as certification of certain subclasses. The plaintiffs seek money damages and/ or rescission. The Court has set a schedule for briefing a motion to dismiss this action. TYCO SUBMARINE SYSTEMS LTD./GLOBAL CROSSING LITIGATION TyCom (US) Inc. (formerly known as Tyco Submarine Systems Ltd.), a subsidiary of Tyco, is named as the defendant in an action brought in the United States District Court for the Southern District of New York on May 22, 2000 by Global Crossing Ltd. and its subsidiary South American Crossing (Subsea) Ltd. The complaint alleges that, in connection with the development of a South American subsea cable system to be owned by South American Crossing (Subsea) Ltd., TyCom (US) Inc. misappropriated trade secrets, committed fraud, breached several alleged agreements, and defamed South American Crossing (Subsea) Ltd. Plaintiffs seek damages, including punitive damages, in excess of $1 billion, attorneys' fees and costs, and declarative and injunctive relief. TyCom (US) Inc. has answered the complaint, denying its material allegations and raising various defenses to plaintiffs' claims. Additionally, TyCom (US) Inc. has asserted counterclaims that South American Crossing (Subsea) Ltd., at the instance of Global Crossing Ltd., breached the parties' construction contract. TyCom (US) Inc. seeks damages of not less than $150 million and attorneys' fees and costs, as well as declarative relief. Plaintiffs have replied to the counterclaims and denied the material allegations therein. 15 The Court has set February 28, 2001, as the date for completion of all party and third-party fact discovery. TYCO SUBMARINE SYSTEMS LTD./GLOBAL CROSSING ARBITRATION TyCom (US) Inc. (formerly known as Tyco Submarine Systems Ltd.), a subsidiary of Tyco, is named as the defendant in an arbitration proceeding that was commenced on May 22, 2000 by Atlantic Crossing Ltd., GT Landing Corp., GT U.K. Ltd., Global Telesystems GmbH, and GT Netherlands BV (all subsidiaries of Global Crossing Ltd.) under the international rules of the American Arbitration Association. In the notice of arbitration, claimants assert that TyCom (US) Inc. breached an alleged duty of loyalty and three agreements between the parties relating to the Atlantic Crossing-1 subsea cable system. Claimants seek unspecified monetary damages and declarative and injunctive relief. The parties have since agreed to terminate one of the agreements at issue (the operations, administration and maintenance agreement) in exchange for mutual releases, payments to TyCom (US) Inc. of approximately $19 million, and a dismissal from the arbitration of claims arising out of that agreement. TyCom (US) Inc. has responded to claimants' notice of arbitration, denying the claims therein and asserting counterclaims for claimants' breaches of the parties' agreements by refusing to pay certain costs, expenses, and commissions due and owing to TyCom (US) Inc. TyCom (US) Inc. seeks the denial of all relief sought by claimants, full disclosure and an accounting of certain contracts, damages of more than $188 million, and an award of interest and other costs. On July 24, 2000, claimants replied to TyCom (US) Inc.'s statement of defenses and counterclaims, denying the material allegations therein. A panel of three arbitrators has been appointed. Hearings in the arbitration are scheduled to commence on December 18, 2000. Pursuant to the parties' commission sharing agreement, the parties have, at the arbitrators' direction, agreed on an independent auditor who is examining the amount of sales commissions owing to TyCom (US) Inc. under the parties' agreements. TYCO SUBMARINE SYSTEMS LTD./IDT On January 31, 2000, IDT Europe B.V.B.A. filed a complaint in the United States District Court for the District of New Jersey asserting claims against TyCom (US) Inc. (formerly known as Tyco Submarine Systems Ltd.) and Tyco Group S.a.r.l., a Luxembourg subsidiary of Tyco International Ltd. The claims arose out of negotiations conducted by Tyco Group S.a.r.l. with IDT Europe B.V.B.A., a Belgian corporation, concerning the possible formation of a joint venture for the development of an undersea fiber optic telecommunications system to be supplied by TyCom (US) Inc., which the complaint alleged was to be substantially similar to the proposed TyCom Global Network. The plaintiff, IDT Europe B.V.B.A., alleged that Tyco Group S.a.r.l. breached a Memorandum of Understanding dated November 9, 1999 (which expired in December 1999), and alleged implied covenants of good faith and fair dealing and made various other claims. The plaintiff sought, among other relief such as attorneys' fees and costs, specific performance of Tyco Group S.a.r.l.'s alleged obligation to negotiate and execute such agreements, as well as compensatory and punitive damages. With respect to TyCom (US) Inc., the plaintiff alleged breach of an agreement by which the plaintiff reserved manufacturing capacity for the cable system and authorized the undertaking of certain long-lead time activities. Plaintiff also alleged that TyCom (US) Inc. failed to negotiate in good faith a system supply agreement for the cable system. The plaintiff sought, among other relief such as attorneys' fees and costs, compensatory damages of $1 billion, punitive damages of $3 billion and injunctive relief precluding TyCom (US) Inc. from undertaking any business activity contrary to the terms of the Instruction to Proceed. On June 5, 2000, the court granted Tyco Group S.a.r.l. and TyCom (US) Inc.'s motion to dismiss. On March 24, 2000, Tyco Group S.a.r.l., TyCom (US) Inc., Tyco International Ltd., Tyco International (US) Inc., and TyCom Ltd. filed a complaint in the Supreme Court of the State of New York, County of New York, asserting claims against IDT Europe B.V.B.A. and IDT Corporation 16 (collectively "IDT"). The complaint alleged that IDT filed a baseless lawsuit in federal court in New Jersey, improperly disclosed confidential information to the press and otherwise engaged in a pattern of conduct with the purpose and effect of obstructing efforts to build the TyCom Global Network and to finance it principally through the initial public offering of TyCom shares. The complaint demanded compensatory damages of at least $1 billion, punitive damages and declaratory and injunctive relief. On June 19, 2000, the court denied IDT Corporation's motion to dismiss and referred IDT Europe B.V.B.A.'s motion to dismiss to a referee to hear and report with recommendations. On June 13, 2000, IDT Europe B.V.B.A. filed a complaint in the Superior Court of New Jersey, Law Division, Morris County, against Tyco Group (S.a.r.l.), TyCom (US) Inc., Tyco International Ltd., and Tyco International (US) Inc. The complaint made factual allegations similar to those previously asserted in the federal complaint in the United States District Court for the District of New Jersey, along with additional allegations regarding, among other things, a purported agreement between TyCom (US) Inc. and Global Crossing. The complaint asserted claims, similar to those previously asserted in the complaint in federal court. The plaintiff sought, among other relief such as attorneys' fees and costs, specific performance, compensatory damages of $1 billion, punitive damages of $3 billion and injunctive relief. On August 18, 2000, the Court granted the defendants' motion to dismiss without prejudice, and on the condition that defendants may not defend any subsequent action by plaintiff upon the grounds of statute of limitations. On October 10, 2000, Tyco Group (S.a.r.l.), TyCom (US) Inc., Tyco International Ltd., Tyco International (US) Inc., and TyCom Ltd. entered into a Settlement Agreement with IDT Europe B.V.B.A. and IDT Corporation which encompasses all actual and potential claims asserted in the actions before the United States District Court for the District of New Jersey, the Supreme Court of the State of New York, County of New York, and the Supreme Court of New Jersey, Law Division, Morris County. Under the terms of the Settlement Agreement, TyCom Ltd. granted IDT Europe B.V.B.A. rights to use a certain limited amount of capacity on the transatlantic and transpacific segments of the first phase of the TGN free of charge. Tyco has agreed to indemnify TyCom (US) Inc. for certain losses and expenses with respect to the claims brought in these federal litigation and arbitration proceedings, excluding losses and expenses arising out of any award of injunctive relief. See also the discussions under Item 1. "Business--Environmental Matters". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT Tyco's executive officers and executive officers of certain subsidiaries are as follows (1): L. Dennis Kozlowski, age 54, Chairman of the Board, President and Chief Executive Officer since July 1997. Chairman of the Board of Former Tyco from January 1993 to July 1997; Chief Executive Officer of Former Tyco since July 1992, President of Former Tyco since 1989; associated with Former Tyco since 1975. Mark A. Belnick, age 54, Executive Vice President and Chief Corporate Counsel since September 1998. Prior to joining Tyco, Mr. Belnick was a Senior Partner at the international law firm of Paul, Weiss, Rifkind, Wharton & Garrison since 1987. Jerry R. Boggess, age 56, President of Tyco Fire and Security Services since August 1993. Vice President of Former Tyco since February 1996; associated with Former Tyco since 1968. Neil R. Garvey, age 45, President and Chief Executive Officer of TyCom Ltd. since July 2000. President and Chief Executive Officer of Tyco Submarine Systems Ltd. from July 1997 to July 2000; 17 President of Simplex Technologies from July 1995 to June 1997; associated with Former Tyco since 1979. Juergen W. Gromer, age 55, President of Tyco Electronics since April 1999. Senior Vice President, Worldwide Sales and Service of AMP from 1998 to April 1999; President, Global Automotive Division, and Corporate Vice President of AMP from 1997 to 1998; Vice President and General Manager of various divisions of AMP from 1990 to 1997. Stephen B. McDonough, age 47, President of Tyco Flow Control Products since November 2000. President of Tyco Plastics and Adhesives since May 1997; President of A&E Molded Products from January 1997 to May 1997; Vice President and General Manager of Ludlow Laminating and Coating from July 1991 to January 1997; associated with Former Tyco since 1979. Richard J. Meelia, age 51, President of Tyco Healthcare Group since 1995. Group President of Kendall Healthcare Products Company from January 1991 to 1995. Mark H. Swartz, age 40, Executive Vice President and Chief Financial Officer since July 1997. Vice President and Chief Financial Officer of Former Tyco since February 1995; associated with Former Tyco since 1991. - ------------------------ (1) In July 1997, a wholly-owned subsidiary of what was formerly called ADT Limited ("ADT") merged with Tyco International Ltd., a Massachusetts Corporation ("Former Tyco"). Upon consummation of the merger, ADT (the continuing public company) changed its name to Tyco International Ltd. Former Tyco became a wholly-owned subsidiary of the Company and changed its name to Tyco International (US) Inc. ("Tyco US"). ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS The number of registered holders of Tyco's common shares at November 13, 2000 was 34,675. Tyco common shares are listed and traded on the New York Stock Exchange ("NYSE"), the London Stock Exchange and the Bermuda Stock Exchange. The following table sets forth the high and low sales prices per Tyco common share as reported by the NYSE and the dividends paid on Tyco common shares, for the quarterly periods presented below. The price and dividends for Tyco common shares have been restated to reflect a two-for-one stock split distributed on October 21, 1999, which was effected in the form of a stock dividend.
FISCAL 2000 FISCAL 1999 ---------------------------------- ---------------------------------- MARKET PRICE RANGE MARKET PRICE RANGE ------------------- DIVIDEND PER ------------------- DIVIDEND PER QUARTER HIGH LOW COMMON SHARE HIGH LOW COMMON SHARE - ------- -------- -------- ------------ -------- -------- ------------ First..................... $53.8750 $23.0625 $0.0125 $39.5938 $20.1563 $0.0125 Second.................... 53.2500 32.0000 0.0125 39.9688 33.7500 0.0125 Third..................... 51.3750 41.0000 0.0125 47.4063 35.1875 0.0125 Fourth.................... 59.1875 45.5625 0.0125 52.9375 47.1250 0.0125 ------- ------- $ 0.05 $ 0.05 ======= =======
18 PART II ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial information of Tyco as at and for the fiscal years ended September 30, 2000, 1999 and 1998, the nine-month fiscal period ended September 30, 1997 and the year ended December 31, 1996. This selected financial information should be read in conjunction with Tyco's Consolidated Financial Statements and related notes. The selected financial data reflect the combined results of operations and financial position of Tyco, Former Tyco, Keystone, Inbrand (from January 1, 1997), USSC and AMP restated for all periods presented pursuant to the pooling of interests method of accounting. The selected financial data prior to January 1, 1997 do not reflect the results of operations and financial position of Inbrand, which was acquired in 1997 and accounted for under the pooling of interests method of accounting, due to immateriality. See Notes 1 and 2 to the Consolidated Financial Statements.
NINE MONTHS YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED --------------------------------- SEPTEMBER 30, DECEMBER 31, 2000(1) 1999(2) 1998(3) 1997(4)(5) 1996(6)(7) (IN MILLIONS, EXCEPT PER SHARE DATA) --------- --------- --------- ------------- ------------ Consolidated Statements of Operations Data: Net sales............................... $28,931.9 $22,496.5 $19,061.7 $12,742.5 $14,671.0 Operating income........................ 5,474.4 2,190.8 1,948.1 125.8 587.4 Income (loss) from continuing operations............................ 4,520.1 1,067.7 1,168.6 (348.5) 49.4 Income (loss) from continuing operations per common share: Basic................................. 2.68 0.65 0.74 (0.24) 0.02 Diluted............................... 2.64 0.64 0.72 (0.24) 0.02 Cash dividends per common share(8)........ See (9) below. Consolidated Balance Sheet Data (End of Period): Total assets............................ $40,404.3 $32,344.3 $23,440.7 $16,960.8 $14,686.2 Long-term debt.......................... 9,461.8 9,109.4 5,424.7 2,785.9 2,202.4 Shareholders' equity.................... 17,033.2 12,369.3 9,901.8 7,478.7 7,022.6
- ------------------------ (1) Operating income in the fiscal year ended September 30, 2000 includes a net charge of $176.3 million, of which $1.0 million is included in cost of sales, for restructuring and other non-recurring charges, and charges of $99.0 million for the impairment of long-lived assets. See Notes 12 and 16 to the Consolidated Financial Statements. Income from continuing operations for the fiscal year ended September 30, 2000 includes a one-time pre-tax gain of $1,760.0 million related to the issuance of common shares by a subsidiary. See Note 15 to the Consolidated Financial Statements. (2) Operating income in the fiscal year ended September 30, 1999 is net of charges of $1,035.2 million for merger, restructuring and other non-recurring charges, of which $106.4 million is included in cost of sales, and charges of $507.5 million for the impairment of long-lived assets related to the mergers with USSC and AMP and AMP's profit improvement plan. See Notes 12 and 16 to the Consolidated Financial Statements. (3) Operating income in the fiscal year ended September 30, 1998 is net of charges of $80.5 million primarily related to costs to exit certain businesses in USSC's operations and restructuring charges of $12.0 million related to the continuing operations of USSC. In addition, AMP recorded restructuring charges of $185.8 million in connection with its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to its 1996 restructuring activities. See Note 16 to the Consolidated Financial Statements. (4) In September 1997, Tyco changed its fiscal year end from December 31 to September 30. Accordingly, the nine-month transition period ended September 30, 1997 is presented. 19 (5) Operating income in the nine months ended September 30, 1997 is net of charges related to merger, restructuring and other non-recurring costs of $917.8 million and impairment of long-lived assets of $148.4 million primarily related to the mergers and integration of ADT, Former Tyco, Keystone, and Inbrand, and charges of $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC's operations. The results for the nine months ended September 30, 1997 also include a charge of $361.0 million for the write-off of purchased in-process research and development related to the acquisition of the submarine systems business of AT&T Corp. (6) Prior to their respective mergers, ADT, Keystone, USSC and AMP had December 31 fiscal year ends and Former Tyco had a June 30 fiscal year end. The selected consolidated financial data have been combined using a December 31 fiscal year end for ADT, Keystone, Former Tyco, USSC and AMP for the year ended December 31, 1996. (7) Operating income in 1996 includes non-recurring charges of $744.7 million related to the adoption of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," $237.3 million related principally to the restructuring of ADT's electronic security services business in the United States and United Kingdom, $98.0 million to exit various product lines and manufacturing operations associated with AMP's operations and $8.8 million of fees and expenses related to ADT's acquisition of Automated Security (Holdings) plc, a United Kingdom company. (8) Per share amounts have been retroactively restated to give effect to the mergers with Former Tyco, Keystone, Inbrand, USSC and AMP; a 0.48133 reverse stock split (1.92532 after giving effect to the subsequent stock splits) effected on July 2, 1997; and two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both of which were effected in the form of a stock dividend. (9) Tyco has paid a quarterly cash dividend of $0.0125 per common share since July 2, 1997, the date of the Former Tyco/ADT merger. Prior to the merger with ADT, Former Tyco had paid a quarterly cash dividend of $0.0125 per share of common stock since January 1992. ADT had not paid any dividends on its common shares since 1992. USSC paid quarterly dividends of $0.04 per share in the year ended September 30, 1998 and the nine months ended September 30, 1997 and aggregate dividends of $0.08 per share in 1996. AMP paid dividends of $0.27 per share in the first two quarters of the year ended September 30, 1999, $0.26 per share in the first quarter and $0.27 per share in the last three quarters of the year ended September 30, 1998, $0.26 per share in each of the three quarters of the nine months ended September 30, 1997 and aggregate dividends of $1.00 per share in 1996. The payment of dividends by Tyco in the future will depend on business conditions, Tyco's financial condition and earnings and other factors. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 81 to 98 of this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 81 to 98 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and schedule are filed as part of this Annual Report: Financial Statements: Reports of Independent Accountants 20 Consolidated Balance Sheets--September 30, 2000 and September 30, 1999 Consolidated Statements of Operations for the fiscal years ended September 30, 2000, 1999 and 1998. Consolidated Statements of Shareholders' Equity for the fiscal years ended September 30, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts All other financial statements and schedules have been omitted since the information required to be submitted has been included in the consolidated financial statements and related notes or because they are either not applicable or not required under the rules of Regulation S-X. See Notes to Consolidated Financial Statements for Summarized Quarterly Financial Data (unaudited). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Directors of the Registrant is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 11. MANAGEMENT REMUNERATION Information concerning management remuneration is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Schedules--see Item 8. (b) Exhibits 2.1 Agreement and Plan of Merger, dated as of November 22, 1998, by and among Tyco International (PA) Inc., AMP Merger Corp. and AMP Incorporated, including guarantee of Tyco International Ltd. (Incorporated by reference to the Registrant's Form S-4 filed December 11, 1998.) 2.2 Agreement and Plan of Merger, dated as of May 25, 1998, by and among Tyco International Ltd., T11 Acquisition Corp. and United States Surgical Corporation. (5) 2.3 Agreement and Plan of Merger, dated as of May 19, 1999, by and among Tyco International Ltd., Tyco International (PA) Inc. and Raychem Corporation (Incorporated by reference to the Registrant's Form S-4 filed June 11, 1999). 2.4 Agreement and Plan of Merger, dated June 28, 2000, by and among Tyco Acquisition Corp. VI (NV), EVM Merger Corp. and Mallinckrodt Inc. (Incorporated by reference to the Registrant's Form S-4 filed July 12, 2000) 2.5 Agreement for the Purchase and Sale of Assets, dated November 13, 2000, by and between Lucent Technologies and Tyco Group S.a.r.L. (Filed herewith) 2.6 Stock Purchase Agreement, dated January 13, 2000, by and between Manheim Auctions, Inc. and ADT General Holdings, Inc. (Filed herewith). 3.1 Memorandum of Association (as altered) (Incorporating all amendments to May 26, 1992). (1) 3.2 Certificate of Incorporation on change of name dated July 2, 1997. (3) 3.3 Bye-Laws (Incorporating all amendments to April 1, 1999). (6) 4.1 Indenture dated as of July 1, 1995 among ADT Operations, Inc., ADT Limited and Bank of Montreal Trust Company, as trustee and the form of note included therein. (2) 4.2 Indenture dated April 30, 1992 between Former Tyco and Security Pacific National Trust Company (New York) (Incorporated by reference to Former Tyco's Form 10-Q for the period ended March 31, 1992). 4.3 First Supplemental Indenture dated April 30, 1992 between Former Tyco and Security Pacific National Trust Company (New York) (Incorporated by reference to Former Tyco's Form 10-Q for the period ended March 31, 1992). 4.4 Second Supplemental Indenture, dated as of March 8, 1993, between Former Tyco and BankAmerica National Trust Company, as Trustee (Incorporated by reference to Tyco International Ltd.'s Form 8-K filed on March 8, 1993). 4.5 Form of Indenture, dated as of June 9, 1998, among Tyco International Group S.A. (TIG), Tyco and The Bank of New York, as trustee. (7) 4.6 Form of Supplemental Indenture No.1, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 1/8% Notes due 2001 of the Company (including the form of Notes). (7) 4.7 Form of Supplemental Indenture No.2, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 3/8% Notes due 2005 of the Company (including the form of Notes). (7) 4.8 Form of Supplemental Indenture No.3, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 7% Notes due 2028 of the Company (including the form of Notes). (7) 4.9 Form of Supplemental Indenture No.4, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 1/4% Dealer remarketable securities(SM)(Drs.(SM)) due 2013 of the Company (including the form of Drs). (7)
22 4.10 Form of Supplemental Indenture No.5, dated as of November 2, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 5.875% Notes due 2004 of TIG. (8) 4.11 Form of Supplemental Indenture No.6, dated as of November 2, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.125% Notes due 2008 of TIG. (8) 4.12 Form of Supplemental Indenture No. 7, dated as of January 12, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.125% due 2009 of TIG. (7) 4.13 Form of Supplemental Indenture No. 8, dated as of January 12, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.875% due 2029 of TIG. (7) 4.14 Form of Supplemental Indenture No. 10, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the Floating Rate Notes due 2001 of TIG. (9) 4.15 Form of Supplemental Indenture No. 11, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.875% Notes due 2002. (9) 4.16 Form of Supplemental Indenture No. 13, dated as of April 4, 2000, among TIG, TIL and The Bank of New York, as trustee relating to the Euro 6 1/8% Notes due 2007. (9) 4.17 Form of Indenture among United States Surgical Corporation ("USSC") and The Bank of New York, as trustee relating to the 7.25% Senior Debt Securities due 2008 of USSC (incorporated by reference to Exhibit 4(a) to USSC's Form S-3 (File No. 333-46239) filed March 6, 1998). 4.18 Officer's Certificate, dated March 17, 1998, defining the terms of the debenture among USSC and The Bank of New York, as Trustee relating to the 7.25% Senior Debt Securities due 2008 of USSC. (8) 4.19 364-Day Credit Agreement dated as of February 11, 2000 among TIG, the Banks named therein and Morgan Guaranty Trust Company of New York, as Agent (Filed herewith). 4.20 $500 million Extendible Credit Agreement, as amended, dated February 13, 1998 held by TIG. (4) 4.21 Parent Guarantee Agreement, as amended, dated as of February 13, 1998. (4) 4.22 Indenture dated November 17, 2000 between Tyco International Ltd. and State Street Bank and Trust Company, as Trustee (Incorporated by reference to the Registrant's Form S-3 filed December 8, 2000). 10.1 The Tyco International Ltd. Long Term Incentive Plan (formerly known as the ADT 1993 Long-Term Incentive Plan) (as amended May 12, 1999) (Incorporated by reference to the Registrant's Form S-8 filed on June 10, 1999).* 10.2 1981 Key Employee Loan Program (Incorporated by reference to Former Tyco's Form 10-K for the year ended May 31, 1982).* 10.3 1983 Restricted Stock Ownership Plan for Key Employees (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on October 18, 1983).* 10.4 1983 Key Employee Loan Program, as amended December 9, 1993 (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1994).* 10.5 1994 Restricted Stock Ownership Plan for Key Employees (Incorporated by reference to the Registrant's Form S-8 filed on December 21, 1999). 10.6 Tyco International Ltd. Supplemental Executive Retirement Plan (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1995).* 10.7 The Tyco International Ltd. Long Term Incentive Plan II (Incorporated by reference to the Registrant's Form S-8 filed March 25, 1999).* 21.1 Subsidiaries of the registrant (Filed herewith). 23.1 Consent of PricewaterhouseCoopers (Filed herewith). 23.2 Consent of Arthur Andersen LLP (Filed herewith). 27 Financial Data Schedule (Filed herewith).
- ------------------------ * Management contract or compensatory plan.
23 (1) Incorporated by reference to an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (2) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (3) Incorporated by reference to an Exhibit to the Registrant's Current Report dated July 2, 1997 on Form 8-K filed July 10, 1997. (4) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997. (5) Incorporated by reference to an Exhibit to the Registrant's Current Report dated May 25, 1998 on Form 8-K filed June 24, 1998. (6) Incorporated by reference to an Exhibit to the Registrant's Registration Statement on Form S-3 filed April 23, 1998 and Current Report dated September 10, 1999 on Form 8-K filed September 14, 1999. (7) Incorporated by reference to an Exhibit to the Registrant's and TIG's Co-Registration Statement on Form S-3 (File Nos. 333-50855 and 333-50855-01) filed June 9, 1998. (8) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998. (9) Incorporated by reference to an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1999 filed December 13, 1999. (c) Reports on Form 8-K.
Current Report on Form 8-K filed on July 14, 2000 containing the press release of Tyco dated July 13, 2000 announcing that it had been advised that the informal inquiry, which was being conducted by the staff of the Division of Enforcement of the Securities and Exchange Commission since December 1999, had been terminated. Current Report on Form 8-K filed on November 1, 2000 containing the press release of Tyco dated November 1, 2000 announcing the consummation of the acquisition of Mallinckrodt Inc. Current Report on Form 8-K filed on November 15, 2000 containing the press releases of Tyco dated November 13 and 14, 2000 announcing the private offering of zero-coupon convertible debt securities. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TYCO INTERNATIONAL LTD. By: /s/ MARK H. SWARTZ ----------------------------------------- Mark H. Swartz EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Date: December 21, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- Chairman of the Board, Chief /s/ L. DENNIS KOZLOWSKI Executive Officer, President -------------------------------------- and Director (Principal L. Dennis Kozlowski Executive Officer) /s/ LORD ASHCROFT KCMG -------------------------------------- Director Lord Ashcroft KCMG /s/ JOSHUA M. BERMAN -------------------------------------- Director Joshua M. Berman /s/ RICHARD S. BODMAN -------------------------------------- Director December 21, 2000 Richard S. Bodman /s/ JOHN F. FORT -------------------------------------- Director John F. Fort /s/ STEPHEN W. FOSS -------------------------------------- Director Stephen W. Foss /s/ PHILIP M. HAMPTON -------------------------------------- Director Philip M. Hampton /s/ WENDY E. LANE -------------------------------------- Director Wendy E. Lane /s/ JAMES S. PASMAN, JR. -------------------------------------- Director James S. Pasman, Jr. /s/ W. PETER SLUSSER -------------------------------------- Director W. Peter Slusser /s/ MARK H. SWARTZ Executive Vice President and -------------------------------------- Chief Mark H. Swartz Financial Officer /s/ FRANK E. WALSH, JR. -------------------------------------- Director Frank E. Walsh, Jr.
25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tyco International Ltd. In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Tyco International Ltd. and its subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We did not audit the financial statements of AMP Incorporated, a wholly owned subsidiary, as of September 30, 1998, and for the year ended September 30, 1998, which statements reflect total assets of 20.1% of the related consolidated total assets as of September 30, 1998, and net sales of 29.0% of the related consolidated total sales for the year ended September 30, 1998. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for AMP Incorporated, as of and for the period described above, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS Hamilton, Bermuda October 24, 2000, except as to Note 25 which is as of December 4, 2000 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of AMP Incorporated: We have audited the consolidated balance sheet of AMP Incorporated (a Pennsylvania corporation) and subsidiaries as of September 30, 1998, the related consolidated statements of income, shareholders' equity and cash flows for the year ended September 30, 1998, which are not included herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMP Incorporated and subsidiaries as of September 30, 1998, and the consolidated results of their operations and their cash flows for the year ended September 30, 1998, in conformity with accounting principles generally accepted in the United States. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II, which is not included herein, is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 12, 1999 (except with respect to the matter disclosed in Note 18--Merger with Tyco International Ltd., as to which the date is April 2, 1999) 27 TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
SEPTEMBER 30, --------------------- 2000 1999 --------- --------- CURRENT ASSETS: Cash and cash equivalents................................... $ 1,264.8 $ 1,762.0 Receivables, less allowance for doubtful accounts of $442.1 in 2000 and $329.8 in 1999................................ 5,630.4 4,582.3 Contracts in process........................................ 357.3 536.6 Inventories................................................. 3,845.1 2,849.1 Deferred income taxes....................................... 683.3 694.3 Prepaid expenses and other current assets................... 1,034.8 721.2 --------- --------- Total current assets........................................ 12,815.7 11,145.5 CONSTRUCTION IN PROGRESS--TYCOM GLOBAL NETWORK.............. 111.1 -- PROPERTY, PLANT AND EQUIPMENT, NET.......................... 8,218.4 7,322.4 GOODWILL AND OTHER INTANGIBLE ASSETS, NET................... 16,332.6 12,158.9 LONG-TERM INVESTMENTS....................................... 1,653.7 269.7 DEFERRED INCOME TAXES....................................... 532.5 668.8 OTHER ASSETS................................................ 740.3 779.0 --------- --------- TOTAL ASSETS............................................ $40,404.3 $32,344.3 ========= ========= CURRENT LIABILITIES: Loans payable and current maturities of long-term debt...... $ 1,537.2 $ 1,012.8 Accounts payable............................................ 3,291.9 2,530.8 Accrued expenses and other current liabilities.............. 4,038.2 3,545.7 Contracts in process--billings in excess of costs........... 835.0 977.9 Deferred revenue............................................ 265.7 258.8 Income taxes................................................ 1,650.3 798.0 Deferred income taxes....................................... 60.6 1.0 --------- --------- Total current liabilities................................... 11,678.9 9,125.0 LONG-TERM DEBT.............................................. 9,461.8 9,109.4 OTHER LONG-TERM LIABILITIES................................. 1,095.3 1,236.4 DEFERRED INCOME TAXES....................................... 791.6 504.2 --------- --------- TOTAL LIABILITIES....................................... 23,027.6 19,975.0 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 17) MINORITY INTEREST........................................... 343.5 -- SHAREHOLDERS' EQUITY: Preference shares, $1 par value, 125,000,000 shares authorized, none issued................................... -- -- Common shares, $0.20 par value, 2,500,000,000 shares authorized; 1,684,511,070 shares outstanding in 2000 and 1,690,175,338 shares outstanding in 1999, net of 31,551,310 shares owned by subsidiaries in 2000 and 11,432,678 shares owned by subsidiaries in 1999........... 336.9 338.0 Capital in excess: Share premium........................................... 5,233.3 4,881.5 Contributed surplus, net of deferred compensation of $59.4 in 2000 and $30.7 in 1999....................... 2,786.3 3,607.6 Accumulated earnings........................................ 8,427.6 3,992.3 Accumulated other comprehensive income (loss)............... 249.1 (450.1) --------- --------- TOTAL SHAREHOLDERS' EQUITY.............................. 17,033.2 12,369.3 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $40,404.3 $32,344.3 ========= =========
See Notes to Consolidated Financial Statements. 28 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (IN MILLIONS, EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30, --------------------------------- 2000 1999 1998 --------- --------- --------- NET SALES................................................... $28,931.9 $22,496.5 $19,061.7 Cost of sales............................................... 17,931.2 14,433.1 12,694.8 Selling, general and administrative expenses................ 5,252.0 4,436.3 4,161.9 Merger, restructuring and other non-recurring charges....... 175.3 928.8 256.9 Charge for the impairment of long-lived assets.............. 99.0 507.5 -- --------- --------- --------- OPERATING INCOME............................................ 5,474.4 2,190.8 1,948.1 Interest income............................................. 75.2 61.5 62.6 Interest expense............................................ (844.8) (547.1) (307.9) Gain on issuance of common shares by subsidiary............. 1,760.0 -- -- --------- --------- --------- Income before income taxes, minority interest and extraordinary items....................................... 6,464.8 1,705.2 1,702.8 Income taxes................................................ (1,926.0) (637.5) (534.2) Minority interest........................................... (18.7) -- -- --------- --------- --------- Income before extraordinary items........................... 4,520.1 1,067.7 1,168.6 Extraordinary items, net of taxes........................... (0.2) (45.7) (2.4) --------- --------- --------- NET INCOME.................................................. $ 4,519.9 $ 1,022.0 $ 1,166.2 ========= ========= ========= BASIC EARNINGS PER COMMON SHARE: Income before extraordinary items......................... $ 2.68 $ 0.65 $ 0.74 Extraordinary items, net of taxes......................... -- (0.03) -- Net income per common share............................... 2.68 0.62 0.74 DILUTED EARNINGS PER COMMON SHARE: Income before extraordinary items......................... $ 2.64 $ 0.64 $ 0.72 Extraordinary items, net of taxes......................... -- (0.03) -- Net income per common share............................... 2.64 0.61 0.72 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic..................................................... 1,688.0 1,641.3 1,583.4 Diluted................................................... 1,713.2 1,674.8 1,624.7
See Notes to Consolidated Financial Statements. 29 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN MILLIONS, EXCEPT PER SHARE DATA)
COMMON ACCUMULATED SHARES CONTRIBUTED OTHER FOR THE YEARS ENDED $0.20 SHARE SURPLUS-- ACCUMULATED COMPREHENSIVE COMPREHENSIVE SEPTEMBER 30, 1998, 1999 AND 2000 PAR VALUE PREMIUM COMMON EARNINGS INCOME (LOSS) INCOME --------------------------------- --------- -------- ----------- ----------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1997.................. $303.7 $2,450.2 $ 2,559.4 $2,302.3 $ (136.9) Comprehensive income: Net income................................... 1,166.2 $1,166.2 Currency translation adjustment.............. (36.7) (36.7) Unrealized loss on marketable securities..... (15.6) (15.6) Minimum pension liability adjustment......... (14.7) (14.7) -------- Total comprehensive income................. $1,099.2 ======== Sale of common shares.......................... 10.2 1,239.9 (5.1) Exchange of Liquid Yield Option Notes.......... 3.6 151.7 Dividends...................................... (305.9) Restricted stock grants, net of surrenders..... .2 .1 Warrants and options exercised................. 8.0 344.9 35.5 Purchase of treasury shares.................... (1.8) (282.1) Equity-related compensation expense, including amortization of deferred compensation........ 43.4 Issuance of common shares for acquisition...... .2 19.0 Issuance of common shares for litigation settlement................................... 7.8 Tax benefit on stock transactions.............. 55.1 Other adjustments.............................. (.8) ------ -------- --------- -------- -------- BALANCE AT SEPTEMBER 30, 1998.................. 324.1 4,035.0 2,584.0 3,162.6 (203.9) Comprehensive income: Net income................................... 1,022.0 $1,022.0 Currency translation adjustment.............. (258.3) (258.3) Unrealized gain on marketable securities..... 12.6 12.6 Minimum pension liability adjustment......... (.5) (.5) -------- Total comprehensive income................. $ 775.8 ======== Exchange of Liquid Yield Option Notes.......... 1.6 70.7 Dividends...................................... (192.3) Restricted stock grants, net of surrenders..... .2 13.2 Warrants and options exercised................. 8.2 846.5 17.7 Purchase of treasury shares.................... (2.5) (635.3) Amortization of deferred compensation.......... 92.1 Issuance of common shares for acquisitions..... 6.4 1,448.4 Tax benefit on stock transactions.............. 15.2 Other adjustments.............................. 1.6 ------ -------- --------- -------- -------- BALANCE AT SEPTEMBER 30, 1999.................. 338.0 4,881.5 3,607.6 3,992.3 (450.1) Comprehensive income: Net income................................... 4,519.9 $4,519.9 Currency translation adjustment.............. (384.0) (384.0) Unrealized gain on marketable securities..... 1,075.7 1,075.7 Minimum pension liability adjustment......... 7.5 7.5 -------- Total comprehensive income................. $5,219.1 ======== Exchange of Liquid Yield Option Notes.......... .4 16.0 Dividends...................................... (84.6) Restricted stock grants, net of surrenders..... .6 .4 Options exercised.............................. 3.5 351.8 Purchase of treasury shares.................... (8.7) (1,876.4) Equity-related compensation expense, including amortization of deferred compensation........ 128.2 Issuance of common shares for acquisitions..... 3.1 668.3 Tax benefit on stock transactions.............. 125.7 Assumption of options in acquisitions.......... 116.5 ------ -------- --------- -------- -------- BALANCE AT SEPTEMBER 30, 2000.................. $336.9 $5,233.3 $ 2,786.3 $8,427.6 $ 249.1 ====== ======== ========= ======== ========
See Notes to Consolidated Financial Statements 30 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS)
YEAR ENDED SEPTEMBER 30, --------------------------------- 2000 1999 1998 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 4,519.9 $ 1,022.0 $ 1,166.2 Adjustments to reconcile net income to net cash provided by operating activities: Merger, restructuring and other non-recurring (credits) charges................................................. (84.2) 327.7 253.7 Charge for the impairment of long-lived assets............ 99.0 507.5 -- Minority interest in net income of consolidated subsidiary.............................................. 18.7 -- -- Gain on issuance of common shares by subsidiary........... (1,760.0) -- -- Extraordinary items....................................... 0.2 45.4 2.4 Depreciation.............................................. 1,095.0 979.6 895.1 Goodwill and other intangibles amortization............... 549.4 331.6 242.6 Debt and refinancing cost amortization.................... 6.8 10.4 11.3 Interest on ITS vendor note............................... (14.0) (12.1) (11.5) Deferred income taxes..................................... 507.8 351.6 (8.2) Provisions for losses on accounts receivable and inventory............................................... 354.3 211.5 192.9 Other non-cash items...................................... 73.8 (6.7) 2.5 Changes in assets and liabilities, net of the effects of acquisitions and divestitures: Receivables............................................. (992.4) (796.0) (88.9) Proceeds from accounts receivable sale.................. 100.0 50.0 -- Contracts in process.................................... 28.9 642.2 (91.4) Inventories............................................. (850.0) (124.4) (226.2) Prepaid expenses and other current assets............... 100.2 (154.1) (57.7) Accounts payable, accrued expenses and other current liabilities........................................... 497.0 324.0 (96.4) Income taxes payable.................................... 896.4 (10.2) 66.3 Deferred revenue........................................ (0.2) (54.1) (6.5) Other, net.............................................. 128.4 (96.1) 35.6 --------- --------- --------- Net cash provided by operating activities................. 5,275.0 3,549.8 2,281.8 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, net.............. (1,703.8) (1,632.5) (1,317.5) Construction in progress--TyCom Global Network.............. (111.1) -- -- Purchase of leased property (Note 2)........................ -- (234.0) -- Acquisition of businesses, net of cash acquired............. (4,790.7) (4,901.2) (4,251.8) Disposal of businesses...................................... 74.4 926.8 -- Net (increase) decrease in investments...................... (353.4) 10.5 6.4 Other....................................................... (52.9) (13.7) (83.1) --------- --------- --------- Net cash utilized by investing activities................. (6,937.5) (5,844.1) (5,646.0) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) receipts of short-term debt.................. (736.0) 162.3 287.1 Net proceeds from issuance of public debt................... -- 1,173.7 2,744.5 Repayment of long-term debt, including debt tenders......... (376.8) (2,057.8) (1,074.6) Proceeds from long-term debt................................ 1,793.2 3,665.6 802.0 Proceeds from sale of common shares......................... -- -- 1,245.0 Proceeds from exercise of options and warrants.............. 355.3 872.4 348.7 Net proceeds from issuance of common shares by subsidiary... 2,130.7 -- -- Dividends paid.............................................. (86.2) (187.9) (303.0) Purchase of treasury shares................................. (1,885.1) (637.8) (283.9) Other....................................................... (29.8) (7.1) (36.5) --------- --------- --------- Net cash provided by financing activities................. 1,165.3 2,983.4 3,729.3 --------- --------- --------- Net (decrease) increase in cash and cash equivalents........ (497.2) 689.1 365.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 1,762.0 1,072.9 707.8 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 1,264.8 $ 1,762.0 $ 1,072.9 ========= ========= ========= SUPPLEMENTARY CASH FLOW DISCLOSURE: Interest paid............................................... $ 814.2 $ 509.1 $ 250.7 ========= ========= ========= Income taxes paid (net of refunds).......................... $ 454.7 $ 209.7 $ 345.9 ========= ========= =========
See Notes to Consolidated Financial Statements. 31 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS--Tyco International Ltd. (the "Company" or "Tyco") manages its business in the following five operating segments: ELECTRONICS The Electronics segment's products and services include: - designing, engineering and manufacturing of electronic connector systems, fiber optic components, wireless devices, heat shrink products, power components, wire and cable, relays, sensors, touch screens, identification and labeling products, switches and battery assemblies; and - designing and manufacturing of multi-layer printed circuit boards, backplane assemblies, electronic modules and similar components. TELECOMMUNICATIONS The Company's 86% owned subsidiary, TyCom Ltd. ("TyCom"), is a leading independent provider of transoceanic fiber optic networks and services. TyCom's products and services include: - design, engineering, manufacture and installation of undersea cable communications systems; - service and maintenance of major undersea cable networks; and - design, manufacture and installation of a global undersea fiber optic network, known as the TyCom Global Network-TM- ("TGN"). TyCom plans to operate, maintain and sell bandwidth capacity on the TGN. HEALTHCARE AND SPECIALTY PRODUCTS The Healthcare and Specialty Products segment's products and services include: - a wide variety of disposable medical products, including wound care products, syringes and needles, sutures and surgical staplers, incontinence products, electrosurgical instruments and laparoscopic instruments; - flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives, and plastic garment hangers; and - ADT Automotive's auto redistribution services (See Note 25). FIRE AND SECURITY SERVICES The Fire and Security Services segment's products and services include: - designing, installing and servicing a broad line of fire detection, prevention and suppression systems; - providing electronic security installation and monitoring services; and - manufacturing and servicing fire extinguishers and related products. FLOW CONTROL PRODUCTS AND SERVICES The Flow Control Products and Services segment's products and services include: - a full line of valves and related products for industrial and process control, pipe and tubular products, electrical raceway products and fire sprinkler devices; and 32 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) - a broad range of consulting, engineering, construction management and operating services for the water, wastewater, environmental, transportation and infrastructure markets. BASIS OF PRESENTATION--The consolidated financial statements have been prepared in United States dollars in accordance with generally accepted accounting principles in the United States. As described more fully in Note 2, Tyco merged with United States Surgical Corporation ("USSC") and AMP Incorporated ("AMP") on October 1, 1998 and April 2, 1999, respectively. These transactions are referred to herein as the "mergers." The consolidated financial statements include the consolidated accounts of Tyco, a company incorporated in Bermuda, and its subsidiaries. They have been prepared following the pooling of interests method of accounting for the mergers and, therefore, reflect the combined financial position, operating results and cash flows of USSC and AMP as if they had been combined for all periods presented. PRINCIPLES OF CONSOLIDATION--Tyco is a holding company whose assets consist of its investments in its subsidiaries, intercompany balances and holdings of cash and cash equivalents. The businesses of the consolidated group are conducted through the Company's subsidiaries. The Company consolidates companies in which it owns or controls more than fifty percent of the voting shares unless control is likely to be temporary. The results of companies acquired or disposed of during the fiscal year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal except in the case of mergers accounted for as pooling of interests (See Note 2). All significant intercompany balances and transactions have been eliminated in consolidation. CASH EQUIVALENTS--All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. INVENTORIES--Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value. PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is principally recorded at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. For the years ended September 30, 2000, 1999 and 1998, the Company capitalized interest of $10.8 million, $8.7 million and $9.0 million, respectively. The straight-line method of depreciation is used over the estimated useful lives of the related assets as follows: Buildings and related improvements.............. 5 to 50 years Leasehold improvements.......................... Remaining term of the lease Subscriber systems.............................. 10 to 14 years Other plant, machinery, equipment and furniture and fixtures.................................. 2 to 25 years
Gains and losses arising on the disposal of property, plant and equipment are included in the Consolidated Statements of Operations and were not material. GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill, which is being amortized on a straight-line basis over periods ranging from 10 to 40 years, was $13,723.0 million and $10,639.3 million, net, at September 30, 2000 and 1999, respectively. Accumulated amortization amounted to $959.3 million at September 30, 2000 and $615.6 million at September 30, 1999. Other intangible assets were $2,609.6 million and $1,519.6 million, net, at September 30, 2000 and 1999, respectively. These amounts include patents, trademarks, customer contracts and other items, which are being amortized on a straight-line basis over lives ranging from 2 to 40 years. At 33 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) September 30, 2000 and 1999, accumulated amortization amounted to $525.2 million and $319.5 million, respectively. INVESTMENTS--The Company accounts for its long-term investments that represent less than twenty percent ownership using Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard requires that certain debt and equity securities be adjusted to market value at the end of each accounting period. Unrealized market gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to shareholders' equity. Management determines the proper classification of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statements of Operations and were not material. As of September 30, 2000, the Company had Available-for-Sale equity investments with a fair market value of $1,320.3 million and a cost basis of $218.7 million. The gross unrealized gains of $1,118.0 million and gross unrealized losses of $16.4 million have been recorded net of deferred taxes of $18.1 million, and have been included as a separate component of shareholders' equity. Other investments for which the Company does not have the ability to exercise significant influence and for which there is not a readily determinable market value are accounted for under the cost method of accounting. The Company periodically evaluates the carrying value of its investments accounted for under the cost method of accounting and, as of September 30, 2000 and 1999, such investments were recorded at the lower of cost or estimated net realizable value. For investments in which the Company owns or controls twenty percent or more of the voting shares, or over which it exerts significant influence over operating and financial policies, the equity method of accounting is used. The Company's share of net income or losses of equity investments is included in the Consolidated Statements of Operations and was not material in any period presented. Investments are included in Other Assets in the Consolidated Balance Sheets. LONG-LIVED ASSETS--The Company periodically evaluates the net realizable value of long-lived assets, including goodwill and other intangible assets and property, plant and equipment, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is assessed when the undiscounted, expected future operating cash flows derived from the asset are less than its carrying value. REVENUE RECOGNITION--Revenue from the sale of services or products is recognized as services are rendered or shipments are made. Subscriber billings for services not yet rendered are deferred and taken into income as earned, and the deferred element is included in current liabilities. Revenue from the installation of electronic security systems is recognized when installations are completed. Contract sales for the installation of fire protection systems, underwater cable systems and other construction related projects are recorded on the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related cost to completion. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the current period. Provisions for anticipated losses are made in the period in which they first become determinable. Accounts receivable include amounts billed under retainage provisions primarily for fire protection and electronic contracts. The retention balances were $56.6 million and $33.3 million at September 30, 34 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2000 and 1999, respectively, and become due upon contract completion and acceptance. The balance as of September 30, 2000 is expected to be substantially collected during the fiscal year ending September 30, 2001. SHARE PREMIUM AND CONTRIBUTED SURPLUS--In accordance with the Bermuda Companies Act of 1981, when the Company issues shares for cash at a premium to their par value, the resulting premium is credited to a share premium account, a non-distributable reserve. When the Company issues shares in exchange for shares of another company, the excess of the fair value of the shares acquired over the par value of the shares issued by the Company is credited, where applicable, to contributed surplus, which is, subject to certain conditions, a distributable reserve. INCOME TAXES--Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. RESEARCH AND DEVELOPMENT--Research and development expenditures are expensed when incurred and are included in cost of sales in the Consolidated Statements of Operations. ADVERTISING--Advertising costs are expensed when incurred. ISSUANCE OF STOCK BY A SUBSIDIARY--Gains on the issuance of common shares by a subsidiary are included in net income. TRANSLATION OF FOREIGN CURRENCY--Assets and liabilities of the Company's subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars, other than those operating in highly inflationary environments, are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at the average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within shareholders' equity. For subsidiaries operating in highly inflationary environments, inventories and property, plant and equipment, including related expenses, are translated at the rate of exchange in effect on the date the assets were acquired, while other assets and liabilities are translated at year-end exchange rates. Translation adjustments for these operations are included in net income. Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income. FINANCIAL INSTRUMENTS--From time to time the Company enters into a variety of forward foreign currency exchange contracts, cross-currency swaps, currency options, forward commodity contracts and interest rate swaps in its management of foreign currency and commodity exposures and interest costs. Forward foreign currency exchange contracts and cross-currency swaps, used to mitigate the impact of changes in currency exchange rates on intercompany cross-border obligations, are accounted for consistent with the related intercompany transactions. Under cross-currency swaps, which principally hedge certain net foreign currency denominated investments, changes in valuation are included in the currency translation adjustment component of accumulated other comprehensive income (loss) within shareholders' equity. The interest differentials on cross-currency swaps are included in interest expense. Forward foreign currency exchange contracts and currency options, acquired for the purpose of 35 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) reducing exposure to currency fluctuations associated with expected cash flows denominated in currencies other than the functional currencies, are marked to market with realized and unrealized gains or losses reflected in selling, general and administrative expenses. Under forward commodity contracts which hedge anticipated purchases of certain metals and other materials used in manufacturing operations payments are received or paid based on the differential between the contract price and the actual price of the underlying commodity. Gains or losses on forward commodity contracts are recorded as adjustments to the value of the purchased commodity. Interest rate swaps hedge interest rates on certain indebtedness and involve the exchange of fixed and floating rate interest payment obligations over the life of the related agreement without the exchange of the notional amount. The interest differentials to be paid or received under interest rate swaps are recognized over the life of the underlying agreement or indebtedness, respectively, as an adjustment to interest expense. Receivables and payables related to unrealized increases and decreases in the values of derivative financial instruments are included in other current assets and other current liabilities, respectively, and are not material. USE OF ESTIMATES--The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make extensive use of certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Significant estimates in these consolidated financial statements include merger, restructuring and other non-recurring (credits) charges, purchase accounting reserves, allowances for doubtful accounts receivable, estimates of future cash flows associated with assets, asset impairments, useful lives for depreciation and amortization, loss contingencies, net realizable value of inventories, estimated contract revenues and related costs, environmental liabilities, income taxes and tax valuation reserves, and the determination of discount and other rate assumptions for pension and post-retirement employee benefit expenses. Actual results could differ from these estimates. ACCOUNTING PRONOUNCEMENTS--In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements establish accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS Nos. 133 and 138 also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are effective for fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of these new standards will have a material impact on the Company's earnings or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies certain existing accounting principles for the timing of revenue recognition and its classification in the financial statements. In June 2000, the SEC delayed the required implementation date of SAB 101. As a result, SAB 101 will not be effective for the Company until the quarter ended September 30, 2001. In October 2000, the SEC issued further guidance on the interpretations included in SAB 101. The Company is currently analyzing the impact of this Staff Accounting Bulletin. 36 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a replacement of FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company is currently analyzing this new standard. RECLASSIFICATIONS--Certain prior year amounts have been reclassified to conform with current year presentation. STOCK SPLITS--Per share amounts and share data have been retroactively restated to give effect to the two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both effected in the form of a stock dividend (See Note 10). 2. POOLING OF INTERESTS TRANSACTIONS On April 2, 1999 and October 1, 1998, Tyco merged with AMP and USSC, respectively. A total of approximately 329.2 million and 118.4 million Tyco common shares, respectively, were issued to the former shareholders of these companies. Both of the merger transactions discussed above were accounted for under the pooling of interests accounting method, which presents as a single interest common shareholder interests which were previously independent. The historical consolidated financial statements for periods prior to the consummation of the combination are restated as though the companies had been combined during such periods. Aggregate fees and expenses related to the mergers and to the integration of the combined companies have been expensed in the Consolidated Statements of Operations in the period in which each transaction was consummated, as required under the pooling of interests method of accounting (See Notes 12 and 16). 37 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. POOLING OF INTERESTS TRANSACTIONS (CONTINUED) Combined and separate results of Tyco, USSC and AMP for the periods preceding the mergers were as follows ($ in millions):
TYCO USSC AMP ADJUSTMENTS COMBINED --------- -------- -------- ----------- --------- Six months ended March 31, 1999 (unaudited) (i) Net sales.............................. $ 7,776.8 $ -- $2,675.5 $ -- $10,452.3 Operating income (loss)................ 906.1 -- (405.2) -- 500.9 Extraordinary items, net of taxes...... (44.9) -- -- -- (44.9) Net income (loss)...................... 408.8 -- (376.0) (3.0)(iii) 29.8 Year ended September 30, 1998 (ii) Net sales.............................. 12,311.3 1,225.9 5,524.5 -- 19,061.7 Operating income (loss)................ 1,923.7 (298.5) 322.9 -- 1,948.1 Extraordinary items, net of taxes...... (2.4) -- -- -- (2.4) Net income (loss)...................... 1,174.7 (212.0) 208.5 (5.0)(iii) 1,166.2
- ------------------------ (i) Includes merger, restructuring and other non-recurring charges of $414.6 million and impairment charges of $76.0 million primarily related to the merger with USSC, and restructuring and other non-recurring charges of $275.3 million, of which $55.2 million is included in cost of sales, and impairment charges of $236.7 million related to AMP's profit improvement plan. Also includes a credit of $8.3 million representing a revision of estimates related to Tyco's 1997 merger, restructuring and other non-recurring accruals. (ii) Includes restructuring and other non-recurring charges of $164.4 million primarily related to AMP's profit improvement plan and $92.5 million principally related to costs incurred by USSC to exit certain businesses. (iii) As a result of the combination of Tyco and AMP, an income tax adjustment was recorded to conform tax accounting. In connection with the USSC merger, the Company assumed an operating lease for USSC's North Haven facilities. In December 1998, the Company assumed the debt related to the North Haven property of approximately $211 million. The assumption of the debt combined with the settlement of certain other obligations in the amount of $23 million resulted in the Company acquiring ownership of the North Haven property for a total cost of $234 million. 38 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES FISCAL 2000 During Fiscal 2000, the Company purchased businesses for an aggregate cost of $5,162.0 million, consisting of $4,246.5 million in cash, net of cash acquired, the issuance of approximately 15.6 million common shares valued at $671.4 million and the assumption of $244.1 million in debt. In addition, $544.2 million of cash was paid during the year for purchase accounting liabilities related to current and prior years' acquisitions. The cash portions of the acquisition costs were funded utilizing cash on hand, the issuance of long-term debt and borrowings under the Company's commercial paper program. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies have been included in the consolidated results of the Company from their respective acquisition dates. In connection with these acquisitions, the Company recorded purchase accounting liabilities of $426.2 million for transaction costs and the costs of integrating the acquired companies within the various Tyco business segments. Details regarding these purchase accounting liabilities are set forth below. At the time each purchase acquisition is made, the Company records each asset acquired and each liability assumed at its estimated fair value, which amount is subject to future adjustment when appraisals or other further information are obtained. The excess of (a) the total consideration paid for the acquired company over (b) the fair value of assets acquired less liabilities assumed and purchase accounting liabilities recorded is recorded as goodwill. As a result of acquisitions completed in Fiscal 2000, and adjustments to the fair values of assets and liabilities and purchase accounting liabilities recorded for acquisitions completed prior to Fiscal 2000, the Company recorded approximately $5,206.8 million in goodwill and other intangibles. The following table shows the fair values of assets and liabilities and purchase accounting liabilities recorded for purchase acquisitions completed in Fiscal 2000, adjusted to reflect changes in fair values of assets and liabilities and purchase accounting liabilities recorded for acquisitions completed prior to Fiscal 2000 ($ in millions): Receivables................................................. $ 714.4 Inventories................................................. 453.9 Prepaid expenses and other current assets................... 257.0 Property, plant and equipment............................... 674.6 Goodwill and other intangible assets........................ 5,206.8 Other assets................................................ 95.2 -------- 7,401.9 -------- Accounts payable............................................ 485.8 Accrued expenses and other current liabilities.............. 1,286.6 Other long-term liabilities................................. 351.0 Options assumed............................................. 116.5 -------- 2,239.9 -------- $5,162.0 ======== Cash consideration paid (net of cash acquired).............. $4,246.5 Share consideration paid.................................... 671.4 Debt assumed................................................ 244.1 -------- $5,162.0 ========
39 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) Thus, in Fiscal 2000, the Company spent a total of $4,790.7 million in cash related to the acquisition of businesses, consisting of $4,246.5 million of cash in purchase price for these businesses (net of cash acquired) plus $544.2 million of cash paid out during the year for purchase accounting liabilities related to current and prior years' acquisitions. Fiscal 2000 purchase acquisitions include, among others, the acquisition of General Surgical Innovations, Inc. ("GSI"), AFC Cable Systems, Inc. ("AFC Cable") and Siemens Electromechanical Components GmbH & Co. KG ("Siemens EC") in November 1999, Praegitzer Industries, Inc. ("Praegitzer") in December 1999, Critchley Group PLC ("Critchley") in March 2000 and the Electronic OEM Business of Thomas & Betts in July 2000. GSI, a manufacturer and distributor of balloon dissectors and related devices for minimally invasive surgery, was purchased through the issuance of approximately 2.8 million Tyco common shares valued at $108.6 million and has been integrated within the Healthcare and Specialty Products segment. AFC Cable, a manufacturer of prewired armor cable, was purchased through the issuance of approximately 12.8 million Tyco common shares valued at $562.8 million and has been integrated within the Flow Control Products and Services segment. Siemens EC, a world market leader for relays and one of the world's leading providers of components to the communications, automotive, consumer and general industry sectors, was purchased for $1,165.8 million in cash and has been integrated within the Electronics segment. Praegitzer, a provider of printed circuit board and interconnect solutions to OEMs and contract manufacturers in the communications, computer, industrial and consumer electronics industries, was purchased for $72.2 million in cash and has been integrated within the Electronics segment. Critchley, a world leader in cable identification products, was purchased for $185.0 million in cash and has been integrated within the Electronics segment. The Electronic OEM Business of Thomas & Betts, a manufacturer of electronic connectors for the telecommunications, computer and automotive industries, was purchased for $750.0 million in cash and is being integrated within the Electronics segment. The following table summarizes the purchase accounting liabilities recorded in connection with the Fiscal 2000 purchase acquisitions ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE --------- -------- ---------- -------- -------- Original reserve established.................... 7,215 $243.0 102 $87.6 $95.6 Fiscal 2000 activity............................ (4,023) (146.2) (53) (34.3) (47.3) ------ ------ --- ----- ----- Ending balance at September 30, 2000............ 3,192 $ 96.8 49 $53.3 $48.3 ====== ====== === ===== =====
Purchase accounting liabilities recorded during Fiscal 2000 consist of $243.0 million for severance and related costs; $87.6 million for costs associated with the shut down and consolidation of certain acquired facilities, including unfavorable leases, lease terminations and other related fees and other costs and $95.6 million for transaction and other direct costs, including pension and other employee related costs and other costs. These purchase accounting liabilities relate primarily to the acquisitions of GSI, AFC Cable, Siemens EC, Praegitzer, Critchley and the Electronics OEM Business of Thomas & Betts. In connection with the Fiscal 2000 purchase acquisitions, the Company began to formulate plans at the date of each acquisition for workforce reductions and the closure and consolidation of an aggregate of 102 facilities. The Company has communicated with the employees of the acquired companies to 40 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) announce the benefit arrangements. The costs of employee termination benefits relate to the elimination of 2,895 positions in the United States, 2,434 positions in Europe, 1,135 positions in Canada and Latin America and 751 positions in the Asia-Pacific region, primarily consisting of manufacturing and distribution, administrative, technical, and sales and marketing personnel. Facilities designated for closure include 43 facilities in the United States, 32 facilities in Europe, 24 facilities in the Asia-Pacific region and 3 facilities in Canada, primarily consisting of manufacturing plants, sales offices, corporate administrative facilities and research and development facilities. At September 30, 2000, 4,023 employees had been terminated and 53 facilities had been closed or consolidated. In connection with the purchase acquisitions consummated during Fiscal 2000, liabilities for approximately $96.8 million for severance and related costs, $53.3 million for the shutdown and consolidation of acquired facilities and $48.3 million in transaction and other direct costs remained on the balance sheet at September 30, 2000. The Company expects that the termination of employees and consolidation of facilities related to all such acquisitions will be substantially complete within one year of plan finalization, except for certain long-term contractual obligations. During Fiscal 2000, the Company reduced its estimate of purchase accounting liabilities related to acquisitions in prior years by $117.8 million and, accordingly, goodwill and related deferred tax assets were reduced by an equivalent amount. These changes primarily resulted from costs being less than originally anticipated on certain acquisitions. In addition, the Company finalized its business plan for the exiting of activities and the involuntary termination of employees in connection with the 1999 acquisition and integration of Raychem, and as a result recorded $90.0 million of purchase accounting liabilities. During Fiscal 2000, the Company sold certain of its businesses for net proceeds of approximately $74.4 million in cash that consist primarily of certain businesses within the Healthcare and Specialty Products segment. The following unaudited pro forma data summarize the results of operations for the periods indicated as if the Fiscal 2000 acquisitions and divestitures had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisitions and divestitures. Adjustments to interest expense, goodwill amortization and income taxes related to the Fiscal 2000 acquisitions are reflected in the pro forma data. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions and divestitures had occurred as of the beginning of the periods presented or that may be obtained in the future.
YEAR ENDED SEPTEMBER 30, -------------------------- 2000 1999 ---------- ---------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales............................................. $30,383.6 $25,633.3 Income before extraordinary items..................... 4,478.2 976.8 Net income............................................ 4,478.0 931.1 Net income per common share: Basic............................................... 2.65 0.57 Diluted............................................. 2.61 0.56
41 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) FISCAL 1999 In addition to the pooling of interests transactions discussed in Note 2, during Fiscal 1999, the Company purchased businesses for an aggregate cost of $6,923.3 million, consisting of $4,546.8 million in cash, net of cash acquired, the issuance of 32.4 million common shares valued at $1,449.6 million and the assumption of $926.9 million in debt. In addition, $354.4 million of cash was paid during the year for purchase accounting liabilities related to 1999 and prior years' acquisitions. The cash portions of the acquisition costs were funded utilizing cash on hand, the issuance of long-term debt and borrowings under the Company's commercial paper program. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies have been included in the consolidated results of the Company from their respective acquisition dates. In connection with these acquisitions, the Company recorded purchase accounting liabilities of $525.4 million for transaction costs and the costs of integrating the acquired companies within the various Tyco business segments. Details regarding these purchase accounting liabilities are set forth below. During Fiscal 1999, the Company spent a total of $4,901.2 million in cash related to the acquisition of businesses, consisting of $4,546.8 million of purchase price (net of cash acquired) plus $354.4 million of cash paid out during the year for purchase accounting liabilities related to 1999 and prior years' acquisitions. The following table summarizes the purchase accounting liabilities recorded in connection with the Fiscal 1999 purchase acquisitions ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE --------- -------- ---------- -------- -------- Original reserve established................... 5,620 $ 234.3 183 $174.8 $116.3 Fiscal 1999 activity........................... (3,230) (55.9) (95) (48.2) (46.0) Fiscal 2000 activity........................... (1,969) (158.6) (81) (86.3) (63.5) Changes in estimates........................... 964 28.7 65 47.5 13.8 Reversal to goodwill in Fiscal 2000............ (250) (5.7) (45) (17.7) (2.4) ------ ------- --- ------ ------ Ending balance at September 30, 2000........... 1,135 $ 42.8 27 $ 70.1 $ 18.2 ====== ======= === ====== ======
Purchase accounting liabilities recorded during Fiscal 1999 consist of $234.3 million for severance and related costs, $174.8 million for costs associated with the shut down and consolidation of certain acquired facilities and $116.3 million for transaction and other direct costs. The $234.3 million of severance and related costs covers employee termination benefits for approximately 5,620 employees located throughout the world, consisting primarily of manufacturing and distribution employees to be terminated as a result of the shut down and consolidation of production facilities and, to a lesser extent, administrative, technical and sales and marketing personnel. At September 30, 2000, 5,199 employees had been terminated and $42.8 million in severance and related costs remained in the Consolidated Balance Sheet. The Company expects that the remaining employee terminations will be completed in Fiscal 2001. The $174.8 million of exit costs are associated with the closure and consolidation of facilities involving 183 facilities located primarily in the Asia-Pacific region and the United States. These facilities include manufacturing plants, sales offices, corporate administrative facilities and research and development facilities. Included within these costs are accruals for non-cancelable leases associated with 42 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) certain of these facilities. Approximately 176 facilities had been closed or consolidated at September 30, 2000. The remaining facilities include primarily large manufacturing plants, which are expected to be shut down in Fiscal 2001. Expenses in connection with the closure of these remaining facilities, as well as the expiration of non-cancelable leases (less any expected sublease income for facilities already closed), comprise the approximately $70.1 million for facility related costs remaining in the Consolidated Balance Sheet as of September 30, 2000. During Fiscal 1999, the Company reduced its estimate of purchase accounting liabilities relating primarily to Fiscal 1998 acquisitions by $90.0 million and, accordingly, goodwill and related deferred tax assets were reduced by an equivalent amount. These changes primarily resulted from costs being less than originally anticipated for acquisitions consummated prior to Fiscal 1999. During Fiscal 1999, the Company sold certain of its businesses for net proceeds of approximately $926.8 million in cash. These consist primarily of certain businesses within the Flow Control Products and Services segment, including The Mueller Company and portions of Grinnell Supply Sales and Manufacturing, and certain businesses within the Healthcare and Specialty Products segment. The aggregate net gain recognized on the sale of these businesses was not material. In connection with the Flow Control divestiture, the Company granted a non-exclusive license to the buyer for use of certain intellectual property and is entitled to receive future royalties equal to a percentage of net sales of the businesses sold. The Company also granted an option to the buyer to purchase certain intellectual property in the future at the then fair market value. FISCAL 1998 During Fiscal 1998, the Company acquired companies for an aggregate cost of $4,559.4 million, consisting of $4,154.8 million in cash, the assumption of approximately $260 million in debt and the issuance of 765,544 common shares valued at $19.2 million and 1,254 subsidiary preference shares valued at $125.4 million. The cash portions of the acquisition costs were funded utilizing cash on hand, borrowings under bank credit agreements, proceeds of approximately $1,245.0 million from the sale of common shares, and borrowings under the Company's uncommitted lines of credit. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies were included in the consolidated results of the Company from their respective acquisition dates. As a result of the acquisitions, the Company recorded approximately $3,947.0 million in goodwill and other intangibles. As of September 30, 2000, $14.3 million in employee severance, principally payments to employees previously severed, and $28.7 million of facility related costs, principally for the expiration of non-cancelable leases on vacant premises, remained in the Consolidated Balance Sheet. In July 1998, the Company acquired the U.S. operations of Crosby Valve, Inc. in exchange for 1,254 cumulative dividend preference shares of a newly created subsidiary, valued at $125.4 million. The subsidiary has authorized 2,000 cumulative dividend preference shares. The holders of these preference shares have the option to require the Company to repurchase the preference shares at par value plus unpaid dividends at any time after July 2001. The outstanding preference shares were issued at $100,000 par value each and have been classified in other long-term liabilities on the Consolidated Balance Sheets. Cash dividends accumulate on a preferred basis, whether or not earned or declared, at the rate of $3,750 per share per annum. Upon liquidation, the holders of shares are entitled to receive an amount equal to $100,000 per share, plus any unpaid dividends. These preference shares may be redeemed by the subsidiary at any time on or after December 31, 2008 at a price per share of $100,000, plus unpaid dividends. In October 2000, the Company redeemed these preference shares for $128.7 million. 43 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. INDEBTEDNESS Long-term debt is as follows ($ in millions):
SEPTEMBER 30, ------------------- 2000 1999 -------- -------- Commercial paper program(i)................................. $2,420.6 $1,392.0 Bank credit agreement(i).................................... -- -- Euro commercial paper program(ii)........................... 172.9 -- International overdrafts and demand loans(iii).............. 83.0 184.9 8.125% public notes due 1999................................ -- 10.5 Floating rate private placement notes due 2000(iv).......... -- 499.4 0.57% Yen denominated private placement notes due 2000(iv).................................................. -- 89.7 8.25% senior notes due 2000................................. -- 9.5 Floating rate private placement notes due 2001(iv).......... 499.7 499.1 6.5% public notes due 2001.................................. 299.7 299.3 6.125% public notes due 2001(v)............................. 749.2 748.1 Floating rate Euro denominated private placement note due 2002(vi).................................................. 66.3 -- 6.875% public notes due 2002(iv)............................ 994.9 992.2 5.875% public notes due 2004(vii)........................... 398.2 397.7 6.375% public notes due 2004................................ 104.7 104.6 6.375% public notes due 2005(v)............................. 744.8 743.7 6.125% Euro denominated public notes due 2007(viii)......... 525.4 -- 6.125% public notes due 2008(vii)........................... 395.5 394.9 7.2% notes due 2008(ix)..................................... 398.9 398.8 7.25% senior notes due 2008(x).............................. 8.2 8.2 6.125% public notes due 2009(xi)............................ 394.7 394.1 Zero coupon Liquid Yield Option Notes due 2010(xii)......... 35.0 49.1 International bank loans, repayable through 2013(xiii)...... 218.0 208.2 6.25% public Dealer Remarketable Securities ("Drs.") due 2013(v)................................................... 757.3 760.1 9.5% public debentures due 2022............................. 49.0 49.0 8.0% public debentures due 2023............................. 50.0 50.0 7.0% public notes due 2028(v)............................... 492.6 492.4 6.875% public notes due 2029(xi)............................ 781.2 780.5 Financing lease obligation(xiv)............................. 55.3 69.5 Other....................................................... 303.9 496.7 -------- -------- Total debt.................................................. 10,999.0 10,122.2 Less current portion........................................ 1,537.2 1,012.8 -------- -------- Long-term debt.............................................. $9,461.8 $9,109.4 ======== ========
- ------------------------ (i) In January 1999, Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, initiated a commercial paper program with an aggregate face value of up to $1.75 billion. In February 2000, TIG increased its borrowing capacity under the commercial paper program to $4.5 billion. The notes are fully and unconditionally guaranteed by the Company. Proceeds from the sale of the notes are used for working capital and other corporate purposes. TIG is required to maintain an available unused balance under its bank credit agreement sufficient to support amounts outstanding under the commercial paper program. In February 2000, TIG renegotiated its revolving credit agreement with a group of commercial banks, giving it the right to 44 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) borrow up to $4.5 billion until February 9, 2001, with the option to extend to February 9, 2002. TIG has the option to increase the $4.5 billion credit facility up to $5.0 billion. TIG also has a $0.5 billion multiyear revolving credit facility which expires on February 12, 2003. Interest payable on borrowings under the two facilities is variable based upon TIG's option to select a Euro rate plus margins ranging from 0.41% to 0.43%, or a base rate, as defined. If the outstanding principal amount of loans equals or exceeds 25% of the commitments, the Euro margins are increased by 0.125%. The obligations of TIG under the credit agreements are fully and unconditionally guaranteed by the Company. TIG is using the credit agreements to fully support its commercial paper program and therefore expects these facilities to remain largely undrawn. The Company is required to meet certain covenants under the credit agreements, none of which is considered restrictive to the operations of the Company. (ii) In June 2000, TIG initiated a European commercial paper program under which it could initially issue notes with an aggregate face value of up to E 300 million. In September 2000, TIG increased its borrowing capacity under the European commercial paper program to E 500 million. The notes are fully and unconditionally guaranteed by the Company. Proceeds from the sale of these notes are used for working capital and other corporate purposes. (iii) International overdrafts and demand loans represent borrowings by AMP from various banks and other holders. All overdrafts and loans mature within one year from the balance sheet date. The weighted-average interest rate on all international overdrafts and demand loans during Fiscal 2000 and Fiscal 1999 was 5.1% and 5.3%, respectively. (iv) In August 1999, TIG issued $500 million floating rate notes due 2000, $500 million floating rate notes due 2001, $1 billion 6.875% notes due 2002 and Y 10 billion (approximately $89.7 million) 0.57% notes due 2000. The $500 million floating rate notes bear interest at LIBOR plus 0.6% for the 2000 notes and LIBOR plus 0.7% for the 2001 notes. These notes are fully and unconditionally guaranteed by Tyco (See Note 24). The net proceeds of approximately $2,080.3 million were used to repay borrowings under TIG's $4.5 billion commercial paper program discussed above. In connection with the $1 billion 6.875% notes, TIG entered into an interest rate swap agreement expiring in September 2002, under which TIG will receive a fixed rate of 6.875% and will pay a floating rate based on the average of two different LIBO rates, as defined, plus 3.755%. In June 2000, TIG offered to exchange all of its $1 billion 6.875% private placement notes due 2002 for public notes. The form and terms of the public notes are identical in all material respects to the form and terms of the outstanding private placement notes of the corresponding series, except that the public notes are not subject to restrictions on transfer under United States securities laws. In connection with the Yen denominated 0.57% notes, TIG entered into a cross-currency swap expiring in September 2000, under which TIG received a payment of Y 10 billion plus accrued interest at a rate of 0.57% and made quarterly U.S. dollar payments based on LIBOR plus 0.60%, as well as a final payment at maturity of approximately $89.7 million. (v) In June 1998, TIG issued $750 million 6.125% notes due 2001, $750 million 6.375% notes due 2005, $750 million 6.25% Dealer Remarketable Securities ("Drs.") due 2013 and $500 million 7.0% notes due 2028 in a public offering. Interest is payable semi-annually in June and December. Under the terms of the Drs., the Remarketing Dealer has an option to remarket the Drs. in June 2003, which if exercised would subject the Drs. to mandatory tender to the Remarketing Dealer and reset the interest rate to an adjusted fixed rate until June 2013. If the Remarketing Dealer does not exercise its option, then all Drs. are required to be tendered to the Company in June 2003. Repayment of amounts outstanding under these debt securities is fully and 45 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) unconditionally guaranteed by Tyco (See Note 24). The net proceeds of approximately $2,744.5 million were ultimately used to repay borrowings under TIG's bank credit agreement and uncommitted lines of credit. In December 1998, TIG terminated two interest rate swap agreements with notional amounts of $650 million each, which were entered into in June 1998 with a financial institution to hedge a portion of the fixed rate terms of the public notes. (vi) In July 2000, TIG issued a E 75 million floating rate note due 2002, which bears interest at EURIBOR plus 0.42%. (vii) In October 1998, TIG issued $800 million of debt in a private placement offering consisting of two series of restricted notes: $400 million of 5.875% notes due November 2004 and $400 million of 6.125% notes due November 2008. The notes are fully and unconditionally guaranteed by Tyco. The net proceeds of approximately $791.7 million were used to repay borrowings under TIG's bank credit agreement. At the same time, TIG also entered into an interest rate swap agreement with a notional amount of $400 million to hedge the fixed rate terms of the 6.125% notes due 2008. Under this agreement, which expires in November 2008, TIG will receive payments at a fixed rate of 6.125% and will make floating rate payments based on LIBOR. Subsequently, during the third and fourth quarters of Fiscal 1999, TIG exchanged all of the $400 million 5.875% private placement notes due 2004 and $400 million 6.125% private placement notes due 2008 for public notes (See Note 24). The form and terms of the public notes of each series are identical in all material respects to the form and terms of the outstanding private placement notes of the corresponding series, except that the public notes are not subject to restrictions on transfer under the United States securities laws. (viii) In April 2000, TIG issued E600 million (approximately $565.7 million) 6.125% notes due 2007 in a private placement offering. The notes are fully and unconditionally guaranteed by Tyco. The net proceeds were used to repay borrowings under TIG's commercial paper program. In September 2000, TIG offered to exchange all of its E600 million (approximately $565.7 million) 6.125% notes due 2007 for public notes. The form and terms of the public notes are identical in all material respects to the form and terms of the outstanding private placement notes of the corresponding series, except that the public notes are not subject to restrictions on transfer under United States securities laws. (ix) In October 1998, Raychem issued notes in the amount of $400 million. The notes mature on October 15, 2008, and bear interest at a rate of 7.2% per annum. (x) In March 1998, USSC issued $300 million 7.25% senior notes due March 2008, which are not redeemable prior to maturity and require semi-annual interest payments. In February 1999, the Company completed a tender offer in which $292 million of the $300 million principal amount of the notes outstanding were purchased. (xi) In January 1999, TIG issued $400 million of its 6.125% notes due 2009 and $800 million of its 6.875% notes due 2029 in a public offering. The notes are fully and unconditionally guaranteed by Tyco (See Note 24). The net proceeds of approximately $1,173.7 million were used to repay borrowings under TIG's bank credit agreement. At the same time, TIG also entered into an interest rate swap agreement to hedge the fixed rate terms of the $400 million notes due 2009. Under the agreement, which expires in January 2009, TIG will receive payments at a fixed rate of 6.125% and will make floating rate payments based on an average of three different LIBO rates, as defined, plus a spread. 46 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) (xii) In July 1995, ADT Operations, Inc. issued $776.3 million aggregate principal amount at maturity of its zero coupon subordinated Liquid Yield Option Notes ("LYONs") maturing July 2010. The issue price per LYON was $383.09, being 38.309% of the principal amount of $1,000 per LYON at maturity, reflecting a yield to maturity of 6.5% per annum (computed on a semi-annual bond equivalent basis). The discount amortization on the LYONs is being charged as interest expense through the Consolidated Statements of Operations on a basis linked to the yield to maturity. The LYONs discount amortization amounted to $2.4 million in Fiscal 2000, $6.0 million in Fiscal 1999 and $11.0 million in Fiscal 1998. Each LYON is exchangeable for common shares of the Company at the option of the holder at any time prior to maturity, unless previously redeemed or otherwise purchased by ADT Operations, Inc., at an exchange rate of 54.352 common shares per LYON. During Fiscal 2000 and Fiscal 1999, respectively, 32,169 and 147,418 LYONs with carrying values of $16.4 million and $72.3 million were exchanged for 1,748,442 and 8,012,468 common shares of the Company. Any LYON will be purchased by ADT Operations, Inc., at the option of the holder, as of July 2002 for a purchase price per LYON of $599.46. At that time, if the holder exercises the option, the Company has the right to deliver all or a portion of the purchase price in the form of common shares of the Company. Beginning July 2002, the LYONs are redeemable for cash at any time at the option of ADT Operations, Inc., in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The LYONs are guaranteed on a subordinated basis by the Company. (xiii) International bank loans represent term borrowings by Tyco Electronics from various commercial banks. Borrowings are repayable in varying amounts through 2013. The weighted-average interest rate on all international bank loans as of September 30, 2000 and 1999 was 3.3% and 3.9%, respectively. (xiv) The financing lease obligation relates to USSC's European headquarters office building and distribution center complex in Elancourt, France. The French Franc denominated financing lease requires principal amortization in varying amounts over the eleven year term of the lease with a balloon payment of approximately 42 million French Francs ($6 million) at the end of the lease. Interest is payable at a rate approximately 1.4% above Paris Interbank Offered Rate (PIBOR). The effective interest rate on the financing lease debt was approximately 5.0% and 4.0% per annum at September 30, 2000 and 1999, respectively. The weighted-average rate of interest on all long-term debt was 6.5% and 6.2% during Fiscal 2000 and Fiscal 1999, respectively. The weighted-average rate of interest on all variable long-term debt was 6.5% and 5.6% as of September 30, 2000 and 1999, respectively. The impact of the Company's interest rate swap activities on its weighted-average borrowing rate was not material in any year. The impact on reported interest expense was a reduction of $6.6 million, $0.9 million and $1.9 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. The aggregate amounts of total debt maturing during the next five years are as follows (in millions): $1,537.2 in Fiscal 2001, $4,075.5 in Fiscal 2002, $53.9 in Fiscal 2003, $129.4 in Fiscal 2004 and $1,161.6 in Fiscal 2005. 47 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SALE OF ACCOUNTS RECEIVABLE The Company has an agreement under which several of its operating subsidiaries sell a defined pool of trade accounts receivable to a limited purpose subsidiary of the Company. The subsidiary, a separate corporate entity, holds these receivables and sells participating interests in such accounts receivable to financiers who, in turn, purchase and receive ownership and security interests in those receivables. As collections reduce accounts receivable included in the pool, the operating subsidiaries sell new receivables to the limited purpose subsidiary. The limited purpose subsidiary has the risk of credit loss on the receivables and, accordingly, the full amount of the allowance for doubtful accounts has been retained in the Consolidated Balance Sheets. The availability under the program is $500 million. At September 30, 2000 and 1999, $450 million and $350 million, respectively, was utilized under the program. The proceeds from the sales were used to reduce borrowings under TIG's commercial paper program and are reported as operating cash flows in the Consolidated Statements of Cash Flows. The proceeds of sale are less than the face amount of accounts receivable sold by an amount that approximates the cost that the limited purpose subsidiary would incur if it were to issue commercial paper backed by these accounts receivable. The discount from the face amount is accounted for as a loss on the sale of receivables and has been included in selling, general and administrative expenses in the Consolidated Statements of Operations. Such discount aggregated $25.7 million, $15.7 million, and $17.3 million, or 6.6%, 5.6% and 5.8% of the weighted-average balance of the receivables outstanding, during Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. The operating subsidiaries retain collection and administrative responsibilities for the participating interests in the defined pool. 6. FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, long-term investments, accounts payable, debt and derivative financial instruments. The notional amounts of the derivative financial instruments were as follows ($ in millions):
SEPTEMBER 30, ------------------- 2000 1999 -------- -------- Forward foreign currency exchange contracts................. $2,867.5 $2,717.3 Currency options............................................ -- 160.0 Cross-currency swaps........................................ 150.0 447.9 Forward commodity contracts................................. 112.0 104.0 Interest rate swaps......................................... 1,800.0 1,800.0
While it is not the Company's intention to terminate the above derivative financial instruments, fair values were estimated, based on market rates or quotes from brokers, which represented the amounts that the Company would receive or pay if the instruments were terminated at the balance sheet dates. These fair values indicated that the termination of forward foreign currency exchange contracts, cross-currency swap agreements, currency options, forward commodity contracts and interest rate swaps at September 30, 2000 would have resulted in a $279.0 million gain, a $15.3 million loss, a zero gain, an $11.1 million gain and a $95.7 million loss, respectively, and at September 30, 1999 would have resulted in a $52.7 million loss, a $27.0 million loss, a $0.7 million loss, a $13.0 million gain and a $66.9 million loss, respectively. At September 30, 2000 and 1999, the book values of derivative financial instruments recorded in the Consolidated Balance Sheets approximated fair values. 48 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. FINANCIAL INSTRUMENTS (CONTINUED) The fair value of cash and cash equivalents, accounts receivable, long-term investments and accounts payable approximated book value at September 30, 2000 and 1999. The fair value of debt was approximately $10,851.6 million (book value of $10,999.0 million) and $10,120.4 million (book value of $10,122.2 million) at September 30, 2000 and 1999, respectively, based on discounted cash flow analyses using current interest rates. The Company's financial instruments present certain market and credit risks; however, concentrations of credit risk are mitigated as the Company deals with a variety of major banks worldwide and its accounts receivable are spread among a number of major industries, customers and geographic areas. None of the Company's financial instruments with off-balance sheet risk would result in a significant loss to the Company if a counterparty failed to perform according to the terms of its agreement. The Company does not require collateral or other security to be furnished by the counterparties to its financial instruments. The Company does, however, maintain reserves for potential credit losses on financial instruments. 7. INCOME TAXES The provision for income taxes and the reconciliation between the notional United States federal income taxes at the statutory rate on consolidated income before taxes and the Company's income tax provision are as follows ($ in millions):
YEAR ENDED SEPTEMBER 30, ------------------------------ 2000 1999 1998 -------- -------- -------- Notional U.S. federal income taxes at the statutory rate.................................................... $2,262.7 $596.8 $596.0 Adjustments to reconcile to the Company's income tax provision: U.S. state income tax provision, net.................... 46.7 33.6 15.8 SFAS 121 impairment..................................... 6.4 43.5 -- Non-U.S. net earnings................................... (495.6) (216.5) (67.9) Nondeductible charges................................... 140.8 139.2 20.1 Other................................................... (35.0) 40.9 (29.8) -------- ------ ------ Provision for income taxes.............................. 1,926.0 637.5 534.2 Deferred provision (benefit)............................ 721.3 191.2 (10.0) -------- ------ ------ Current provision....................................... $1,204.7 $446.3 $544.2 ======== ====== ======
The provisions for Fiscal 2000, Fiscal 1999, and Fiscal 1998 included $648.6 million, $263.9 million and $210.5 million, respectively, for non-U.S. income taxes. The non-U.S. component of income before income taxes was $3,343.6 million, $1,376.3 million and $640.6 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. 49 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The deferred income tax balance sheet accounts result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset are as follows ($ in millions):
SEPTEMBER 30, ----------------------- 2000 1999 -------- -------- Deferred tax assets: Inventories, accrued liabilities and reserves............. $ 295.5 $ 886.3 Accrued postretirement benefit obligation................. 99.6 102.9 Tax loss and credit carryforwards......................... 474.6 506.1 Interest.................................................. 85.9 81.2 Capitalized research and development...................... 63.0 72.3 Other..................................................... 56.1 49.8 -------- -------- 1,074.7 1,698.6 -------- -------- Deferred tax liabilities: Property, plant and equipment............................. (281.9) (440.6) Undistributed earnings of subsidiaries.................... (155.1) (155.1) Other..................................................... (151.7) (37.5) -------- -------- (588.7) (633.2) -------- -------- Net deferred income tax asset before valuation allowance.... 486.0 1,065.4 Valuation allowance......................................... (122.4) (207.5) -------- -------- Net deferred income tax asset............................... $ 363.6 $ 857.9 ======== ========
As of September 30, 2000, the Company had approximately $370 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, $230 million have no expiration, and the remaining $140 million will expire in future years through 2010. U.S. operating loss carryforwards at September 30, 2000 were approximately $692 million and will expire in future years through 2020. A valuation allowance has been provided for operating loss carryforwards that are not expected to be utilized. In the normal course, the Company and its subsidiaries' income tax returns are examined by various regulatory tax authorities. In connection with such examinations, substantial tax deficiencies have been proposed. However, the Company is contesting such proposed deficiencies, and ultimate resolution of such matters is not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. 8. KEY EMPLOYEE LOAN PROGRAM Loans are made to employees of the Company under the Former Tyco 1983 Key Employee Loan Program for the payment of taxes upon the vesting of shares granted under Former Tyco's Restricted Stock Ownership Plans. The loans are unsecured and bear interest, payable annually, at a rate which approximates the Company's incremental short-term borrowing rate. Loans are generally repayable in ten years, except that earlier payments are required under certain circumstances. During Fiscal 2000, the maximum amount outstanding under this program was $26.0 million. Loans receivable under this program were $11.4 million and $18.6 million at September 30, 2000 and 1999, respectively. 50 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. PREFERENCE SHARES The Company has authorized 125,000,000 preference shares of $1 each, none of which were issued or outstanding during fiscal 2000, 1999 or 1998. Rights as to dividends, return of capital, redemption, conversion, voting and otherwise may be determined by the Board of Directors of the Company on or before the time of issuance. In the event of the liquidation of the Company, the holders of any preference shares then outstanding would be entitled to payment to them of the amount for which the preference shares were subscribed and any unpaid dividends prior to any payment to the common shareholders. 10. SHAREHOLDERS' EQUITY During the last quarter of Fiscal 1999, the Company announced that its Board of Directors had declared a two-for-one stock split in the form of a 100% stock dividend on its common shares. The split was payable on October 21, 1999 to shareholders of record on October 1, 1999. In addition, during the last quarter of Fiscal 1997, the Board of Directors declared a two-for-one stock split effected in the form of a 100% stock dividend on the Company's common shares, which was distributed on October 22, 1997. Per share amounts and share data have been retroactively adjusted to reflect both stock splits. There was no change in the par value or the number of authorized shares as a result of these stock splits. During the third quarter of Fiscal 1999, in conjunction with the approval of the merger with AMP, shareholders approved an increase in the number of authorized common shares from 1,503,750,000 to 2,500,000,000. During the second quarter of Fiscal 1998, shareholders approved an increase in the number of authorized common shares from 750,000,000 to 1,503,750,000. In December 1997 the Company filed a shelf registration to enable it to offer from time to time unsecured debt securities or common shares, or any combination of the foregoing, at an aggregate initial offering price not to exceed $2.0 billion. In March 1998, the Company sold 50.6 million common shares at $25.38 per share. The net proceeds from the sale of approximately $1,245.0 million were used to repay indebtedness incurred for previous acquisitions. In August 2000, the Company filed an additional shelf registration to enable it to offer from time to time unsecured debt securities, preference shares, depositary shares or common shares, or any combination of the foregoing, at an aggregate initial offering price not to exceed $2.5 billion. Availability under this shelf registration statement incorporates any remaining availability under the shelf registration filed in December 1997. Information with respect to USSC and AMP common shares and options has been retroactively restated in connection with their mergers with Tyco to reflect their applicable merger per share exchange ratios of 0.7606 and 0.7507, respectively (1.5212 and 1.5014, respectively, after giving effect to the subsequent stock splits). The total compensation cost expensed for all stock-based compensation awards discussed below was $137.4 million, $96.9 million and $37.1 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. RESTRICTED STOCK--The Company maintains a restricted stock ownership plan, which provides for the award of an initial amount of common shares plus an amount equal to one-half of one percent of the total shares outstanding at the beginning of each fiscal year. At September 30, 2000, there were 31,397,856 shares authorized under the plan, of which 10,954,383 shares had been granted. Common shares are awarded subject to certain restrictions with vesting varying over periods of up to ten years. 51 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) For grants which vest based on certain specified performance criteria, the fair market value of the shares at the date of vesting is expensed over the period of performance, once achievement of criteria is deemed probable. For grants that vest through passage of time, the fair market value of the shares at the time of the grant is amortized (net of tax benefit) to expense over the period of vesting. The unamortized portion of deferred compensation expense is recorded as a reduction of shareholders' equity. Recipients of all restricted shares have the right to vote such shares and receive dividends. Income tax benefits resulting from the vesting of restricted shares, including a deduction for the excess, if any, of the fair market value of restricted shares at the time of vesting over their fair market value at the time of the grants and from the payment of dividends on unvested shares, are credited to contributed surplus. EMPLOYEE STOCK PURCHASE PLAN--Substantially all full-time employees of the Company's U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are eligible to participate in an employee stock purchase plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches a portion of the employee contribution by contributing an additional 15% of the employee's payroll deduction. All shares purchased under the plan are purchased on the open market by a designated broker. SHARE OPTIONS--The Company has granted employee share options which were issued under five fixed share option plans which reserve common shares for issuance to the Company's directors, executives and managers. The majority of options have been granted under the Tyco International Ltd. Long-Term Incentive Plan (the "Incentive Plan"). The Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company, which consists exclusively of independent directors of the Company. Options are granted to purchase common shares at prices which are equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Options which have been granted under the Incentive Plan to date have generally vested and become exercisable over periods of up to five years from the date of grant and have a maximum term of ten years. The Company has reserved 140.0 million common shares for issuance under the Incentive Plan. Awards which the Company becomes obligated to make through the assumption of, or in substitution for, outstanding awards previously granted by an acquired company are assumed and administered under the Incentive Plan but do not count against this limit. At September 30, 2000, there were approximately 37.0 million shares available for future grant under the Incentive Plan. During October 1998, a broad-based option plan for non-officer employees, the Tyco Long-Term Incentive Plan II ("LTIP II"), was approved by the Board of Directors. The Company has reserved 50.0 million common shares for issuance under the LTIP II. The terms and conditions of this plan are similar to the Incentive Plan. At September 30, 2000, there were approximately 17.2 million shares available for future grant under the LTIP II. In connection with the acquisitions of Raychem in Fiscal 1999 and CIPE S.A. and Holmes Protection in Fiscal 1998, options outstanding under the respective stock option plans of these companies were assumed under the Incentive Plan. In connection with the mergers occurring in Fiscal 1999 (See Note 2), all of the options outstanding under the USSC and AMP stock option plans were assumed under the Incentive Plan. These options are administered under the Incentive Plan but retain all of the rights, terms and conditions of the respective plans under which they were originally granted. 52 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) Share option activity for all Tyco plans since September 30, 1997 has been as follows:
WEIGHTED-AVERAGE OUTSTANDING EXERCISE PRICE ----------- ---------------- At September 30, 1997................................. 107,261,072 $17.03 Assumed from acquisition............................ 87,232 10.23 Granted............................................. 32,011,414 23.51 Exercised........................................... (37,626,616) 9.20 Canceled............................................ (7,281,946) 27.48 ----------- At September 30, 1998................................. 94,451,156 24.83 Assumed from acquisition............................ 8,883,160 37.44 Granted............................................. 30,313,362 38.44 Exercised........................................... (43,180,390) 22.79 Canceled............................................ (4,476,021) 47.83 ----------- At September 30, 1999................................. 85,991,267 27.91 Granted............................................. 30,355,027 44.30 Exercised........................................... (17,240,959) 20.72 Canceled............................................ (4,090,184) 37.25 ----------- At September 30, 2000................................. 95,015,151 $32.01 ===========
The following table summarizes information about outstanding and exercisable Tyco options at September 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- WEIGHTED- WEIGHTED- AVERAGE WEIGHTED- AVERAGE REMAINING AVERAGE RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE PRICES OUTSTANDING PRICE LIFE--YEARS EXERCISABLE PRICE - ---------------- ----------- --------- ----------- ----------- --------- $ 0.00 to $ 4.98 541,696 $4.11 2.8 541,696 $ 4.11 4.99 to 7.44 4,792,734 6.58 4.5 4,792,734 6.58 7.45 to 9.98 1,503,739 8.85 5.2 1,157,128 8.86 9.99 to 11.76 780,224 10.84 5.8 421,916 10.84 11.77 to 14.88 2,807,377 14.03 5.9 2,053,457 13.98 14.89 to 19.97 8,025,566 18.88 6.7 6,619,681 18.80 19.98 to 24.93 9,164,125 21.63 6.4 8,182,205 21.72 24.94 to 29.87 9,339,844 28.19 7.5 4,315,879 28.27 29.88 to 31.80 5,057,521 31.41 6.3 5,031,454 31.41 31.81 to 34.42 2,226,357 32.79 7.7 1,416,219 32.83 34.43 to 44.62 30,989,158 38.61 8.8 2,484,907 38.96 44.63 to 50.00 8,580,994 49.43 8.4 6,888,088 49.65 50.01 to 52.01 2,916,906 51.01 8.7 2,906,302 51.01 52.02 to 75.00 8,288,910 59.14 8.7 6,208,686 58.52 ---------- ---------- Total 95,015,151 53,020,352 ========== ==========
53 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) As a result of the merger with USSC, approximately 14.2 million options which were not previously exercisable became immediately exercisable on October 1, 1998. Upon consummation of the merger with AMP on April 2, 1999, approximately 7.8 million options became immediately exercisable due to the change in ownership of AMP resulting from the merger. TyCom has two option plans and an employee stock purchase plan. The exercise price of options granted under the plans is equal to the fair market value at the date of grant of TyCom common shares. TyCom options outstanding and exercisable at September 30, 2000 were 21,607,050 and 26,250, respectively, at prices ranging from $32.00 to $44.62 per share. STOCK-BASED COMPENSATION--SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), allows companies to measure compensation cost in connection with executive share option plans using a fair value based method or to continue to use an intrinsic value based method, which generally does not result in a compensation cost. The Company and TyCom have decided to continue to use the intrinsic value based method and do not recognize compensation expense for the issuance of options with an exercise price equal to or greater than the market price at the time of grant. Had the fair value based method been adopted by Tyco and TyCom, Tyco's pro forma net income and pro forma net income per common share for Fiscal 2000, Fiscal 1999 and Fiscal 1998 would have been as follows:
2000 1999 1998 -------- -------- -------- Net income--pro forma (in millions)...................... $4,136.7 $858.3 $1,063.3 Net income per common share--pro forma Basic.................................................. 2.45 0.52 0.67 Diluted................................................ 2.42 0.51 0.66
The estimated weighted-average fair value of Tyco and TyCom options granted during Fiscal 2000 was $16.26 and $17.47, respectively. The estimated weighted-average fair value of Tyco and AMP options granted during Fiscal 1999 was $12.13 and $7.11, respectively, on the date of grant using the option-pricing model and assumptions referred to below. The estimated weighted-average fair value of Tyco, USSC and AMP options granted during Fiscal 1998 was $8.24, $6.79 and $5.98, respectively, on the date of grant using the option-pricing model and assumptions referred to below. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for Fiscal 2000:
TYCO TYCOM --------- --------- Expected stock price volatility............................. 36% 60% Risk free interest rate..................................... 6.35% 6.19% Expected annual dividend yield per share.................... $0.05 -- Expected life of options.................................... 4.5 years 4.5 years
54 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) The following weighted-average assumptions were used for Fiscal 1999:
TYCO AMP --------- --------- Expected stock price volatility............................. 30% 27% Risk free interest rate..................................... 5.15% 5.07% Expected annual dividend yield per share.................... $0.05 1.25% Expected life of options.................................... 4.2 years 6.5 years
The following weighted-average assumptions were used for Fiscal 1998:
TYCO USSC AMP ------- --------- --------- Expected stock price volatility........................ 22% 39% 27% Risk free interest rate................................ 5.62% 5.40% 5.50% Expected annual dividend yield per share............... $0.05 $0.11 1.25% Expected life of options............................... 5 years 4.2 years 6.5 years
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of what the effects may be in future years. SFAS 123 does not apply to awards prior to 1995. Additional awards in future years are anticipated. TREASURY SHARES--In November 1999, the Board of Directors authorized the Company to reacquire up to 20 million of its common shares in the open market, which was completed during the quarter ended March 31, 2000. In January 2000, the Board of Directors authorized the Company to reacquire up to an additional $2.0 billion of its common shares in the open market, of which the Company has in excess of $0.9 billion remaining as of September 30, 2000. From time to time the Company, through its subsidiaries, also purchases shares in the open market to satisfy certain stock-based compensation arrangements. Treasury shares are recorded at cost in the Consolidated Balance Sheets. DIVIDENDS--Tyco has paid a quarterly cash dividend of $0.0125 per common share since July 1997. USSC paid quarterly dividends of $0.04 per share in Fiscal 1998. AMP paid dividends of $0.27 per share in the first two quarters of Fiscal 1999, $0.26 per share in the first quarter of Fiscal 1998 and $0.27 per share in the last three quarters of Fiscal 1998. 11. COMPREHENSIVE INCOME The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity, other than transactions with shareholders. Total comprehensive income (loss) is included in the 55 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. COMPREHENSIVE INCOME (CONTINUED) Consolidated Statements of Shareholders' Equity. The components of accumulated other comprehensive income (loss) are as follows ($ in millions):
ACCUMULATED CURRENCY UNREALIZED MINIMUM OTHER TRANSLATION GAIN (LOSS) PENSION COMPREHENSIVE ITEMS ON SECURITIES LIABILITY INCOME (LOSS) ----------- ------------- --------- ------------- Balance at September 30, 1997........... $(137.1) $ 10.8 $(10.6) $(136.9) Current period change, gross.......... (45.0) (21.5) (24.6) (91.1) Income tax benefit.................... 8.3 5.9 9.9 24.1 ------- -------- ------ ------- Balance at September 30, 1998........... (173.8) (4.8) (25.3) (203.9) Current period change, gross.......... (277.8) 18.6 5.2 (254.0) Income tax benefit (expense).......... 19.5 (6.0) (5.7) 7.8 ------- -------- ------ ------- Balance at September 30, 1999........... (432.1) 7.8 (25.8) (450.1) Current period change, gross.......... (384.0) 1,094.8 11.5 722.3 Income tax expense.................... -- (19.1) (4.0) (23.1) ------- -------- ------ ------- Balance at September 30, 2000........... $(816.1) $1,083.5 $(18.3) $ 249.1 ======= ======== ====== =======
12. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews the recoverability of the carrying value of long-lived assets, primarily property, plant and equipment and related goodwill and other intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment losses are recognized when expected future undiscounted cash flows are less than the assets' carrying value. When indicators of impairment are present, the carrying values of the assets are evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. The net book value of the underlying assets is adjusted to fair value if the sum of expected future undiscounted cash flows is less than book value. Fair values are based on quoted market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. 2000 CHARGES The Healthcare and Specialty Products segment recorded a charge of $99.0 million primarily related to an impairment in goodwill and other intangible assets associated with the Company exiting the interventional cardiology business of USSC. 1999 CHARGES The Electronics segment recorded a charge of $431.5 million in Fiscal 1999, which includes $350.1 million related to the write-down of property, plant and equipment, primarily manufacturing and administrative facilities, associated with facility closures throughout AMP's worldwide operations in connection with its profit improvement plan and the combination of facilities as a result of its merger with the Company, approximately $143.6 million of which was taken as part of the AMP profit improvement plan prior to its acquisition by Tyco. It also includes an impairment in the value of goodwill and other intangibles of $81.4 million. The Company evaluated the profitability and 56 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED) anticipated customer demand for its various products and found that certain product lines were underperforming compared to expectations. As a result of this analysis, which was performed in connection with AMP's profit improvement plan, the book value of goodwill and other intangibles was deemed impaired and written down to fair value. The Healthcare and Specialty Products segment recorded a charge of $76.0 million in Fiscal 1999 primarily relating to the write-down of property, plant and equipment, principally administrative facilities, associated with the consolidation of facilities in USSC's operations in the United States and Europe as a result of its merger with the Company. 13. EXTRAORDINARY ITEMS The extraordinary item in Fiscal 2000 of $0.2 million, net of tax benefit of $0.1 million, relates to the write-off of unamortized deferred financing costs related to the LYONs (See Note 4). The extraordinary item in Fiscal 1999 of $45.7 million, net of tax benefit of $18.0 million, relates primarily to the write-off of net unamortized deferred financing costs related to the Company's debt tender offers (See Note 4). The extraordinary item in Fiscal 1998 of $2.4 million, net of tax benefit of $1.2 million, was the write-off of unamortized deferred financing costs related to the LYONs (See Note 4). 14. EARNINGS PER COMMON SHARE The reconciliations between basic and diluted earnings per common share are as follows (in millions, except per share data):
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------- ------------------------------- ------------------------------- PER SHARE PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT LOSS SHARES AMOUNT -------- -------- --------- -------- -------- --------- -------- -------- --------- BASIC EARNINGS PER COMMON SHARE: Income before extraordinary items..................... $4,520.1 1,688.0 $2.68 $1,067.7 1,641.3 $0.65 $1,168.6 1,583.4 $0.74 Stock options and warrants.................. -- 21.2 -- 23.3 -- 20.9 Exchange of LYONs debt...... 1.5 4.0 3.9 10.2 7.2 20.4 -------- ------- -------- ------- -------- ------- DILUTED EARNINGS PER COMMON SHARE: Income before extraordinary items plus assumed conversions............... $4,521.6 1,713.2 $2.64 $1,071.6 1,674.8 $0.64 $1,175.8 1,624.7 $0.72 ======== ======= ======== ======= ======== =======
The computation of diluted earnings per common share in Fiscal 2000, Fiscal 1999 and Fiscal 1998 excludes the effect of the assumed exercise of approximately 7.3 million, 3.1 million and 23.8 million stock options, respectively, that were outstanding as of September 30, 2000, 1999 and 1998, respectively, because the effect would be anti-dilutive. 57 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. TYCOM LTD. In August 2000, TyCom Ltd., a subsidiary of the Company, completed an initial public offering (the "TyCom IPO") of 70,300,000 of its common shares at a price of $32.00 per share. Net proceeds to TyCom from the TyCom IPO, after deducting the underwriting discount, commissions and other direct costs, were approximately $2.1 billion. Of that amount, TyCom paid $200 million as a dividend to the Company. Prior to the TyCom IPO, the Company's ownership in TyCom's outstanding common shares was 100%, and at September 30, 2000 the Company's ownership in TyCom's outstanding common shares is approximately 86%. As a result of the TyCom IPO, the Company recognized a pre-tax gain on its investment in TyCom of approximately $1.76 billion ($1.01 billion, after-tax), which has been included in gain on issuance of common shares by subsidiary in the Consolidated Statement of Operations. 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CREDITS) Merger, restructuring and other non-recurring charges (credits), net, are as follows ($ in millions):
2000 1999 1998 ------------ ------------ ------------ Electronics.................................. $ (90.9)(i) $ 643.3(iii) $ 164.4 Healthcare and Specialty Products............ (10.9)(ii) 419.1 92.5 Fire and Security Services................... (11.2) (27.2) -- Telecommunications........................... 13.1 -- -- Corporate.................................... 276.2 -- -- -------- -------- -------- $ 176.3 $1,035.2 $ 256.9 ======== ======== ========
- ------------------------ (i) Includes $0.9 million charge related to the write-down of inventory, which is included in cost of sales, and a credit of $6.3 million also included in cost of sales. (ii) Includes $6.4 million charge related to the write-down of inventory, which is included in cost of sales. (iii) Includes $106.4 million charge related to the write-down of inventory, which is included in cost of sales. 2000 CHARGES AND CREDITS The Electronics segment recorded a net merger, restructuring and other non-recurring credit of $90.9 million, which consists of credits of $107.8 million and charges of $16.9 million. The merger, restructuring and other non-recurring credit of $107.8 million, of which $6.3 million is included in cost of sales, is related to the merger with AMP and costs associated with AMP's profit improvement plan. The $107.8 million credit consists of a revision in estimates of severance reserves of $55.2 million, facility reserves of $7.8 million and other reserves of $44.8 million. See the table on page 60 for Fiscal 2000 revision in estimates related to Fiscal 1999 charges. The restructuring and other non-recurring charges of $16.9 million, of which $0.9 million is included in cost of sales, is related to restructuring activities in AMP's Brazilian operations and wireless communications business. The following table 58 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CREDITS) (CONTINUED) provides information about the restructuring and other non-recurring charges related to the Electronics segment recorded in Fiscal 2000 ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL --------- -------- ---------- -------- -------- -------- Fiscal 2000 charges.................... 941 $ 4.9 3 $ 4.8 $ 7.2 $ 16.9 Fiscal 2000 utilization................ (97) -- (3) (1.7) (5.1) (6.8) ------ ------ ------ ------ ------ ------ Ending balance at September 30, 2000... 844 $ 4.9 -- $ 3.1 $ 2.1 $ 10.1 ====== ====== ====== ====== ====== ======
The cost of announced workforce reductions of $4.9 million includes the elimination of 941 positions primarily in Brazil. The cost of facility closures of $4.8 million consists of the shut-down and consolidation of 3 facilities. At September 30, 2000, 97 employees had been terminated and 3 facilities had been shut down. The remaining facility reserves are primarily for payments on non-cancellable lease obligations. The other charges of $7.2 million consist of the write-off of non-facility assets and other direct costs. The Healthcare and Specialty Products segment recorded a net merger, restructuring and other non-recurring credit of $10.9 million. The $10.9 million net credit consists of charges of $11.1 million related to USSC's suture business and charges of $7.9 million, of which $6.4 million is included in cost of sales, related to exiting USSC's interventional cardiology business. Substantially all of these restructuring activities were completed during the year. Also recorded was a credit of $29.9 million representing a revision in estimates of prior years' merger, restructuring and other non-recurring accruals, of which $19.7 million related primarily to the merger with USSC and $10.2 million related to the Company's 1997 restructuring accruals. The $19.7 million credit relates to a revision in estimates of severance reserves of $4.2 million, facility reserves of $4.5 million and other reserves of $11.0 million. See the table on page 61 for Fiscal 2000 revision in estimates related to Fiscal 1999 charges. The Fire and Security Services segment recorded restructuring and other non-recurring credits of $11.2 million related to revision in estimates of the Company's 1997 restructuring activities for amounts lower than originally recorded. Actions under the Company's 1997 restructuring plans have been substantially completed. The Telecommunications segment recorded a non-recurring charge of $13.1 million incurred in connection with the TyCom IPO. In addition to segment (credits) charges, the Company recorded non-recurring charges of $275.0 million as a reserve for certain claims relating to a merged company in the Healthcare business and $1.2 million for other non-recurring charges, all of which remains in other current liabilities in the Consolidated Balance Sheet at September 30, 2000. 1999 CHARGES AND CREDITS The Electronics segment recorded net merger, restructuring and other non-recurring charges of $643.3 million primarily related to the merger with AMP and costs associated with AMP's profit 59 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CREDITS) (CONTINUED) improvement plan. The following table provides information about these charges, in addition to revision in estimates of Fiscal 1999 charges ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL --------- -------- ---------- -------- -------- -------- Fiscal 1999 charges................ 16,139 $ 433.7 87 $ 68.6 $ 141.0 $ 643.3 Fiscal 1999 utilization............ (8,410) (359.2) (45) (15.4) (16.8) (391.4) Fiscal 2000 revision in estimates........................ (5,375) (55.2) (14) (7.8) (44.8) (107.8) Fiscal 2000 utilization............ (1,662) (7.9) (17) (14.0) (76.7) (98.6) ------- ------- ------- ------- ------- ------- Ending balance at September 30, 2000............................. 692 $ 11.4 11 $ 31.4 $ 2.7 $ 45.5 ======= ======= ======= ======= ======= =======
The cost of announced workforce reductions of $433.7 million includes the elimination of 16,139 positions primarily in the United States and Europe, consisting primarily of manufacturing and distribution, administrative, research and development and sales and marketing personnel. The cost of facility closures of $68.6 million consists primarily of the shut-down and consolidation of 87 facilities primarily in the United States and Europe, consisting primarily of manufacturing plants, distribution centers, administrative buildings, research and development facilities and sales offices. It also includes $18.3 million related to the write-down of inventory, which is included in cost of sales. At September 30, 2000, 10,072 employees had been terminated and 62 facilities had been shut down. The other charges of $141.0 million consist of transaction costs of $67.9 million for legal, printing, accounting, financial advisory services and other direct expenses related to the AMP merger; $88.1 million related to the write-down of inventory, discussed below; lease termination costs following the merger of $9.6 million; a credit of $50.0 million related to a litigation settlement with AlliedSignal Inc.; and other costs of $25.4 million relating to the consolidation of certain product lines and other non-recurring charges related to the AMP merger. As part of the integration of AMP's electronics business and AMP's profit improvement plan, the Company evaluated the profitability and anticipated customer demand for its various products. As a result of this evaluation, management decided to exit certain product lines and/or businesses which were under-performing relative to expectations. The inventory held by the Company related to these exited activities was deemed impaired and written down to estimated fair value. The total write-down of $88.1 million was recorded as a charge to cost of sales. These discontinued product lines represented approximately $150 million of historical net sales for AMP on an annualized basis. The Healthcare and Specialty Products segment recorded net merger, restructuring and other non-recurring charges of $419.1 million, consisting of a $423.8 million charge primarily related to the merger with USSC and a $4.7 million credit representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals discussed below. The following table provides 60 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CREDITS) (CONTINUED) information about these charges, in addition to revision in estimates of Fiscal 1999 charges ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL --------- -------- ---------- -------- -------- -------- Fiscal 1999 charges................. 1,467 $ 124.8 45 $ 51.8 $ 247.2 $ 423.8 Fiscal 1999 activity................ (1,282) (99.3) (20) (18.3) (217.6) (335.2) Fiscal 2000 revision in estimates... -- (4.2) (1) (4.5) (11.0) (19.7) Fiscal 2000 utilization............. (91) (14.8) (17) (10.7) (18.6) (44.1) ------- ------- ------ ------- ------- ------- Ending balance at September 30, 2000.............................. 94 $ 6.5 7 $ 18.3 $ -- $ 24.8 ======= ======= ====== ======= ======= =======
The cost of announced workforce reductions of $124.8 million includes the elimination of 1,467 positions primarily in the United States and Europe, consisting primarily of manufacturing and distribution, sales and marketing, administrative and research and development personnel. The cost of facility closures of $51.8 million includes the shut-down and consolidation of 45 facilities primarily in Europe and the United States, consisting primarily of manufacturing plants, distribution centers, sales offices, administrative buildings and research and development facilities. At September 30, 2000, 1,373 employees had been terminated and 37 facilities had been shut down. The other charges of $247.2 million consist of transaction costs of $53.3 million for legal, printing, accounting, financial advisory services and other direct expenses related to the USSC merger, lease termination costs following the merger of $156.8 million and other costs of $37.1 million relating to the consolidation of certain product lines and other non-recurring charges primarily related to the USSC merger. The lease termination costs of $156.8 million relate to the USSC North Haven facility that was purchased by Tyco subsequent to the merger (See Note 2). The remaining balance at September 30, 2000 of $24.8 million is included in other current liabilities in the Consolidated Balance Sheet. The Company currently anticipates that the restructuring and other non-recurring activities to which all of these charges relate will be completed within Fiscal 2001. In Fiscal 1999, the Company recorded a credit of $31.9 million, including $27.2 million in the Fire and Security Services segment and $4.7 million in the Healthcare and Specialty Products segment referred to above, representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. Most of the actions under Tyco's 1997 restructuring and other non-recurring plans are completed or near completion and have resulted in total estimated costs being less than originally anticipated. 1998 CHARGES AND CREDIT During the fourth quarter of Fiscal 1998, AMP recorded charges of $185.8 million associated with its profit improvement plan, which includes the reduction of support staff throughout all its business units and the consolidation of manufacturing plants and other facilities, in addition to certain sales growth initiatives. These charges include the cost of staff reductions of $172.1 million involving the voluntary retirement and involuntary termination of approximately 2,700 staff support personnel and 700 direct manufacturing employees, and the cost of consolidation of certain facilities of $13.7 million 61 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CREDITS) (CONTINUED) relating to six plant and facility closures and consolidations. At September 30, 1999, these restructuring activities were substantially completed. See Note 18 for discussion of the voluntary early retirement program. During the first quarter of Fiscal 1998, AMP recorded a credit of $21.4 million to merger, restructuring and other non-recurring charges representing a revision of estimates related to its 1996 restructuring activities, which were completed in Fiscal 1998. During the fourth quarter of Fiscal 1998, USSC recorded certain charges of $80.5 million. These charges include $70.9 million of costs to exit certain businesses representing the write down of assets from earlier purchases of technology that had minimal commercial application and the adjustment to net realizable value of certain assets. In addition, merger costs of $9.6 million were recorded that represent legal and insurance costs related to the merger consummated in the first quarter of Fiscal 1999. During the first quarter of Fiscal 1998, USSC recorded restructuring charges of $12.0 million related to employee severance costs, facility disposals and asset write-downs as part of USSC's cost cutting program. USSC substantially completed its 1998 restructuring activities during Fiscal 1999. 17. COMMITMENTS AND CONTINGENCIES The Company occupies certain facilities under leases that expire at various dates through the year 2030. Rental expense under these leases and leases for equipment was $442.7 million, $381.0 million and $331.7 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. At September 30, 2000, the minimum lease payment obligations under noncancelable operating leases were as follows: $435.7 million in Fiscal 2001, $335.4 million in Fiscal 2002, $239.5 million in Fiscal 2003, $170.4 million in Fiscal 2004, $142.7 million in Fiscal 2005 and an aggregate of $431.4 million in Fiscal years 2006 through 2030. 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 or results of operations. The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon the Company's experience with environmental remediation matters, the Company has concluded that there is at least a reasonable possibility that remedial costs will be incurred with respect to these sites in an aggregate amount in the range of $32.9 million to $95.2 million. At September 30, 2000, the Company concluded that the most probable amount that will be incurred within this range is $68.3 million. $35.4 million of such amount is included in accrued expenses and other current liabilities and $32.9 million is included in other long-term liabilities in the Consolidated Balance Sheet. Based upon information available to the Company, at those sites where there has been an allocation of the liability for cleanup costs among a number of parties, including the Company, and such liability could be joint and several, management believes it is probable that other responsible parties will fully pay the cost allocated to them, except with respect to one site for which the Company has assumed that one of the identified responsible parties will be unable to pay the cost allocated to it and that such party's cost will be reapportioned among the remaining responsible parties. In view of the Company's financial position and reserves for 62 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. COMMITMENTS AND CONTINGENCIES (CONTINUED) environmental matters of $68.3 million, the Company has concluded that its payment of such estimated amounts will not have a material effect on its financial position, results of operations or liquidity. The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or liquidity. 18. RETIREMENT PLANS DEFINED BENEFIT PENSION PLANS--The Company has a number of noncontributory and contributory defined benefit retirement plans covering certain of its U.S. and non-U.S. employees, designed in accordance with conditions and practices in the countries concerned. Contributions are based on periodic actuarial valuations which use the projected unit credit method of calculation and are charged to the Consolidated Statements of Operations on a systematic basis over the expected average remaining service lives of current employees. The net pension expense is assessed in accordance with the advice of professionally qualified actuaries in the countries concerned or is based on subsequent formal reviews for the purpose. The Company's funding policy is to make annual contributions to the extent such contributions are tax deductible as actuarially determined. The benefits under the defined benefit plans are based on years of service and compensation. VOLUNTARY EARLY RETIREMENT PROGRAMS--In the fourth quarter of Fiscal 1998, AMP offered enhanced retirement benefits to targeted groups of employees. The cost of these benefits totaled $138.3 million and was recorded as part of AMP's fourth quarter restructuring charge. This amount has not been included in the determination of net periodic pension cost presented below. The net periodic pension (income) cost for all U.S. and non-U.S. defined benefit pension plans includes the following components ($ in millions):
U.S. PLANS ------------------------------ 2000 1999 1998 -------- -------- -------- Service cost................................................ $ 12.1 $ 37.8 $ 44.7 Interest cost............................................... 84.6 86.2 93.3 Expected return on plan assets.............................. (112.8) (96.1) (109.9) Recognition of initial net asset............................ (1.0) (0.9) (1.9) Amortization of prior service cost.......................... 0.7 3.0 3.2 Recognized net actuarial gain............................... (6.4) (0.6) (7.1) Curtailment/settlement gain................................. (4.6) (102.6) (48.6) ------ ------ ------ Net periodic benefit income................................. $(27.4) $(73.2) $(26.3) ====== ====== ======
63 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED)
NON-U.S. PLANS ------------------------------- 2000 1999 1998 -------- --------- -------- Service cost............................................... $60.9 $47.4 $35.6 Interest cost.............................................. 75.1 48.0 43.1 Expected return on plan assets............................. (85.3) (56.8) (53.6) Recognition of initial net obligation...................... 0.2 0.1 -- Amortization of prior service cost......................... 0.8 0.6 0.6 Recognized net actuarial loss (gain)....................... 2.3 1.1 (0.8) Curtailment/settlement (gain) loss......................... (2.7) 1.2 6.7 ----- ----- ----- Net periodic benefit cost.................................. $51.3 $41.6 $31.6 ===== ===== =====
The curtailment/settlement gains in Fiscal 1999 relate primarily to the termination of employees at AMP and the freezing of AMP's pension plan. The curtailment/settlement gains in Fiscal 1998 relate primarily to the freezing of the ADT pension plan. These curtailment/settlement gains have been recorded in selling, general and administrative expenses. The net pension cost recognized at September 30, 2000 and 1999 for all U.S. and non-U.S. defined benefit plans is as follows ($ in millions):
U.S. PLANS NON-U.S. PLANS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year....... $1,142.5 $1,191.8 $1,339.9 $ 835.4 Service cost.................................. 9.6 35.8 59.6 45.7 Interest cost................................. 84.6 86.2 75.1 48.0 Employee contributions........................ -- -- 8.7 8.7 Plan amendments............................... 0.1 8.3 0.6 0.8 Actuarial (gain) loss......................... (15.1) (74.4) (55.1) 28.1 Benefits paid................................. (77.0) (68.8) (44.1) (49.2) Acquisitions.................................. 19.2 190.9 132.3 404.9 Divestitures.................................. -- (69.8) -- (5.9) Plan curtailments............................. (9.0) (136.3) (2.9) (10.7) Plan settlements.............................. (71.0) (25.7) (10.1) (2.4) Special termination benefits.................. 1.9 4.5 3.0 9.2 Currency translation adjustment............... -- -- (139.4) 27.3 -------- -------- -------- -------- Benefit obligation at end of year............. $1,085.8 $1,142.5 $1,367.6 $1,339.9 ======== ======== ======== ========
64 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED)
U.S. PLANS NON-U.S. PLANS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year........................................ $1,165.8 $ 997.4 $1,175.2 $ 700.5 Actual return on plan assets.................. 258.7 169.3 121.7 86.0 Employer contributions........................ 23.9 24.7 55.6 38.8 Employee contributions........................ -- -- 8.7 8.8 Acquisitions.................................. 7.7 155.8 74.7 376.9 Divestitures.................................. -- (84.2) -- (7.5) Plan settlements.............................. (71.0) (25.7) (9.9) (2.4) Benefits paid................................. (77.0) (68.9) (44.1) (49.2) Administrative expenses paid.................. (3.9) (2.6) (1.7) (1.8) Currency translation adjustment............... -- -- (127.1) 25.1 -------- -------- -------- -------- Fair value of plan assets at end of year...... $1,304.2 $1,165.8 $1,253.1 $1,175.2 ======== ======== ======== ======== Funded status................................. $ 218.4 $ 23.3 $ (114.5) $ (164.7) Unrecognized net actuarial (gain) loss........ (284.7) (128.8) (2.3) 89.4 Unrecognized prior service cost............... 4.4 6.7 5.3 6.0 Unrecognized transition asset................. (4.0) (5.1) (3.8) (4.5) -------- -------- -------- -------- Net amount recognized......................... $ (65.9) $ (103.9) $ (115.3) $ (73.8) ======== ======== ======== ========
U.S. PLANS NON-U.S. PLANS ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Prepaid benefit cost............................... $ 47.6 $ 29.2 $ 107.6 $106.8 Accrued benefit liability.......................... (117.6) (141.7) (255.8) (222.1) Intangible asset................................... 0.8 1.0 4.9 6.3 Accumulated other comprehensive income............. 3.3 7.6 28.0 35.2 ------ ------- ------- ------ Net amount recognized.............................. $(65.9) $(103.9) $(115.3) $(73.8) ====== ======= ======= ======
U.S. PLANS NON-U.S. PLANS ------------------------- ------------------------- WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30, 2000 1999 2000 1999 - ------------------------------------------------ -------- -------- -------- -------- Discount rate............................... 8.00% 7.75% 5.75% 5.65% Expected return on plan assets.............. 9.75 8.60 7.40 7.39 Rate of compensation increase............... 4.40 4.30 4.07 4.03
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for U.S. pension plans with accumulated benefit obligations in excess of plan assets were $30.3 million, $29.3 million and $9.3 million, respectively, as of September 30, 2000 and $186.7 million, $173.4 million and $130.7 million, respectively, as of September 30, 1999. 65 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) The projected benefit obligation, 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 $543.8 million, $464.0 million and $256.1 million, respectively, as of September 30, 2000 and $563.5 million, $517.1 million and $314.6 million, respectively, as of September 30, 1999. 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 $8.2 million, $7.5 million and $1.7 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. DEFINED CONTRIBUTION RETIREMENT PLANS--The Company maintains several defined contribution retirement plans, which include 401(k) matching programs, as well as qualified and nonqualified profit sharing and share bonus retirement plans. Pension expense for the defined contribution plans is computed as a percentage of participants' compensation and was $132.7 million, $73.2 million and $57.1 million for Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. The Company also maintains 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. Expense related to the SERP was $10.8 million, $6.9 million and $3.7 million in Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively. POSTRETIREMENT BENEFIT PLANS--The Company generally does not provide postretirement benefits other than pensions for its employees. Certain of Former Tyco's acquired operations provide these benefits to employees who were eligible at the date of acquisition. In addition, ADT's electronic security services operation in the United States sponsors an unfunded defined benefit postretirement plan which covers both salaried and non-salaried employees and which provides medical and other benefits. This postretirement health care plan is contributory, with retiree contributions adjusted annually. The Company recorded a gain of $8.8 million related to the curtailment of this plan in Fiscal 1998 which was included in selling, general and administrative expenses. AMP provides postretirement health care coverage to qualifying U.S. retirees. As a result of the merger with Tyco, a $13.7 million adjustment was recorded to conform AMP's accounting method for postretirement benefits to Tyco's method, regarding the initial recognition of such benefits upon adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." In the second quarter of Fiscal 1999, AMP offered enhanced postretirement benefits to terminated employees totaling $16.0 million, which was recorded as part of AMP's second quarter restructuring charge. This amount has not been included in the determination of net periodic benefit cost presented below. Net periodic postretirement benefit cost reflects the following components ($ in millions):
2000 1999 1998 -------- -------- -------- Service cost (with interest)................................ $ 1.1 $ 3.5 $ 3.2 Interest cost............................................... 12.7 12.0 9.5 Amortization of prior service cost.......................... (1.9) (2.2) (2.5) Amortization of net gain.................................... (1.6) (0.7) (1.4) Curtailment gain............................................ (3.2) (5.8) (8.8) ------ ------ ------ Net periodic postretirement benefit cost.................... $ 7.1 $ 6.8 $ -- ====== ====== ======
66 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) The components of the accrued postretirement benefit obligation, all of which are unfunded, are as follows ($ in millions):
SEPTEMBER 30, ----------------------- 2000 1999 -------- -------- Benefit obligation at beginning of year..................... $ 168.2 $ 174.1 Service cost................................................ 1.1 3.5 Interest cost............................................... 12.7 12.0 Amendments.................................................. (3.1) 4.5 Actuarial gain.............................................. (1.7) (4.1) Acquisition................................................. 8.4 11.2 Curtailment gain (loss)..................................... 1.7 (15.3) Expected net benefits paid.................................. (19.6) (17.8) Currency fluctuation (gain) loss............................ (0.1) 0.1 ------- ------- Benefit obligation at end of year........................... $ 167.6 $ 168.2 ======= ======= Funded status............................................... $(167.6) $(168.2) Unrecognized net gain....................................... (29.6) (24.5) Unrecognized prior service cost............................. (11.1) (13.8) ------- ------- Accrued postretirement benefit cost......................... $(208.3) $(206.5) ======= =======
For measurement purposes, in Fiscal 2000, an 8.15% composite annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to 5.00% by the year 2008 and remain at that level thereafter. The health care cost trend rate assumption may have a significant effect on the amounts reported. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects ($ in millions):
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- -------------- Effect on total of service and interest cost components... $0.5 $(0.5) Effect on postretirement benefit obligation............... 6.2 (5.4)
The combined weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.00% at September 30, 2000 (7.75% at September 30, 1999). 19. CONSOLIDATED SEGMENT DATA The Company's reportable segments are strategic business units that operate in different industries and are managed separately. Segment data have been presented on a basis consistent with how business activities are reported internally to management. Certain corporate expenses were allocated to each operating segment's operating income, based generally on net sales and other factors. For additional information, including a description of the products and services included in each segment, see Note 1. 67 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CONSOLIDATED SEGMENT DATA (CONTINUED) Selected information by industry segment is presented below ($ in millions).
AS AT AND FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Net sales: Electronics................................... $ 9,909.8 $ 6,087.4 $ 5,787.3 Telecommunications............................ 2,539.7 1,623.8 1,280.0 Healthcare and Specialty Products............. 6,467.9 5,742.7 4,672.4 Fire and Security Services.................... 6,076.6 5,534.0 4,393.5 Flow Control Products and Services............ 3,937.9 3,508.6 2,928.5 --------- --------- --------- $28,931.9 $22,496.5 $19,061.7 ========= ========= =========
AS AT AND FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Operating income (loss): Electronics......................... $ 2,538.6 (1) $ (225.9)(6) $ 403.1 (9) Telecommunications.................. 516.6 (2) 325.1 268.3 Healthcare and Specialty Products... 1,439.8 (3) 890.9 (7) 389.3 (10) Fire and Security Services.......... 1,040.5 (4) 934.2 (8) 630.6 Flow Control Products and Services.......................... 746.9 605.5 456.9 --------- --------- --------- 6,282.4 2,529.8 2,148.2 --------- --------- --------- Less: Corporate expenses............ (463.6)(5) (122.9) (68.3) Goodwill amortization expense..................... (344.4) (216.1) (131.8) --------- --------- --------- $ 5,474.4 $ 2,190.8 $ 1,948.1 ========= ========= ========= Total Assets: Electronics......................... $12,248.1 $ 8,326.9 $ 4,995.1 Telecommunications.................. 2,029.9 2,392.2 1,366.8 Healthcare and Specialty Products... 8,925.6 8,696.2 7,256.8 Fire and Security Services.......... 9,298.5 8,219.4 6,606.2 Flow Control Products and Services.......................... 5,748.4 3,858.6 2,960.3 Corporate........................... 2,153.8 851.0 255.5 --------- --------- --------- $40,404.3 $32,344.3 $23,440.7 ========= ========= ========= Depreciation and Amortization: Electronics......................... $ 563.0 $ 421.3 $ 430.0 Telecommunications.................. 67.4 47.1 36.5 Healthcare and Specialty Products... 330.1 287.6 262.5 Fire and Security Services.......... 531.6 417.2 269.8 Flow Control Products and Services.......................... 144.7 130.0 120.0 Corporate........................... 7.6 8.0 18.9 --------- --------- --------- $ 1,644.4 $ 1,311.2 $ 1,137.7 ========= ========= =========
68 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CONSOLIDATED SEGMENT DATA (CONTINUED)
AS AT AND FOR THE YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Capital Expenditures: Electronics......................... $ 293.8 $ 391.1 $ 492.0 Telecommunications.................. 316.0 (11) 97.4 28.2 Healthcare and Specialty Products... 251.1 235.9 (12) 202.9 Fire and Security Services.......... 764.3 746.3 491.4 Flow Control Products and Services.......................... 142.1 135.1 92.6 Corporate........................... 47.6 26.7 10.4 --------- --------- --------- $ 1,814.9 $ 1,632.5 $ 1,317.5 ========= ========= =========
- ------------------------ (1) Includes a restructuring charge of $16.9 million, of which $0.9 million is included in cost of sales, related to AMP's Brazilian operations and wireless communications business and a credit of $107.8 million, of which $6.3 million is included in cost of sales, primarily representing a revision of estimates of merger, restructuring, and other non-recurring accruals related to the merger with AMP and AMP's profit improvement plan. (2) Includes a non-recurring charge of $13.1 million incurred in connection with the TyCom IPO. (3) Includes charges for the impairment of long-lived assets of $99.0 million and restructuring and other non-recurring charges of $7.9 million, of which $6.4 million is included in cost of sales, related to exiting USSC's interventional cardiology business. Includes restructuring and other non-recurring charges of $11.1 million related to USSC's suture business. Also includes a credit of $29.9 million representing a revision in estimates of merger, restructuring, and other non-recurring accruals consisting of $19.7 million related primarily to the merger with USSC and $10.2 million related to the Company's 1997 restructuring accruals. (4) Includes a merger, restructuring and other non-recurring credit of $11.2 million representing a revision in estimates related to the Company's 1997 restructuring accruals. (5) Includes a non-recurring charges of $275.0 million as a reserve for certain claims relating to a merged company in the Healthcare business and other non-recurring charges of $1.2 million. (6) Includes merger, restructuring and other non-recurring charges of $643.3 million, of which $106.4 million is included in cost of sales, and charges for the impairment of long-lived assets of $431.5 million primarily related to the merger with AMP and AMP's profit improvement plan. (7) Includes merger, restructuring and other non-recurring charges of $423.8 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and a credit of $4.7 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (8) Includes a credit of $27.2 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (9) Includes restructuring and other non-recurring charges recorded by AMP of $185.8 million related to its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to AMP's 1996 restructuring activities. (10) Includes non-recurring charges of $80.5 million primarily related to business exit costs and restructuring charges of $12.0 million related to USSC's operations. (11) Includes $111.1 million in spending for construction of the TyCom Global Network. (12) Excludes $234.0 million related to the purchase of property previously leased by USSC. 69 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONSOLIDATED GEOGRAPHIC DATA Selected information by geographic area is presented below ($ in millions).
AS AT AND FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Net sales: Americas (primarily U.S.)..................... $18,457.5 $14,409.0 $12,518.4 Europe........................................ 6,610.1 5,362.4 4,431.4 Asia--Pacific................................. 3,864.3 2,725.1 2,111.9 --------- --------- --------- $28,931.9 $22,496.5 $19,061.7 ========= ========= ========= Long-Lived Assets: Americas (primarily U.S.)..................... $17,655.4 $13,849.4 Europe........................................ 5,453.3 4,084.6 Asia--Pacific................................. 1,751.5 1,838.3 Corporate..................................... 435.0 311.3 ========= ========= $25,295.2 $20,083.6 ========= =========
21. SUPPLEMENTARY BALANCE SHEET INFORMATION Selected supplementary balance sheet information is presented below ($ in millions).
SEPTEMBER 30, ------------------- 2000 1999 -------- -------- Inventories: Purchased materials and manufactured parts................ $1,076.5 $ 719.1 Work in process........................................... 1,105.1 774.2 Finished goods............................................ 1,663.5 1,355.8 -------- -------- $3,845.1 $2,849.1 ======== ======== Property, Plant and Equipment: Land...................................................... $ 538.8 $ 386.8 Buildings................................................. 2,416.1 2,414.0 Subscriber systems........................................ 3,200.7 2,703.3 Machinery and equipment................................... 7,089.5 7,005.3 Leasehold improvements.................................... 295.8 224.4 Construction in progress.................................. 727.6 573.0 Accumulated depreciation.................................. (6,050.1) (5,984.4) -------- -------- $8,218.4 $7,322.4 ======== ======== Accured expenses and other current liabilities include the following: Accrued payroll and payroll related costs (including bonuses)................................................ $ 808.9 $ 723.5 ======== ========
70 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. SUPPLEMENTARY INCOME STATEMENT INFORMATION Selected supplementary income statement information is presented below ($ in millions).
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 2000 1999 1998 -------- -------- -------- Research and development.......................... $527.5 $450.5 $511.4 Advertising....................................... $149.3 $133.1 $110.8
23. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is presented below ($ in millions, except per share data).
YEAR ENDED SEPTEMBER 30, 2000 ----------------------------------------------------- 1ST QTR.(1) 2ND QTR.(2) 3RD QTR.(3) 4TH QTR.(4) ----------- ----------- ----------- ----------- Net sales................................... $6,638.8 $7,070.0 $7,417.8 $7,805.3 Gross profit................................ 2,446.9 2,614.7 2,868.0 3,071.1 Income before extraordinary items........... 757.2 855.5 997.3 1,910.1 Net income (9).............................. 757.0 855.5 997.3 1,910.1 Basic income per common share: Income before extraordinary items......... $ 0.45 $ 0.51 $ 0.59 $ 1.13 Net income per common share............... 0.45 0.51 0.59 1.13 Diluted income per common share: Income before extraordinary items......... $ 0.44 $ 0.50 $ 0.58 $ 1.12 Net income per common share............... 0.44 0.50 0.58 1.12
YEAR ENDED SEPTEMBER 30, 1999 ----------------------------------------------------- 1ST QTR.(5) 2ND QTR.(6) 3RD QTR.(7) 4TH QTR.(8) ----------- ----------- ----------- ----------- Net sales................................... $5,213.5 $5,238.7 $5,819.8 $6,224.5 Gross profit................................ 1,796.9 1,849.0 2,036.5 2,381.0 (Loss) income before extraordinary items.... (89.6) 164.3 212.2 780.8 Net (loss) income (9)....................... (92.0) 121.8 211.7 780.5 Basic (loss) income per common share: (Loss) income before extraordinary items................................... $ (0.06) $ 0.10 $ 0.13 $ 0.47 Net (loss) income per common share........ (0.06) 0.07 0.13 0.47 Diluted (loss) income per common share: (Loss) income before extraordinary items................................... $ (0.06) $ 0.10 $ 0.13 $ 0.46 Net (loss) income per common share........ (0.06) 0.07 0.13 0.46
- ------------------------ (1) Includes charges for the impairment of long-lived assets of $99.0 million and restructuring and other non-recurring charges of $7.9 million, of which $6.4 million is included in cost of sales, related to exiting USSC's interventional cardiology business; restructuring and other non-recurring charges of $7.7 million related to USSC's suture business; and a restructuring charge of $6.5 million related to AMP's Brazilian operations. Also includes a credit of $94.7 million representing a revision in estimates of merger, restructuring and other non-recurring accruals, consisting of $57.8 million related to the merger with AMP and AMP's profit improvement plan, $15.5 million related primarily to the merger with USSC and $21.4 million related to the Company's 1997 restructuring accruals. (2) Includes merger, restructuring and other non-recurring charges of $10.4 million, of which $0.9 million is included in cost of sales, primarily related to activities in AMP's wireless 71 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 23. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED) communications business and restructuring and other non-recurring charges of $0.5 million related to USSC's suture business. Also includes a credit of $12.7 million, of which $6.3 million is included in cost of sales, primarily representing a revision of estimates of merger, restructuring and other non-recurring accruals related to the merger with AMP and AMP's profit improvement plan. (3) Includes restructuring and other non-recurring charges of $2.9 million related to USSC's suture business. Also includes a merger, restructuring and other non-recurring credit of $9.8 million representing a revision of estimates of merger, restructuring and other non-recurring accruals related to the merger with AMP and AMP's profit improvement plan. (4) Includes non-recurring charges of $275.0 million as a reserve for certain claims relating to a merged company in the Healthcare business, $13.1 million related to a non-recurring charge incurred in connection with the TyCom IPO and $1.2 million of other non-recurring charges. Also includes credits of $27.5 million and $4.2 million representing a revision of estimates of merger, restructuring and other non-recurring accruals related to the merger with AMP and AMP's profit improvement plan and the merger with USSC, respectively. (5) Includes merger, restructuring and other non-recurring charges of $412.6 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and restructuring and other non-recurring charges of $116.5 million, of which $28.3 million is included in cost of sales, and charges for the impairment of long-lived assets of $65.6 million related to AMP's profit improvement plan. Also includes a credit of $3.0 million representing a revision of estimates related to Tyco's 1997 merger, restructuring and other non-recurring accruals. (6) Includes restructuring and other non-recurring charges of $158.8 million, of which $26.9 million is included in cost of sales, and charges for the impairment of long-lived assets of $171.1 million related to AMP's profit improvement plan. Also includes restructuring and other non-recurring charges of $2.0 million related to the merger with USSC and a credit of $5.3 million representing a revision of estimates related to Tyco's 1997 merger, restructuring and other non-recurring accruals. (7) Includes merger, restructuring and other non-recurring charges of $368.0 million, of which $51.2 million is included in cost of sales, and charges for the impairment of long-lived assets of $194.8 million, related to the merger with AMP and AMP's profit improvement plan. Also includes restructuring and other non-recurring charges of $2.8 million related to the merger with USSC and a credit of $19.7 million representing a revision of estimates related to Tyco's 1997 merger, restructuring and other non-recurring accruals. (8) Includes restructuring and other non-recurring charges of $6.4 million related to the merger with USSC. Also includes a credit of $3.9 million representing a revision of estimates related to Tyco's 1997 merger, restructuring and other non-recurring accruals. (9) Extraordinary items relate principally to the Company's debt tender offers and the write-off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 72 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. During Fiscal 2000 and Fiscal 1999, Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, issued public debt securities (See Note 4) which are fully and unconditionally guaranteed by Tyco. In accordance with SEC rules promulgated in August 2000, the following presents condensed consolidating financial information for TIG and its subsidiaries, as if TIG and its current organizational structure were in place for all periods presented. Condensed financial information for Tyco and TIG on a stand-alone basis are presented using the equity method of accounting for subsidiaries in which it owns or controls twenty percent or more of the voting shares. CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2000
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- ------------ ------------- --------- CURRENT ASSETS: Cash and cash equivalents..................... $ 34.2 $ 3.6 $ 1,227.0 $ -- $ 1,264.8 Accounts receivable, net...................... 1.2 -- 5,629.2 -- 5,630.4 Inventory, net................................ -- -- 3,845.1 -- 3,845.1 Intercompany receivables...................... 802.4 51.3 3,661.3 (4,515.0) -- Other current assets.......................... -- 14.4 2,061.0 -- 2,075.4 ---------- ---------- ---------- ---------- --------- Total current assets.......................... 837.8 69.3 16,423.6 (4,515.0) 12,815.7 PROPERTY, PLANT AND EQUIPMENT, NET............ 6.7 -- 8,322.8 -- 8,329.5 GOODWILL AND OTHER INTANGIBLE ASSETS, NET..... -- 0.7 16,331.9 -- 16,332.6 INVESTMENT IN SUBSIDIARIES.................... 31,307.9 16,133.2 -- (47,441.1) -- INTERCOMPANY LOANS RECEIVABLE................. 269.2 10,678.8 -- (10,948.0) -- OTHER ASSETS.................................. 1.4 9.2 4,524.8 (1,608.9) 2,926.5 ---------- ---------- ---------- ---------- --------- TOTAL ASSETS.............................. $ 32,423.0 $ 26,891.2 $ 45,603.1 $(64,513.0) $40,404.3 ========== ========== ========== ========== ========= CURRENT LIABILITIES: Loans payable and current maturities of long- term debt................................... $ -- $ 1,248.9 $ 288.3 $ -- $ 1,537.2 Accounts payable.............................. 0.3 0.2 3,291.4 -- 3,291.9 Accrued expenses and other current liabilities................................. 25.3 118.3 3,894.6 -- 4,038.2 Intercompany payables......................... 2,447.8 1,213.5 853.7 (4,515.0) -- Other......................................... -- 0.5 2,377.3 433.8 2,811.6 ---------- ---------- ---------- ---------- --------- Total current liabilities..................... 2,473.4 2,581.4 10,705.3 (4,081.2) 11,678.9 LONG-TERM DEBT................................ -- 8,144.3 1,317.5 -- 9,461.8 INTERCOMPANY LOANS PAYABLE.................... -- -- 10,948.0 (10,948.0) -- OTHER LONG-TERM LIABILITIES................... -- 3.9 1,883.0 -- 1,886.9 MINORITY INTEREST............................. -- -- 343.5 -- 343.5 SHAREHOLDERS' EQUITY: Common shares................................. 345.0 -- 5.1 (13.2) 336.9 Capital in excess: Share premium............................... 16,031.2 -- -- (10,797.9) 5,233.3 Contributed surplus......................... 5,973.3 12,665.0 14,365.6 (30,217.6) 2,786.3 Accumulated earnings.......................... 7,600.1 3,496.6 5,786.0 (8,455.1) 8,427.6 Accumulated other comprehensive income........ -- -- 249.1 -- 249.1 ---------- ---------- ---------- ---------- --------- TOTAL SHAREHOLDERS' EQUITY................ 29,949.6 16,161.6 20,405.8 (49,483.8) 17,033.2 ---------- ---------- ---------- ---------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $ 32,423.0 $ 26,891.2 $ 45,603.1 $(64,513.0) $40,404.3 ========== ========== ========== ========== =========
73 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 1999
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- ------------ ------------- --------- CURRENT ASSETS: Cash and cash equivalents..................... $ 22.8 $ 15.4 $ 1,723.8 $ -- $ 1,762.0 Accounts receivable, net...................... 2.2 -- 4,580.1 -- 4,582.3 Inventory, net................................ -- -- 2,849.1 -- 2,849.1 Intercompany receivables...................... 704.5 42.1 51.1 (797.7) -- Other current assets.......................... 0.4 3.6 1,948.1 -- 1,952.1 --------- --------- --------- ---------- --------- Total current assets.......................... 729.9 61.1 11,152.2 (797.7) 11,145.5 PROPERTY, PLANT AND EQUIPMENT, NET............ 0.5 -- 7,321.9 -- 7,322.4 GOODWILL AND OTHER INTANGIBLE ASSETS, NET..... -- -- 12,158.9 -- 12,158.9 INVESTMENT IN SUBSIDIARIES.................... 25,220.7 13,577.1 -- (38,797.8) -- INTERCOMPANY LOANS RECEIVABLE................. 265.4 8,255.1 -- (8,520.5) -- OTHER ASSETS.................................. 1.4 8.2 2,434.2 (726.3) 1,717.5 --------- --------- --------- ---------- --------- TOTAL ASSETS.............................. $26,217.9 $21,901.5 $33,067.2 $(48,842.3) $32,344.3 ========= ========= ========= ========== ========= CURRENT LIABILITIES: Loans payable and current maturities of long- term debt................................... $ -- $ 589.0 $ 423.8 $ -- $ 1,012.8 Accounts payable.............................. -- -- 2,530.8 -- 2,530.8 Accrued expenses and other current liabilities................................. 24.8 100.3 3,420.6 -- 3,545.7 Intercompany payables......................... 44.1 7.0 746.6 (797.7) -- Other......................................... -- -- 1,730.7 305.0 2,035.7 --------- --------- --------- ---------- --------- Total current liabilities..................... 68.9 696.3 8,852.5 (492.7) 9,125.0 LONG-TERM DEBT................................ -- 7,594.8 1,514.6 -- 9,109.4 INTERCOMPANY LOANS PAYABLE.................... -- -- 8,520.5 (8,520.5) -- OTHER LONG-TERM LIABILITIES................... -- 4.9 1,735.7 -- 1,740.6 SHAREHOLDERS' EQUITY: Common shares................................. 342.2 -- 1.0 (5.2) 338.0 Capital in excess: Share premium............................... 15,967.2 -- -- (11,085.7) 4,881.5 Contributed surplus......................... 5,542.3 12,665.0 12,979.6 (27,579.3) 3,607.6 Accumulated earnings (loss)................... 4,297.3 940.5 (86.6) (1,158.9) 3,992.3 Accumulated other comprehensive loss.......... -- -- (450.1) -- (450.1) --------- --------- --------- ---------- --------- TOTAL SHAREHOLDERS' EQUITY................ 26,149.0 13,605.5 12,443.9 (39,829.1) 12,369.3 --------- --------- --------- ---------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $26,217.9 $21,901.5 $33,067.2 $(48,842.3) $32,344.3 ========= ========= ========= ========== =========
74 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2000
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES(1) ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- --------------- ------------- --------- NET SALES.......................................... $ -- $ -- $28,931.9 $ -- $28,931.9 Cost of sales...................................... -- -- 17,931.2 -- 17,931.2 Selling, general and administrative expenses....... 12.5 9.9 5,229.6 -- 5,252.0 Merger, restructuring and other non-recurring charges.......................................... -- -- 175.3 -- 175.3 Charge for the impairment of long-lived assets..... -- -- 99.0 -- 99.0 -------- -------- --------- --------- --------- OPERATING INCOME (LOSS)............................ (12.5) (9.9) 5,496.8 -- 5,474.4 Interest income (expense), net..................... 3.5 (698.9) (74.2) -- (769.6) Gain on issuance of common shares by subsidiary.... -- -- 1,760.0 -- 1,760.0 Equity in net income of unconsolidated subsidiaries..................................... 4,672.1 2,556.1 -- (7,228.2) -- Intercompany dividends, interest and fees.......... 29.8 709.0 (694.6) (44.2) -- -------- -------- --------- --------- --------- Income before income taxes, minority interest and extraordinary items.............................. 4,692.9 2,556.3 6,488.0 (7,272.4) 6,464.8 Income taxes....................................... -- (0.2) (1,797.0) (128.8) (1,926.0) Minority interest.................................. -- -- (18.7) -- (18.7) -------- -------- --------- --------- --------- Income before extraordinary items.................. 4,692.9 2,556.1 4,672.3 (7,401.2) 4,520.1 Extraordinary items, net of taxes(2)............... -- -- (0.2) -- (0.2) -------- -------- --------- --------- --------- NET INCOME......................................... $4,692.9 $2,556.1 $ 4,672.1 $(7,401.2) $ 4,519.9 ======== ======== ========= ========= =========
- ------------------------------ (1) Operating income includes a net charge of $176.3 million, of which $1.0 million is included in cost of sales, for restructuring and other non-recurring charges, and charges of $99.0 million for the impairment of long-lived assets related to the Company exiting the interventional cardiology business of USSC. The net charge is comprised of charges of $325.2 million, of which $7.3 million is included in cost of sales, primarily for non-recurring claims related to a merged company in the Healthcare business, the restructuring activities in AMP's Brazilian operations and wireless communications business, a non-recurring charge incurred in connection with TyCom's initial public offering and credits of $148.9 million, of which $6.3 million is included in cost of sales, primarily related to a revision in estimates associated with the AMP merger and AMP's profit improvement plan, the Company's 1997 restructuring plan and the merger with USSC. Income from continuing operations includes a one-time pre-tax gain of $1,760.0 million related to the issuance of common shares by a subsidiary. (2) Extraordinary items relate principally to the write-off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 75 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1999
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES(1) ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- --------------- ------------- --------- NET SALES.......................................... $ -- $ -- $22,496.5 $ -- $22,496.5 Cost of sales...................................... -- -- 14,433.1 -- 14,433.1 Selling, general and administrative expenses....... 2.9 1.1 4,432.3 -- 4,436.3 Merger, restructuring and other non-recurring charges.......................................... -- -- 928.8 -- 928.8 Charge for the impairment of long-lived assets..... -- -- 507.5 -- 507.5 -------- -------- --------- --------- --------- OPERATING INCOME (LOSS)............................ (2.9) (1.1) 2,194.8 -- 2,190.8 Interest income (expense), net..................... 3.0 (401.9) (86.7) -- (485.6) Equity in net income of unconsolidated subsidiaries..................................... 663.0 244.7 -- (907.7) -- Intercompany dividends, interest and fees.......... 1,656.0 403.2 (999.7) (1,059.5) -- -------- -------- --------- --------- --------- Income before income taxes and extraordinary items............................................ 2,319.1 244.9 1,108.4 (1,967.2) 1,705.2 Income taxes....................................... -- (0.2) (399.7) (237.6) (637.5) -------- -------- --------- --------- --------- Income before extraordinary items.................. 2,319.1 244.7 708.7 (2,204.8) 1,067.7 Extraordinary items, net of taxes(2)............... -- -- (45.7) -- (45.7) -------- -------- --------- --------- --------- NET INCOME......................................... $2,319.1 $ 244.7 $ 663.0 $(2,204.8) $ 1,022.0 ======== ======== ========= ========= =========
- ------------------------------ (1) Operating income includes merger, restructuring and other non-recurring charges of $643.3 million, of which $106.4 million is included in cost of sales, and charges for the impairment of long-lived assets of $431.5 million primarily related to the merger with AMP and AMP's profit improvement plan. Also included are merger, restructuring and other non-recurring charges of $423.8 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the USSC merger and a credit of $31.9 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (2) Extraordinary items relate principally to the Company's debt tender offers and the write-off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1998
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES(1) ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- --------------- ------------- --------- NET SALES.......................................... $ -- $ -- $19,061.7 $ -- $19,061.7 Cost of sales...................................... -- -- 12,694.8 -- 12,694.8 Selling, general and administrative expenses....... 18.2 58.9 4,084.8 -- 4,161.9 Merger, restructuring and other non-recurring charges.......................................... -- -- 256.9 -- 256.9 -------- -------- --------- --------- --------- OPERATING INCOME (LOSS)............................ (18.2) (58.9) 2,025.2 -- 1,948.1 Interest income (expense), net..................... 4.0 (65.3) (184.0) -- (245.3) Equity in net income of unconsolidated subsidiaries..................................... 902.4 721.5 -- (1,623.9) -- Intercompany dividends, interest and fees.......... 613.8 98.5 (443.9) (268.4) -- -------- -------- --------- --------- --------- Income before income taxes and extraordinary items............................................ 1,502.0 695.8 1,397.3 (1,892.3) 1,702.8 Income taxes....................................... -- -- (466.8) (67.4) (534.2) -------- -------- --------- --------- --------- Income before extraordinary items.................. 1,502.0 695.8 930.5 (1,959.7) 1,168.6 Extraordinary items, net of taxes(2)............... -- -- (2.4) -- (2.4) -------- -------- --------- --------- --------- NET INCOME......................................... $1,502.0 $ 695.8 $ 928.1 $(1,959.7) $ 1,166.2 ======== ======== ========= ========= =========
- ------------------------------ (1) Operating income includes restructuring and other non-recurring charges recorded by AMP of $185.8 million related to its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to AMP's 1996 restructuring activities. Also included are non-recurring charges of $80.5 million and restructuring charges of $12.0 million related to USSC's operations. (2) Extraordinary items relate principally to the write-off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 76 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2000
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- ------------ ------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities.... $893.7 $1,201.3 $3,180.0 $ -- $5,275.0 ------ -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, net.......................................... (6.4) -- (1,808.5) -- (1,814.9) Acquisition of businesses, net of cash acquired..................................... -- -- (4,790.7) -- (4,790.7) Disposal of businesses......................... -- -- 74.4 -- 74.4 Net decrease (increase) in investments......... 16.4 -- (369.8) -- (353.4) (Increase) in intercompany loans............... -- (2,421.8) -- 2,421.8 -- (Increase) in investment in subsidiaries....... (900.7) -- -- 900.7 -- Other.......................................... -- (0.7) (52.2) -- (52.9) ------ -------- -------- -------- -------- Net cash utilized by investing activities.... (890.7) (2,422.5) (6,946.8) 3,322.5 (6,937.5) ------ -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (payments) of short-term debt.............. -- (587.3) (148.7) -- (736.0) Repayment of long-term debt, including debt tenders...................................... -- (376.8) (380.3) 380.3 (376.8) Proceeds from long-term debt................... -- 2,173.5 -- (380.3) 1,793.2 Proceeds from exercise of options and warrants..................................... 64.6 -- 290.7 -- 355.3 Net proceeds from issuance of common shares by subsidiary................................... -- -- 2,130.7 -- 2,130.7 Dividends paid................................. (86.2) -- -- -- (86.2) Intercompany dividends received (paid)......... 30.0 -- (30.0) -- -- Purchase of treasury shares.................... -- -- (1,885.1) -- (1,885.1) Financing from parent.......................... -- -- 2,421.8 (2,421.8) -- Capital contributions.......................... -- -- 900.7 (900.7) -- Other.......................................... -- -- (29.8) -- (29.8) ------ -------- -------- -------- -------- Net cash provided by financing activities.... 8.4 1,209.4 3,270.0 (3,322.5) 1,165.3 ------ -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................. 11.4 (11.8) (496.8) -- (497.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................................... 22.8 15.4 1,723.8 -- 1,762.0 ------ -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ 34.2 $ 3.6 $1,227.0 $ -- $1,264.8 ====== ======== ======== ======== ========
77 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 1999
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- ------------ ------------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by operating activities.... $ 254.3 $ 60.7 $3,234.8 $ -- $3,549.8 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, net.......................................... (0.5) -- (1,632.0) -- (1,632.5) Acquisition of businesses, net of cash acquired..................................... -- -- (4,901.2) -- (4,901.2) Disposal of businesses......................... -- -- 926.8 -- 926.8 Net decrease (increase) in investments......... 81.7 -- (71.2) -- 10.5 (Increase) in intercompany loans............... -- (4,132.4) -- 4,132.4 -- (Increase) in investment in subsidiaries....... (1,013.6) -- -- 1,013.6 -- Other.......................................... -- -- (247.7) -- (247.7) -------- -------- -------- -------- -------- Net cash utilized by investing activities.... (932.4) (4,132.4) (5,925.3) 5,146.0 (5,844.1) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net receipts (payments) of short-term debt..... -- 589.0 (426.7) -- 162.3 Net proceeds from issuance of public debt...... -- 1,173.7 -- -- 1,173.7 Repayment of long-term debt, including debt tenders...................................... -- (2,057.8) (791.3) 791.3 (2,057.8) Proceeds from long-term debt................... -- 4,375.5 81.4 (791.3) 3,665.6 Proceeds from exercise of options and warrants..................................... 714.5 -- 157.9 -- 872.4 Dividends (paid)............................... (75.0) -- (112.9) -- (187.9) Intercompany dividends received (paid)......... 59.5 -- (59.5) -- -- Purchase of treasury shares.................... -- -- (637.8) -- (637.8) Financing from parent.......................... -- -- 4,132.4 (4,132.4) -- Capital contributions.......................... -- -- 1,013.6 (1,013.6) -- Other.......................................... (0.6) -- (6.5) -- (7.1) -------- -------- -------- -------- -------- Net cash provided by financing activities.... 698.4 4,080.4 3,350.6 (5,146.0) 2,983.4 -------- -------- -------- -------- -------- Net increase in cash and cash equivalents...... 20.3 8.7 660.1 -- 689.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR......................................... 2.5 6.7 1,063.7 -- 1,072.9 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR....... $ 22.8 $ 15.4 $1,723.8 $ -- $1,762.0 ======== ======== ======== ======== ========
78 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 1998
TYCO TYCO INTERNATIONAL INTERNATIONAL OTHER CONSOLIDATING LTD. GROUP, S.A. SUBSIDIARIES ADJUSTMENTS TOTAL ($ IN MILLIONS) ------------- ------------- ------------ ------------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net cash provided by (used in) operating activities................................ $ 177.8 $ (5.8) $2,109.8 $ -- $ 2,281.8 -------- -------- -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment, net......................................... -- -- (1,317.5) -- (1,317.5) Acquisition of businesses, net of cash acquired.................................... -- -- (4,251.8) -- (4,251.8) Net decrease (increase) in investments........ 65.3 -- (58.9) -- 6.4 (Increase) in intercompany loans.............. -- (4,090.9) -- 4,090.9 -- (Increase) in investment in subsidiaries...... (1,805.2) (1,110.7) -- 2,915.9 -- Other......................................... -- -- (83.1) -- (83.1) -------- -------- -------- -------- --------- Net cash utilized by investing activities... (1,739.9) (5,201.6) (5,711.3) 7,006.8 (5,646.0) -------- -------- -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net receipts of short-term debt............... -- -- 287.1 -- 287.1 Net proceeds from issuance of public debt..... -- 2,744.5 -- -- 2,744.5 Repayment of long-term debt, including debt tenders..................................... -- -- (2,214.5) 1,139.9 (1,074.6) Proceeds from long-term debt.................. -- 1,358.9 583.0 (1,139.9) 802.0 Proceeds from the sale of common shares....... 1,245.0 -- -- -- 1,245.0 Proceeds from exercise of options and warrants.................................... 304.9 -- 43.8 -- 348.7 Dividends paid................................ (56.5) -- (246.5) -- (303.0) Purchase of treasury shares................... -- -- (283.9) -- (283.9) Financing from parent......................... -- -- 4,090.9 (4,090.9) -- Capital contributions......................... -- 1,110.7 1,805.2 (2,915.9) - Other......................................... -- -- (36.5) -- (36.5) -------- -------- -------- -------- --------- Net cash provided by financing activities... 1,493.4 5,214.1 4,028.6 (7,006.8) 3,729.3 -------- -------- -------- -------- --------- Net (decrease) increase in cash and cash equivalents................................. (68.7) 6.7 427.1 -- 365.1 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................ 71.2 -- 636.6 -- 707.8 -------- -------- -------- -------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR...... $ 2.5 $ 6.7 $1,063.7 $ -- $ 1,072.9 ======== ======== ======== ======== =========
79 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. SUBSEQUENT EVENTS On October 4, 2000, the Company entered into an agreement to acquire InnerDyne, Inc. ("InnerDyne"), a manufacturer and distributor of patented radial dilating access devices used in minimally invasive medical surgical procedures. The purchase price is approximately $180 million payable in Tyco common shares. InnerDyne will be integrated within Tyco's Healthcare business. Tyco intends to account for the acquisition as a purchase. On October 6, 2000, the Company sold its ADT Automotive business to Manheim Auctions, Inc., a wholly-owned subsidiary of Cox Enterprises, Inc., for approximately $1 billion in cash. The sale is expected to generate a one-time pre-tax gain to the Company in excess of $300 million in the first quarter of Fiscal 2001. On October 17, 2000, the Company acquired Mallinckrodt Inc. ("Mallinckrodt"), a global healthcare company with products used primarily for respiratory care, diagnostic imaging and pain relief. The Company issued approximately 64.8 million common shares, valued at approximately $3.2 billion, and assumed approximately $1.0 billion in debt. Mallinckrodt is being integrated within the Company's Healthcare business. The Company is accounting for the acquisition as a purchase. On November 13, 2000, the Company agreed to acquire the Lucent Power Systems ("LPS") business unit of Lucent Technologies, Inc. for $2.5 billion in cash. LPS provides a full line of energy solutions and power products for telecommunications service providers and for the computer industry and will be integrated within the Electronics segment. LPS products include AC/DC and DC/DC switching power supplies, batteries, power supplies and back-up power systems. The acquisition is subject to customary regulatory approvals. On November 17, 2000, the Company completed a private placement offering of $4,657,500,000 principal at maturity of zero-coupon debt securities due 2020 for aggregate net proceeds of approximately $3,374,000,000. Each $1,000 principal amount at maturity security was issued at 74.165% of principal amount at maturity, acretes at a rate of 1.5% per annum and is convertible into 10.3014 Tyco common shares if certain conditions are met. The Company may be required to repurchase the securities at the accreted value at the option of the holders on November 17, 2001, 2003, 2005, 2007 or 2014. The proceeds of this offering will be used to finance the LPS acquisition and to repay commercial paper. On December 4, 2000, the Company agreed to acquire Simplex Time Recorder Co. ("Simplex") for approximately $1.15 billion in cash. Simplex manufactures fire and security products and communications systems including control panels, detection devices and system software. Simplex also installs, monitors and services fire alarms, security systems and access control systems and will be integrated within the Fire and Security Services segment. The acquisition is subject to customary regulatory approvals. 80 TYCO INTERNATIONAL LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Information for all periods presented below reflects the grouping of Tyco's businesses into five business segments consisting of Electronics, Telecommunications, Healthcare and Specialty Products, Fire and Security Services, and Flow Control Products and Services. In Fiscal 1999, we consummated two mergers that were accounted for under the pooling of interests method of accounting. The merger with United States Surgical Corporation closed on October 1, 1998, and the merger with AMP Incorporated closed on April 2, 1999. As required by generally accepted accounting principles in the United States ("GAAP"), we restated our financial statements as if USSC and AMP had always been a part of Tyco. We recorded as expenses during Fiscal 1999 costs directly associated with the USSC and AMP mergers and the costs of terminating employees and closing or consolidating facilities as a result of the mergers. We also expensed in Fiscal 1999 the costs of staff reductions and facility closings that AMP undertook as part of a plan to improve its profitability unrelated to our merger with AMP. In Fiscal 1998, we expensed charges for staff reductions and facility closings under the AMP profit improvement plan and charges that USSC incurred to exit certain of its businesses. These are discussed in more detail under "Liquidity and Capital Resources" below. OVERVIEW Sales increased 28.6% during Fiscal 2000 to $28,931.9 million from $22,496.5 million in Fiscal 1999. Sales in Fiscal 1999 increased 18.0% compared to Fiscal 1998. Income before extraordinary items was $4,520.1 million in Fiscal 2000, as compared to $1,067.7 million in Fiscal 1999 and $1,168.6 million in Fiscal 1998. Income before extraordinary items for Fiscal 2000 included an after-tax net credit of $793.7 million ($1,484.7 million pre-tax) consisting of restructuring, non-recurring and impairment charges of $327.3 million ($424.2 million pre-tax) primarily for non-recurring claims related to a merged company and the exiting of USSC's interventional cardiology business, offset by a credit of $113.6 million ($148.9 million pre-tax) representing a revision of estimates of merger, restructuring and other non-recurring accruals and a gain of $1,007.4 million ($1,760.0 million pre-tax) on the issuance of common shares in connection with TyCom's initial public offering. Income before extraordinary items for Fiscal 1999 included an after-tax net charge of $1,304.8 million ($1,542.7 million pre-tax) primarily related to the mergers with USSC and AMP and costs associated with AMP's profit improvement plan. Income before extraordinary items for Fiscal 1998 included an after-tax charge of $192.0 million ($256.9 million pre-tax) primarily related to AMP's profit improvement plan and costs incurred by USSC to exit certain businesses. 81 The following table details Tyco's sales and earnings in Fiscal 2000, Fiscal 1999 and Fiscal 1998: ($ in millions)
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Net sales.................................. $28,931.9 $22,496.5 $19,061.7 ========= ========= ========= Operating income, before certain charges(i)............................... $ 6,094.1(ii) $ 3,949.6(ii) $ 2,336.8 Merger, restructuring and other non-recurring charges, net............... (176.3) (1,035.2) (256.9) Impairment of long-lived assets............ (99.0) (507.5) -- Amortization of goodwill................... (344.4) (216.1) (131.8) --------- --------- --------- Operating income........................... 5,474.4 2,190.8 1,948.1 Interest expense, net...................... (769.6) (485.6) (245.3) Gain on issuance of common shares by subsidiary............................... 1,760.0 -- -- --------- --------- --------- Income before income taxes, minority interest and extraordinary items......... 6,464.8 1,705.2 1,702.8 Income taxes............................... (1,926.0) (637.5) (534.2) Minority interest.......................... (18.7) -- -- --------- --------- --------- Income before extraordinary items.......... 4,520.1 1,067.7 1,168.6 Extraordinary items, net of taxes.......... (0.2) (45.7) (2.4) --------- --------- --------- Net income................................. $ 4,519.9 $ 1,022.0 $ 1,166.2 ========= ========= =========
- ------------------------ (i) This amount is the sum of the operating income of Tyco's five business segments set forth in the segment discussion below, less certain corporate expenses, and is before merger, restructuring and other non-recurring charges, impairment of long-lived assets and amortization of goodwill. (ii) Net restructuring charges in the amount of $1.0 million and $106.4 million related to the write-down of inventory have been deducted as part of cost of sales in the Consolidated Statements of Operations for Fiscal 2000 and 1999, respectively. However, they have not been deducted as part of cost of sales for the purpose of calculating operating income before certain charges in this table. These charges are instead included in merger, restructuring and other non-recurring charges. During Fiscal 2000 and 1999, we took merger, restructuring and other non-recurring charges and charges for the impairment of long-lived assets with respect to AMP and USSC. Under our restructuring and integration programs, we terminate employees and close facilities made redundant. The reduction in manpower and facilities comes from the manufacturing, distribution, sales and administrative functions. In addition, we discontinue or dispose of product lines which do not fit the long-term strategy of the respective businesses. We do not separately track the impact on financial results of the restructuring and integration programs. However, we estimate that our overall cost structure has been reduced by approximately $1,000.0 million on an annualized basis due to the impact associated with these charges. The significant decreases have been to selling, general and administrative expenses and to cost of sales. Operating income and margins for our five business segments, which are presented in accordance with GAAP in the following discussion, are supplemented by a discussion of operating income and margins stated before deductions for merger, restructuring and other non-recurring charges related to business combinations accounted for under the pooling of interests method of accounting and charges for impairment of long-lived assets. This supplemental discussion of operating results before certain charges should not be considered an alternative to operating or net income as an indicator of the 82 performance of our business, or as an alternative to cash flows from operating activities as a measure of liquidity, in each case determined in accordance with GAAP. Operating income improved in all segments in each of Fiscal 2000 and Fiscal 1999. The operating improvements are the result of both increased revenues in all segments and enhanced margins in all but one segment in Fiscal 2000. Increased revenues result from organic growth and from acquisitions that are accounted for under the purchase method of accounting. We enhance our margins through improved productivity and cost reductions in the ordinary course of business, unrelated to acquisition or divestiture activities. We regard charges that we incur to reduce costs in the ordinary course of business as recurring charges, which are reflected in cost of sales and in selling, general and administrative expenses in the Consolidated Statements of Operations. When we make an acquisition, the acquired company is immediately integrated with our existing operations. Consequently, we do not separately track the financial results of acquired companies. The year-to-year sales comparisons that are presented below include estimates of year-to-year sales growth that exclude the effects of acquisitions that are accounted for under the purchase method of accounting. These estimates assume that the acquisitions were made at the beginning of the relevant fiscal periods. SALES AND OPERATING INCOME ELECTRONICS Tyco's Electronics segment's products and services include: - designing, engineering and manufacturing of electronic connector systems, fiber optic components, wireless devices, heat shrink products, power components, wire and cable, relays, sensors, touch screens, identification and labeling products, switches and battery assemblies; and - designing and manufacturing of multi-layer printed circuit boards, backplane assemblies, electronic modules and similar components. The AMP merger occurred in April 1999, but as required under the pooling of interests method of accounting, AMP's results have been included for all periods presented. The following table sets forth sales and operating income (loss) and margins for the Electronics segment ($ in millions):
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Sales................................................ $9,909.8 $6,087.4 $5,787.3 Operating income, before certain credits (charges)... $2,447.7 $ 848.9 $ 567.6 Operating margins, before certain credits (charges).......................................... 24.7% 13.9% 9.8% Operating income (loss), after certain credits (charges).......................................... $2,538.6 $ (225.9) $ 403.1 Operating margins, after certain credits (charges)... 25.6% (3.7)% 7.0%
The 62.8% increase in sales in Fiscal 2000 over Fiscal 1999 in the Electronics segment resulted primarily from acquisitions and, to a lesser extent, increased organic growth. These acquisitions included: the acquisition in August 1999 of Raychem Corporation; the acquisition in November 1999 of Siemens Electromechanical Components GmbH & Co. KG; the acquisition in December 1999 of Praegitzer Industries, Inc.; the acquisition in March 2000 of Critchley Group PLC; and the acquisition in July 2000 of the Electronic OEM Business of Thomas & Betts. Excluding the impact of these acquisitions, sales increased an estimated 15.1%. The 5.2% increase in sales in Fiscal 1999 over Fiscal 1998 was predominantly due to the acquisition of Raychem in August 1999 and Sigma Circuits, Inc. in July 1998. Excluding the impact of these acquisitions, sales remained relatively stable. The substantial increase in operating income and margins, before certain credits (charges), in Fiscal 2000 compared with Fiscal 1999 was primarily due to the acquisitions of Raychem and Siemens 83 and improved margins at both AMP and Tyco Printed Circuit Group. The improved operating margins, before certain charges, in Fiscal 2000 compared with Fiscal 1999 resulted from increased volume, improved pricing and continuing cost reduction programs following the AMP merger. In addition to the items discussed above, the substantial increase in operating income and margins, after certain credits (charges), was due to a merger, restructuring and other non-recurring net credit of $90.9 million in Fiscal 2000 compared with a restructuring and other non-recurring charge of $1,074.8 million in Fiscal 1999. The 49.6% increase in operating income, before certain credits (charges), in Fiscal 1999 compared with Fiscal 1998 was due to improved margins at AMP, the acquisition of Raychem, and higher sales volume at the Tyco Printed Circuit Group. The improved operating margins, before certain credits (charges), in Fiscal 1999 compared with Fiscal 1998 were primarily due to the implementation of AMP's profit improvement plan, which was initiated in the fourth quarter of Fiscal 1998, cost reduction programs associated with the AMP merger, a pension curtailment/settlement gain and the acquisition of Raychem. These improvements were partially offset by $253.4 million of certain costs in Fiscal 1999 at AMP prior to the merger with Tyco, including costs to defend the AlliedSignal Inc. tender offer, the write-off of inventory and other balance sheet write-offs and adjustments. In addition, the decrease in operating income and margins, after certain credits (charges), was due to merger, restructuring and impairment charges of $1,074.8 million in Fiscal 1999 compared with net restructuring and impairment charges of $164.4 million in Fiscal 1998. TELECOMMUNICATIONS Tyco's 86% owned subsidiary, TyCom Ltd. ("TyCom"), is a leading independent provider of transoceanic fiber optic networks and services. TyCom's products and services include: - design, engineering, manufacture and installation of undersea cable communications systems; - service and maintenance of major undersea cable networks; and - design, manufacture and installation of a global undersea fiber optic network, known as the TyCom Global Network-TM- ("TGN"). TyCom plans to operate, maintain and sell bandwidth capacity on the TGN. The following table sets forth sales and operating income and margins for the Telecommunications segment ($ in millions):
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Sales........................................... $2,539.7 $1,623.8 $1,280.0 Operating income, before certain charges........ $ 529.7 $ 325.1 $ 268.3 Operating margins, before certain charges....... 20.9% 20.0% 21.0% Operating income, after certain charges......... $ 516.6 $ 325.1 $ 268.3 Operating margins, after certain charges........ 20.3% 20.0% 21.0%
The 56.4% increase in sales in Fiscal 2000 over Fiscal 1999 for the Telecommunications segment resulted primarily from increased demand for third-party sales of TyCom systems and, to a much lesser extent, the acquisition in May of 1999 of Telecomunicaciones Marinas, S.A. ("Temasa"). Excluding the effect of Temasa, the sales increase for the segment in Fiscal 2000 was an estimated 54.0%. 84 The 26.9% increase in sales in Fiscal 1999 over Fiscal 1998 for the Telecommunications segment was due primarily to higher industry demand driving backlog and project activity and to a lesser extent, the acquisition of Temasa in May 1999. Excluding the impact of Temasa, sales increased an estimated 25.5%. The substantial increase in operating income, before and after certain charges, in Fiscal 2000 compared with Fiscal 1999 was primarily due to higher sales volume, and to a lesser extent, the Temasa acquisition. The increase in operating income, after certain charges, was offset by a non-recurring charge of $13.1 million incurred in connection with the TyCom initial public offering. The 21.2% increase in operating income in Fiscal 1999 compared with Fiscal 1998 was due to higher project and service revenues and increased bandwidth capacity sales commissions, offset in part by one lower margin project. During construction of the transatlantic portion of the TGN, which began in the fourth quarter of Fiscal 2000, revenues and operating income may decrease. During the same period, operating expenses are expected to increase due to building TyCom's infrastructure, including network operations, sales and marketing, research and development and administration. HEALTHCARE AND SPECIALTY PRODUCTS Tyco's Healthcare and Specialty Products segment's products and services include: - a wide variety of disposable medical products, including wound care products, syringes and needles, sutures and surgical staples, incontinence products, electrosurgical instruments and laparoscopic instruments; - flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives and plastic garment hangers; and - ADT Automotive's auto redistribution services (See Note 25). Tyco's merger with USSC, which is included in Tyco Healthcare, occurred in October 1998. As required under the pooling of interests method of accounting, USSC's results have been included for all periods presented. The following table sets forth sales and operating income and margins for the Healthcare and Specialty Products segment ($ in millions):
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Sales.............................................. $6,467.9 $5,742.7 $4,672.4 Operating income, before certain credits (charges)........................................ $1,527.9 $1,386.0 $ 481.8 Operating margins, before certain credits (charges)........................................ 23.6% 24.1% 10.3% Operating income, after certain credits (charges)........................................ $1,439.8 $ 890.9 $ 389.3 Operating margins, after certain credits (charges)........................................ 22.3% 15.5% 8.3%
The 12.6% increase in sales in Fiscal 2000 over Fiscal 1999 was primarily the result of increased sales at Tyco Plastics and Adhesives and Tyco Healthcare and, to a lesser extent, ADT Automotive. The increases for Tyco Healthcare were due to organic growth and, to a lesser extent, acquisitions. The acquisitions primarily responsible for the sales increase in Fiscal 2000 included: Graphic Controls Corporation and Sunbelt Plastics, both acquired in November 1998 and included in results for all of Fiscal 2000 but only part of Fiscal 1999; Batts, Inc., acquired in April 1999; General Surgical Innovations, Inc., acquired in November 1999; Radionics, acquired in January 2000; and Fiber-Lam, acquired in March 2000. Excluding the impact of these acquistions, sales for the segment increased an estimated 8.2% in Fiscal 2000 over Fiscal 1999. The 22.9% increase in sales in Fiscal 1999 over Fiscal 1998 was primarily the result of increased sales at Tyco Healthcare and, to a lesser extent, Tyco Plastics and Adhesives and ADT Automotive. For Fiscal 1999, the acquisitions primarily responsible for the sales increase included Valleylab, Sherwood- 85 Davis & Geck, Confab and Graphic Controls Corporation. Excluding the impact of these acquisitions, the sales increase for Fiscal 1999 over Fiscal 1998 was 5.1%. The 10.2% increase in operating income, before certain credits (charges), in Fiscal 2000 over Fiscal 1999 was due to increased sales volume at Tyco Healthcare, Tyco Plastics and Adhesives and, to a lesser extent, ADT Automotive, slightly offset by a lower operating margin percentage at Tyco Healthcare principally due to higher raw materials costs. In addition to the items discussed above, the substantial increase in operating income and margins, after certain credits (charges), was due to net merger, restructuring and other non-recurring and impairment charges of $88.1 million in Fiscal 2000 compared with net merger, restructuring and other non-recurring charges of $495.1 million in Fiscal 1999. The substantial increase in operating income and operating margins, before certain credits (charges), in Fiscal 1999 over Fiscal 1998 was due to improved margins and increased sales volume at Tyco Healthcare, whose margins were depressed in Fiscal 1998. The increase in Fiscal 1999 also reflected higher sales volume and better margins at Tyco Plastics and Adhesives and ADT Automotive. The Fiscal 1998 margins at Tyco Healthcare were brought down by fourth quarter results at USSC, which lowered sales of higher margin products to reduce excess inventory levels at distributors, and recorded increased costs, principally a $105.8 million accrual for special hospital education programs. Excluding these effects, management estimates that the increase in operating income in Fiscal 1999 over Fiscal 1998 would have been 48.6% and the operating margin for the segment in Fiscal 1998 would have been 19.6%. The increase in margins for Fiscal 1999 above the 19.6% level was primarily attributable to the effects of the cost reduction programs associated with the USSC merger, including the termination of 1,282 employees and the consolidation or closure of 20 facilities. The effect of exiting businesses of Tyco Healthcare did not significantly impact operating margins or income. In addition to the items discussed above, the increase in operating income and margins was offset by net merger, restructuring and impairment charges of $495.1 million in Fiscal 1999 compared with restructuring and other non-recurring charges of $92.5 million in Fiscal 1998. On October 6, 2000, we sold our ADT Automotive business, which performed auto redistribution services. FIRE AND SECURITY SERVICES Tyco's Fire and Security Services segment's products and services include: - designing, installing and servicing of a broad line of fire detection, prevention and suppression systems; - providing electronic security installation and monitoring services; and - manufacturing and servicing of fire extinguishers and related products. The following table sets forth sales and operating income and margins for the Fire and Security Services segment ($ in millions):
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Sales.............................................. $6,076.6 $5,534.0 $4,393.5 Operating income, before certain credits........... $1,029.3 $ 907.0 $ 630.6 Operating margins, before certain credits.......... 16.9% 16.4% 14.4% Operating income, after certain credits............ $1,040.5 $ 934.2 $ 630.6 Operating margins, after certain credits........... 17.1% 16.9% 14.4%
The 9.8% increase in sales in Fiscal 2000 over Fiscal 1999 resulted primarily from increased sales in the worldwide electronic security services business and higher sales volume in fire protection operations in North America, Asia and Australia. The increases were due primarily to a higher volume 86 of recurring service revenues and, to a lesser extent, the effects of acquisitions in the security services business. These acquisitions included: Entergy Security Corporation ("Entergy"), acquired in January 1999, and Alarmguard Holdings ("Alarmguard"), acquired in February 1999, both of which were included in results for all of Fiscal 2000 but only part of Fiscal 1999. Excluding the impact of these acquisitions, the sales increase for the segment in Fiscal 2000 was an estimated 8.9%. The 26.0% sales increase in Fiscal 1999 over Fiscal 1998 reflected increased sales worldwide in both our electronic security services and our fire protection businesses. The increases were due both to a higher volume of recurring service revenues and the effects of Fiscal 1999 acquisitions in the security services business. These acquisitions included CIPE S.A., Wells Fargo Alarm, Entergy and Alarmguard. Excluding the effects of these acquisitions, the increase in sales for the segment in Fiscal 1999 was an estimated 15.4%. The 13.5% increase in operating income, before certain credits, in Fiscal 2000 over Fiscal 1999 reflects increased service volume in security operations in the United States and fire protection businesses in North America and Asia. The increase in operating margins, before certain credits, was due to increased sales volume in both security services and fire protection offset slightly, in the case of security services, by the costs of the reorganization of the security services' dealer program and internal sales force during the first two quarters of Fiscal 2000. The 43.8% increase in operating income, before certain credits, in Fiscal 1999 over Fiscal 1998 reflects the worldwide increase in service volume, both in security services and fire protection, including the higher margins associated with recurring monitoring revenue. The increase in operating margins, before certain credits, in Fiscal 1999 was principally due to increased volume of higher margin service and inspection work in the North American fire protection operations; increased volume due to economic improvements in the Asia-Pacific region; higher incremental margins in the European security operations from additions to the customer base; and cost reductions related to acquisitions. In addition to the items discussed above, operating income and margins, after certain credits reflect a restructuring and other non-recurring credit of $11.2 million in Fiscal 2000 and $27.2 million in Fiscal 1999. FLOW CONTROL PRODUCTS AND SERVICES Tyco's Flow Control Products and Services segment's products and services include: - a full line of valves and related products for industrial and process control including butterfly, gate, globe, check, ball, plug, safety relief, knife-gate, instrumentation, sampling, and other valves as well as actuators, positioners, couplings and related products, which are used to transport, control and sample liquids, gases, powders and other substances; - pipe and tubular products, made primarily from steel, ductile iron and plastic, utilized in the mechanical tubing, construction, automotive, water distribution, fencing products and other markets; - electrical raceway products, including steel conduit, pre-wired armored cable, flexible conduit, steel support systems and fasteners, cable tray and cable ladder; - a broad range of consulting, engineering, construction management and operating services for the water, wastewater, environmental, transportation and infrastructure markets; and - fire sprinkler devices, specialty valves, steel pipe, plastic pipe and fittings and pipe couplings used in commercial, residential and industrial fire protection systems. 87 The following table sets forth sales and operating income and margins for the Flow Control Products and Services segment ($ in millions):
FISCAL 2000 FISCAL 1999 FISCAL 1998 ----------- ----------- ----------- Sales.............................................. $3,937.9 $3,508.6 $2,928.5 Operating income................................... $ 746.9 $ 605.5 $ 456.9 Operating margins.................................. 19.0% 17.3% 15.6%
The 12.2% sales increase in Fiscal 2000 over Fiscal 1999 was primarily due to increased volume at Allied Tube and Conduit, increased demand for valve products in the Asia-Pacific region and Europe, increased sales at Earth Tech and, to a lesser extent, the impact of acquisitions. These acquisitions included: Glynwed International, plc ("Glynwed"), acquired in March 1999; Central Sprinkler Corporation, acquired in August 1999; AFC Cable Systems, Inc., acquired in November 1999; and Flow Control Technologies, acquired in February 2000. In August 1999, we sold certain businesses within this segment, including The Mueller Company ("Mueller") and portions of Grinnell Supply Sales and Manufacturing ("Grinnell"). Excluding the impacts of these acquisitions and divestitures, sales increased an estimated 11.9%. The 19.8% sales increase in Fiscal 1999 over Fiscal 1998 reflects increased demand for valve products in Europe, increased sales at Earth Tech and the impact of acquisitions. These acquisitions included Crosby Valve, Rust Environmental and Infrastructure, Inc. and Glynwed. Excluding the effect of these acquisitions and the divestitures of Mueller and Grinnell, the sales increase for the segment in Fiscal 1999 was an estimated 11.3%. The 23.4% increase in operating income in Fiscal 2000 over Fiscal 1999 was primarily due to increased volume at Allied Tube & Conduit and increased volume and improved margins in the North American and European valve operations and at Earth Tech. Also, royalty and licensing fee income from certain intellectual property associated with the divested businesses offset a portion of the operating income lost from the divestitures. Increased operating margins in Fiscal 2000 resulted primarily from royalty and licensing fee income and margin improvement in the North American and European valve operations and at Earth Tech. The 32.5% increase in operating income in Fiscal 1999 over Fiscal 1998 was primarily due to increased sales in the European flow control operations and North American valve products and at Earth Tech. The increase in operating margins was principally due to cost containment programs that improved margins in our North American pipe products business and the worldwide valve operations. The gain on the sale of Mueller and portions of Grinnell in this segment did not significantly impact operating profits and margins in Fiscal 1999. FOREIGN CURRENCY The effect of changes in foreign exchange rates during Fiscal 2000, Fiscal 1999 and Fiscal 1998 was not material to our sales and operating income. CORPORATE EXPENSES Corporate expenses, excluding non-recurring charges of $275.0 million as a reserve for certain claims relating to a merged company in the Healthcare business and other non-recurring charges of $1.2 million, were $187.4 million in Fiscal 2000 compared to $122.9 million in Fiscal 1999 and $68.3 million in Fiscal 1998. These increases were due principally to higher compensation expense under our equity-based incentive compensation plans and an increase in corporate staffing and related costs to support and monitor our expanding businesses and operations. 88 AMORTIZATION OF GOODWILL Amortization of goodwill, a non-cash charge, increased $128.3 million to $344.4 million in Fiscal 2000 compared with Fiscal 1999. Fiscal 1999 amortization of goodwill increased to $216.1 million from $131.8 million in Fiscal 1998. The increase in amortization of goodwill is due to the $5,162.0 million in consideration paid for acquisitions and acquisition related costs in Fiscal 2000, which resulted in goodwill and other intangibles of $5,206.8 million, and the $6,923.3 million in consideration paid for acquisitions and acquisition related costs in Fiscal 1999, which resulted in goodwill and other intangibles of $5,807.9 million. INTEREST EXPENSE, NET Interest expense, net, increased $284.0 million to $769.6 million in Fiscal 2000, as compared to Fiscal 1999, and increased $240.3 million to $485.6 million in Fiscal 1999, as compared to Fiscal 1998. These increases were primarily due to higher average debt balances, resulting from borrowings to finance acquisitions and our stock repurchase program and, to a lesser extent, higher average interest rates in Fiscal 2000. The increase in borrowings was mitigated in part by the use of free cash flow to pay for certain acquisitions. The weighted-average rate of interest on all long-term debt during Fiscal 2000, Fiscal 1999 and Fiscal 1998 was 6.5%, 6.2% and 6.4%, respectively. EXTRAORDINARY ITEMS Extraordinary items in Fiscal 2000, Fiscal 1999 and Fiscal 1998 included after-tax losses amounting to $0.2 million, $45.7 million and $2.4 million, respectively, relating primarily to our tender offers for debt and the write-off of net unamortized deferred financing costs related to the LYONs. Further details are provided in Notes 4 and 13 to the Consolidated Financial Statements. INCOME TAX EXPENSE The effective income tax rate, excluding the impact of merger, restructuring and other non-recurring credits (charges), charges for the impairment of long-lived assets and gain on the sale of TyCom shares, was 24.8% during Fiscal 2000 as compared to 27.0% in Fiscal 1999 and 30.6% in Fiscal 1998. The decreases in the effective income tax rates were primarily due to higher earnings in tax jurisdictions with lower income tax rates. We believe that we will generate sufficient future income to realize the tax benefits related to our deferred tax assets. A valuation allowance has been maintained due to continued uncertainties of realization of certain tax benefits, primarily tax loss carryforwards (See Note 7). 89 LIQUIDITY AND CAPITAL RESOURCES The following table shows the sources of our cash flow from operating activities and the use of a portion of that cash in our operations in Fiscal 2000 and Fiscal 1999. We refer to the net amount of cash generated from operating activities less capital expenditures and dividends as "free cash flow."
FISCAL 2000 FISCAL 1999 ----------- ----------- ($ IN MILLIONS) Operating income, before certain charges (1).............. $ 6,094.1 $ 3,949.6 Depreciation and amortization (2)......................... 1,300.0 1,095.1 Net increase in deferred income taxes..................... 507.8 351.6 Less: Net increase in working capital (3)....................... (64.9) (122.6) Interest expense, net..................................... (769.6) (485.6) Income tax expense........................................ (1,926.0) (637.5) Restructuring expenditures (4)............................ (155.2) (633.6) Other, net................................................ 288.8 32.8 --------- --------- Cash flow from operating activities....................... 5,275.0 3,549.8 Less: Capital expenditures...................................... (1,814.9) (1,632.5) Dividends paid............................................ (86.2) (187.9) --------- --------- Free cash flow............................................ $ 3,373.9 $ 1,729.4 ========= =========
- ------------------------ (1) This amount is the sum of the operating income of the five business segments as set forth above, less certain corporate expenses, and is before merger, restructuring and other non-recurring credits and charges, charges for the impairment of long-lived assets and goodwill amortization. (2) This amount is the sum of depreciation of tangible property ($1,095.0 million and $979.6 million in Fiscal 2000 and Fiscal 1999, respectively) and amortization of intangible property other than goodwill ($205.0 million and $115.5 million in Fiscal 2000 and Fiscal 1999, respectively). (3) This amount is net of $100.0 million and $50.0 million received on the sale of accounts receivable in Fiscal 2000 and Fiscal 1999, respectively. (4) This amount is the sum of all cash paid out for (a) merger, restructuring and other non-recurring charges in connection with business combinations accounted for on a pooling of interests basis and (b) other restructuring and non-recurring charges taken by the pooled companies prior to their combination with Tyco. In addition, in Fiscal 2000 and Fiscal 1999 we paid out $544.2 million and $354.4 million, respectively, in cash that was charged against reserves established in connection with acquisitions accounted for under the purchase accounting method. This amount is included in "Acquisition of businesses, net of cash acquired" in the Consolidated Statement of Cash Flows. Business combinations are accounted for either on a pooling of interests basis or under the purchase accounting method. In Fiscal 1999, the Company made two business combinations, USSC and AMP, that were required to be accounted for on a pooling of interests basis. Under pooling of interests accounting, the merged companies are treated as if they had always been part of Tyco, and their financial statements are included in our Consolidated Financial Statements for all periods presented. At the time of each pooling of interests transaction, Tyco establishes a reserve for transaction costs and the costs that we expect to incur in integrating the merged company within the relevant Tyco business segment. By integrating merged companies with our existing businesses, we expect to realize operating synergies and long-term cost savings. Integration costs, which relate primarily to termination of employees and the closure of facilities made redundant, are detailed in Note 16 to the Consolidated Financial Statements. Reserves for merger, restructuring and other non-recurring items are taken as a charge against current earnings at the time the reserves are established. Amounts expended for merger, restructuring and other non-recurring costs are charged against the reserves as they are paid out. If the amount of the reserves proves to be greater than the costs actually incurred, any excess is credited against merger, restructuring and other non-recurring charges in the Consolidated Statement of Operations in the period in which that determination is made. 90 In Fiscal 2000, we established merger, restructuring and other non-recurring reserves of $325.2 million, of which $7.3 million is included in cost of sales, primarily related to a reserve for certain claims relating to a merged company in the Healthcare business, the restructuring activities in AMP's Brazilian operations and wireless communications business, a non-recurring charge incurred in connection with the TyCom IPO, charges associated with USSC's suture business and the exiting of USSC's interventional cardiology business. At the beginning of the fiscal year, there existed merger, restructuring and other non-recurring reserves of $399.3 million related to pooling of interests transactions consummated in prior years and other restructuring charges taken by the merged companies prior to their combination with Tyco. During Fiscal 2000, we paid out $155.2 million in cash and incurred $54.5 million in non-cash charges that were charged against these reserves. Also in Fiscal 2000, we determined that $148.9 million of merger, restructuring and other non-recurring reserves established in prior years were not needed. These amounts were taken as merger, restructuring and other non-recurring credits during Fiscal 2000 and offset against the reserves. At September 30, 2000, there remained $365.9 million of merger, restructuring and other non-recurring reserves on our Consolidated Balance Sheet, of which $334.8 million is included in current liabilities and $31.1 million is included in long-term liabilities. All business combinations completed in Fiscal 2000 were required to be accounted for under the purchase accounting method. At the time each purchase acquisition is made, we establish a reserve for transaction costs and the costs of integrating the purchased company within the relevant Tyco business segment. The amounts of such reserves established in Fiscal 2000 are detailed in Note 3 to the Consolidated Financial Statements. These amounts are not charged against current earnings but are treated as additional purchase price consideration and have the effect of increasing the amount of goodwill recorded in connection with the respective acquisition. We view these costs as the equivalent of additional purchase price consideration when we consider making an acquisition. If the amount of the reserves proves to be in excess of costs actually incurred, any excess is used to reduce the goodwill account that was established at the time the acquisition was made. In Fiscal 2000, we made acquisitions that were accounted for under the purchase accounting method at an aggregate cost of $5,162.0 million. Of this amount, $4,246.5 million was paid in cash (net of cash acquired), $671.4 million was paid in the form of Tyco common shares, and we assumed $244.1 million in debt. In connection with these acquisitions, we established purchase accounting reserves of $426.2 million for transaction and integration costs. At the beginning of Fiscal 2000, purchase accounting reserves were $570.3 million as a result of purchase accounting transactions made in prior years. During Fiscal 2000, we paid out $544.2 million in cash and incurred $52.1 million in non-cash charges against the reserves established during and prior to Fiscal 2000. Also in Fiscal 2000, we determined that $117.8 million of purchase accounting reserves related to acquisitions made prior to Fiscal 2000 were not needed and reversed that amount against goodwill. At September 30, 2000, there remained $372.6 million in purchase accounting reserves on our Consolidated Balance Sheet, of which $349.2 million is included in current liabilities and $23.4 million is included in long-term liabilities. 91 The following details the Fiscal 2000 capital expenditures and depreciation by segment:
CAPITAL EXPENDITURES DEPRECIATION ($ IN MILLIONS) ------------ ------------ Electronics.......................................... $ 293.8 $ 444.9 Telecommunications................................... 316.0(1) 57.4 Healthcare and Specialty Products.................... 251.1 192.8 Fire and Security Services........................... 764.3 309.4 Flow Control Products and Services................... 142.1 82.9 Corporate............................................ 47.6 7.6 -------- -------- Total............................................ $1,814.9 $1,095.0 ======== ========
- ------------------------ (1) Includes $111.1 million in spending for construction of the TyCom Global Network. We continue to fund capital expenditures to improve the cost structure of our businesses, to invest in new processes and technology, and to maintain high quality production standards. The level of capital expenditures for the Fire and Security Services segment significantly exceeded, and is expected to continue to significantly exceed, depreciation due to the large volume growth of new residential subscriber systems capitalized. The level of capital expenditures in the Telecommunications segment is expected to significantly increase due to construction of the TyCom Global Network. The level of capital expenditures in the other segments is expected to increase moderately in Fiscal 2001. The source of funds for capital expenditures is expected to be cash from operating activities. The provision for income taxes in the Consolidated Statement of Operations for Fiscal 2000 was $1,926.0 million, but the amount of income taxes paid (net of refunds) during the year was $454.7 million. The difference is due primarily to the timing of tax payments related to the gain on issuance of shares by TyCom. The current income tax liability at September 30, 2000 was $1,650.3 million, as compared to $798.0 million at September 30, 1999. After adjustment for deferred income taxes of acquired companies and other items, the net increase in deferred income taxes was $507.8 million. The increase in deferred income taxes is attributable primarily to current utilization of deductions on restructuring, other non-recurring charges and purchase accounting spending, other timing differences between book and tax recognition of income and expense, utilization of net operating loss and credit carryforwards, and the tax benefits of stock option exercises. The net change in working capital, net of the effects of acquisitions and divestitures, was an increase of $91.7 million. The components of this change are set forth in detail in the Consolidated Statement of Cash Flows. The increase in working capital accounts is attributable to the higher level of business activity in Fiscal 2000 as reflected in the increased sales over the prior year. We focus on maximizing the cash flow from our operating businesses and attempt to keep the working capital employed in the businesses to the minimum level required for efficient operations. In addition, we used $1,885.1 million to purchase our own common shares. In November 1999, we announced the authorization by our Board of Directors to reacquire up to 20 million Tyco common shares in the open market, which was completed during the quarter ended March 31, 2000. In January 2000, the Board of Directors authorized the expenditure of up to an additional $2,000.0 million to reacquire our shares, of which we have spent nearly $1,100.0 million through September 30, 2000. In addition, we repurchase our own shares from time to time in the open market to satisfy certain stock-based compensation arrangements, such as the exercise of stock options. We received proceeds of $2,130.7 million from the issuance of common shares by a subsidiary in the TyCom IPO and $355.3 million from the exercise of common share options. 92 The source of the cash used for acquisitions was primarily an increase in total debt and cash flows from operations. Goodwill and other intangible assets were $16,332.6 million at September 30, 2000, compared to $12,158.9 million at September 30, 1999. At September 30, 2000, our total debt was $10,999.0 million, as compared to $10,122.2 million at September 30, 1999. This increase resulted principally from borrowings under our commercial paper program and net proceeds of approximately $565.9 million from the issuance of Euro denominated private placement notes in April 2000. For a full discussion of debt activity, see Note 4 to the Consolidated Financial Statements. Shareholders' equity was $17,033.2 million, or $10.11 per share, at September 30, 2000, compared to $12,369.3 million, or $7.32 per share, at September 30, 1999. The increase in shareholders' equity was due primarily to net income of $4,519.9 million, an unrealized gain on available for sale securities of $1,075.7 million and the issuance of a total of approximately 15.6 million common shares valued at approximately $671.4 million for the acquisitions of GSI and AFC Cable in November 1999. Total debt as a percent of total capitalization (total debt and shareholders' equity) was 39% at September 30, 2000 and 45% at September 30, 1999. Net debt (total debt less cash and cash equivalents) as a percent of total capitalization was 35% at September 30, 2000 and 37% at September 30, 1999. On October 4, 2000, we entered into an agreement to acquire InnerDyne, Inc. ("InnerDyne"), a manufacturer and distributor of patented radial dilating access devices used in minimally invasive medical surgical procedures. The purchase price is approximately $180 million payable in Tyco common shares. InnerDyne will be integrated within Tyco's Healthcare business. We intend to account for the acquisition as a purchase. On October 6, 2000, we sold our ADT Automotive business to Manheim Auctions, Inc., a wholly-owned subsidiary of Cox Enterprises, Inc., for approximately $1 billion in cash. The sale is expected to generate a one-time pre-tax gain to Tyco in excess of $300 million in the first quarter of Fiscal 2001. On October 17, 2000, we acquired Mallinckrodt Inc. ("Mallinckrodt"), a global healthcare company with products used primarily for respiratory care, diagnostic imaging and pain relief. We issued approximately 64.8 million common shares, valued at approximately $3.2 billion, and assumed approximately $1.0 billion in debt. Mallinckrodt is being integrated within Tyco's Healthcare business. We are accounting for the acquisition as a purchase. On November 13, 2000, we agreed to acquire the Lucent Power Systems ("LPS") business unit of Lucent Technologies, Inc. for $2.5 billion in cash. LPS provides a full line of energy solutions and power products for telecommunications service providers and for the computer industry and will be integrated within the Electronics segment. LPS products include AC/DC and DC/DC switching power supplies, batteries, power supplies and back-up power systems. The acquisition is subject to customary regulatory approvals. On November 17, 2000, we completed a private placement offering of $4,657,500,000 principal at maturity of zero-coupon debt securities due 2020 for aggregate net proceeds of approximately $3,374,000,000. Each $1,000 principal amount at maturity security was issued at 74.165% of principal amount at maturity, accretes at a rate of 1.5% per annum and is convertible into 10.3014 Tyco common shares if certain conditions are met. We may be required to repurchase the securities at the accreted value at the option of the holders on November 17, 2001, 2003, 2005, 2007 or 2014. The proceeds of this offering will be used to finance the LPS acquisition and to repay commercial paper. On December 4, 2000, we agreed to acquire Simplex Time Recorder Co. ("Simplex") for approximately $1.15 billion in cash. Simplex manufactures fire and security products and communications systems including control panels, detection devices and system software. Simplex also installs, monitors and services fire alarms, security systems and access control systems and will be integrated within the Fire and Security Services segment. The acquisition is subject to customary regulatory approvals. 93 We believe that our cash flow from operations, together with our existing credit facilities and other credit arrangements, is adequate to fund our operations. BACKLOG At September 30, 2000, we had a backlog of unfilled orders of approximately $8,214.8 million, compared to a backlog of approximately $7,581.1 million as of September 30, 1999. We expect that approximately 86% of our backlog at September 30, 2000 will be filled during the year ending September 30, 2001. Backlog by industry segment is as follows ($ in millions):
SEPTEMBER 30, ------------------- 2000 1999 -------- -------- Telecommunications....................................... $2,941.7 $3,535.4 Electronics.............................................. 2,335.7 1,439.1 Flow Control Products and Services....................... 1,711.4 1,516.5 Fire and Security Services............................... 1,134.9 986.6 Healthcare and Specialty Products........................ 91.1 103.5 -------- -------- $8,214.8 $7,581.1 ======== ========
The decrease in backlog within the Telecommunications segment is due to TyCom devoting a substantial portion of its resources to designing and manufacturing the TGN and therefore taking on less work as a supplier of undersea fiber optic cable systems for others. Within the Electronics segment, backlog increased principally due to an increase in demand for the products manufactured by AMP and Raychem, and to a lesser extent, the effect of acquisitions. Within the Flow Control Products and Services segment, backlog increased principally due to increased backlog at Earth Tech, related to new contract bookings and water and waste water facility contracts, and an increase in demand for its valves and control products. Within the Fire and Security Services segment, backlog increased principally due to long-term service contracts in the Australian fire protection business and, to a lesser extent, the effect of acquisitions. Backlog in the Healthcare and Specialty Products segment is not indicative of the level of sales activity. Backlog in this segment generally represents unfilled orders which are shipped shortly after purchase orders are received. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to market risk associated with changes in interest rates, foreign currency exchange rates and certain commodity prices. In order to manage the volatility relating to our more significant market risks, we enter into forward foreign currency exchange contracts, cross-currency swaps, foreign currency options, commodity swaps and interest rate swaps. The Company does not anticipate any material changes in our primary market risk exposures in Fiscal 2001. We utilize risk management procedures and controls in executing derivative financial instrument transactions. We do not execute transactions or hold derivative financial instruments for trading purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations, intercompany cross-border transactions and anticipated non-functional currency cash flows, as well as commodity price exposures, are used with the goal of mitigating a significant portion of these exposures when it is cost effective to do so. Counter-parties to derivative financial instruments are limited to financial institutions with at least an AA long-term credit rating. 94 INTEREST RATE SENSITIVITY The table below provides information about our financial instruments that are sensitive to changes in interest rates, including long-term investments, debt obligations, interest rate swaps and currency swaps. For long-term investments, the table presents cash flows of principal payments (in millions) related to a subordinated, non-collateralized zero coupon loan note, based on the amortized cost of the investment as of September 30, 2000, and the associated fair value interest rate discount. For debt obligations, the table presents cash flows of principal repayment (in millions) and weighted-average interest rates. For interest rate swaps and cross-currency swaps, the table presents notional amounts (in millions) and weighted-average interest rates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. The amounts included in the table below are in U.S. dollars ($ in millions).
FISCAL FISCAL FISCAL FISCAL FISCAL FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE ------ ------- ------ ------ ------- ---------- ------- ------- Long-term investment: Fixed Rate (British Pound)...................... -- -- -- 119.6 -- -- 119.6 119.6 Interest rate................................. 11.5% Total debt: Fixed rate (US$)................................ 858.6 1,354.8 11.2 113.0 1,147.5 3,391.8 6,876.9 6,721.8 Average interest rate......................... 6.3% 6.9% 7.4% 6.2% 6.2% 6.6% Fixed rate (Euro)............................... -- -- -- -- -- 525.4 525.4 515.0 Average interest rate......................... 6.1% Fixed rate (Yen)................................ 9.0 22.8 33.5 5.6 5.6 58.7 135.2 153.3 Average interest rate......................... 3.2% 3.4% 2.2% 1.4% 1.4% 4.8% Variable rate (US$)............................. 666.1 2,454.5 4.4 5.8 2.9 33.3 3,167.0 3,167.0 Average interest rate (i)..................... 5.9% 6.9% 5.9% 6.7% 7.6% 4.9% Variable rate (Euro)............................ -- 239.2 -- -- -- -- 239.2 239.2 Average interest rate......................... 5.0% Variable rate (French Franc).................... 3.5 4.1 4.8 5.0 5.6 32.3 55.3 55.3 Average interest rate (i)..................... 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% Interest rate swap: Fixed to variable (US$)......................... -- 1,000.0 -- -- -- 800.0 1,800.0 (95.7) Average pay rate (i).......................... 7.9% 7.3% Average receive rate............................ 6.9% 6.1% Cross-currency swap: Receive US$/Pay Japanese Yen (ii)............... -- -- -- 150.0 -- -- 150.0 (18.3)(iii) Pay Japanese Yen interest....................... 6.8 6.8 6.8 3.4 -- -- 23.8 Receive US$ interest............................ 10.1 10.1 10.1 5.0 -- -- 35.3 Pay rate...................................... 4.6% 4.6% 4.6% 4.6% Receive rate.................................. 6.7% 6.7% 6.7% 6.7%
- ------------------------------ (i) Weighted-average variable interest rates are based on applicable rates as of September 30, 2000 per the terms of the contracts of the related financial instruments. (ii) In March 1994, AMP entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary. (iii) The fair value of the cross-currency swap included in the table reflects the portion of the fair value of the contract that is attributable to the interest component of the contract. 95 EXCHANGE RATE SENSITIVITY The table below provides information about Tyco's financial instruments that are sensitive to foreign currency exchange rates. These instruments include long-term investments, debt obligations, cross-currency swaps, forward foreign currency exchange contracts and currency options. For long-term investments, the table presents cash flows of principal payments (in millions) related to a subordinated, non-collateralized zero coupon loan note, based on the amortized cost of the investment as of September 30, 2000, and the associated fair value interest rate discount. For debt obligations, the table presents cash flows of principal repayment (in millions) and weighted-average interest rates. For cross-currency swaps and forward foreign currency exchange contracts, the table presents notional amounts (in millions) and weighted-average contractual exchange rates. For currency options, the table presents notional amounts (in millions) and weighted-average contractual strike prices. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. The amounts included in the table below are in U.S. dollars ($ in millions).
FISCAL FISCAL FISCAL FISCAL FISCAL FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE ------- ------ ------ ------ ------ ---------- ------- ----- Long-term investment: Fixed Rate (British Pound)...................... -- -- -- 119.6 -- -- 119.6 119.6 Interest rate................................. 11.5% Long-term debt: Fixed rate (Euro)............................... -- -- -- -- -- 525.4 525.4 515.0 Average interest rate......................... 6.1% Fixed rate (Yen)................................ 9.0 22.8 33.5 5.6 5.6 58.7 135.2 153.3 Average interest rate......................... 3.2% 3.4% 2.2% 1.4% 1.4% 4.8% Variable rate (Euro)............................ -- 239.2 -- -- -- -- 239.2 2392 Average interest rate......................... 5.0% Variable rate (French Franc).................... 3.5 4.1 4.8 5.0 5.6 32.3 55.3 55.3 Average interest rate (i)..................... 4.9% 4.9% 4.9% 4.9% 4.9% 4.9% Cross-currency swap: Receive US$/Pay Japanese Yen (ii)............... -- -- -- 150.0 -- -- 150.0 3.0 (iii) Contractual exchange rate (Yen/US$)........... -- -- -- 105.95 -- -- Forward contracts: Receive US$/Pay Australian Dollar............... 325.1 -- -- -- -- -- 325.1 40.5 Average contractual exchange rate............. 0.63 -- -- -- -- -- Receive US$/Pay British Pound................... 1,389.6 -- -- -- -- -- 1,389.6 107.8 Average contractual exchange rate............. 1.59 -- -- -- -- -- Receive US$/Pay Canadian Dollar................. 109.5 -- -- -- -- -- 109.5 2.3 Average contractual exchange rate............. 0.69 -- -- -- -- -- Receive US$/Pay Euro............................ 790.8 -- -- -- -- -- 790.8 125.1 Average contractual exchange rate............... 1.00 -- -- -- -- -- Receive US$/Pay Japanese Yen.................... 194.1 -- -- -- -- -- 194.1 3.9 Average contractual exchange rate (Yen/US$)..................................... 101.51 -- -- -- -- -- Pay US$/Receive Singapore Dollar................ 58.4 -- -- -- -- -- 58.4 (0.6) Average strike price............................ 0.58 -- -- -- -- --
- ------------------------------ (i) Weighted-average variable interest rates are based on applicable rates as of September 30, 2000 per the terms of the contracts of the related financial instruments. (ii) In March 1994, AMP entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary. (iii) The fair value of cross-currency swap included in the table reflects the portion of the fair value of the contract that is attributable to the foreign currency component of the contracts. 96 COMMODITY PRICE SENSITIVITY The table below provides information about Tyco's financial instruments that are sensitive to changes in commodity prices. Total contract dollar amounts (in millions) and notional quantity amounts are presented for forward commodity contracts. Contract amounts are used to calculate the contractual payments quantity of the commodity to be exchanged under the contracts ($ in millions).
FISCAL FISCAL FISCAL FISCAL FISCAL FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE -------- -------- -------- -------- -------- ---------- -------- -------- Forward contracts: Copper Contract amount (US$)... 62.4 10.9 -- -- -- -- 73.3 10.6 Contract quantity (in 000 metric tons)...... 35.6 6.1 -- -- -- -- 41.7 Gold Contract amount (US$)... 25.8 1.7 -- -- -- -- 27.5 0.4 Contract quantity (in 000 ounces)............. 93.0 6.0 -- -- -- -- 99.0 Silver Contract amount (US$)... 8.6 2.0 -- -- -- -- 10.6 0.0 Contract quantity (in 000 ounces)............. 1,700.0 400.0 -- -- -- -- 2,100.0 Zinc Contract amount (US$)... 0.7 -- -- -- -- -- 0.7 0.1 Contract quantity (in 000 metric tons)...... 0.7 -- -- -- -- -- 0.7
YEAR 2000 COMPLIANCE Tyco's Year 2000 compliance programs and systems modifications were completed on time, and the conversion process was successful. Our business has not been adversely affected due to the failure of key third parties to successfully complete the Year 2000 conversion. Although there can be no assurance that all of our material third-party relationships had successful conversion programs we do not expect that any such failure would have a material adverse effect on our financial position, results of operations or liquidity. The costs of our Year 2000 program to date have not been material, and we know of no further required modifications to its information technology or embedded technology systems that would have a material impact on our financial position, results of operations or liquidity. ACCOUNTING AND TECHNICAL PRONOUNCEMENTS In June 1998 and June 2000, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements establish accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS Nos. 133 and 138 also require that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS Nos. 133 and 138 are effective for fiscal years beginning after June 15, 2000. We do not expect that the adoption of these new standards will have a material impact on our earnings or financial position. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies certain existing accounting principles for the timing of revenue recognition and its classification in the financial statements. In June 2000, the SEC delayed the required implementation date of SAB 101. As a result, SAB 101 will not be effective for Tyco until the quarter ended September 30, 2001. In October 2000, the SEC issued further guidance on the interpretations included in SAB 101. We are currently analyzing the impact of this Staff Accounting Bulletin. 97 In September 2000, the FASB issued SFAS No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities--a replacement of FASB Statement No. 125." SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. We are currently analyzing this new standard. FORWARD LOOKING INFORMATION Certain statements in this report are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forward looking statements involve risks and uncertainties. In particular, any statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission, or in Tyco's communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding the consummation and benefits of future acquisitions, as well as expectations with respect to future sales, earnings, cash flows, operating efficiencies, product expansion, backlog, financings and share repurchases, are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of Tyco, which may cause actual results, performance or achievements to differ materially from anticipated results, performances or achievements. Factors that might affect such forward looking statements include, among other things, overall economic and business conditions; the demand for Tyco's goods and services; competitive factors in the industries in which Tyco competes; changes in government regulation; changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); results of litigation; interest rate fluctuations and other capital market conditions, including foreign currency rate fluctuations; economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders; the timing of construction and the successful operation of the TyCom Global Network; the ability to achieve anticipated synergies and other cost savings in connection with acquisitions; and the timing, impact and other uncertainties of future acquisitions. 98 TYCO INTERNATIONAL LTD. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
ADDITIONS BALANCE AT CHARGED ACQUISITIONS, BEGINNING TO DISPOSALS, BALANCE AT DESCRIPTION OF YEAR INCOME AND OTHER DEDUCTIONS END OF YEAR - ----------- ---------- --------- ------------- ---------- ----------- Allowances for Doubtful Accounts: Fiscal Year Ended September 30, 1998... $158.9 $ 95.7 $107.9 $(44.9) $317.6 Fiscal Year Ended September 30, 1999... 317.6 141.8 (9.2) (120.4) 329.8 Fiscal Year Ended September 30, 2000... 329.8 226.1 29.5 (143.3) 442.1
99 EX-2.5 2 a2030822zex-2_5.txt EXHIBIT 2.5 EXHIBIT 2.5 EXECUTION COPY AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS BY AND BETWEEN LUCENT TECHNOLOGIES INC. AS SELLER AND TYCO GROUP S.A.R.L. AS BUYER DATED AS OF NOVEMBER 13, 2000 LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS TABLE OF CONTENTS PAGE 1. Definitions.......................................................2 1.1 Defined Terms...............................................2 1.2 Other Definitional and Interpretive Matters.................10 2. Purchase and Sale of the Business.................................11 2.1 Purchase and Sale of Assets.................................11 2.2 Excluded Assets.............................................12 2.3 Purchase Price..............................................14 2.4 Assumed Liabilities.........................................15 2.5 Excluded Liabilities........................................16 2.6 Further Assurances; Further Conveyances and Assumptions; Consent of Third Parties.......................16 2.7 No Licenses.................................................18 2.8 Bulk Sales Law..............................................18 2.9 Taxes.......................................................18 2.10 Buyer Designee..............................................19 3. Representations and Warranties of Seller..........................19 3.1 Organization and Qualification..............................19 3.2 Subsidiaries................................................19 3.3 Authorization; Binding Effect...............................20 3.4 Non-Contravention; Consents.................................20 3.5 Title to Property; Principal Equipment; Sufficiency of Assets...................................................21 3.6 Permits, Licenses...........................................21 3.7 Real Estate.................................................22 3.8 Compliance With Laws; Litigation............................22 3.9 Business Employees..........................................23 3.10 Contracts...................................................24 3.11 Environmental Matters.......................................24 3.12 Financial Statement; Absence of Changes.....................25 3.13 Intellectual Property.......................................26 3.14 Brokers.....................................................27 3.15 Taxes.......................................................27 3.16 Product Liability and Recalls...............................27 3.17 Product Warranty............................................27 3.18 Inventory...................................................28 3.19 Customer and Suppliers......................................28 3.20 Restrictions on the Business................................28 3.21 No Other Representations or Warranties......................28 -i- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 4. Representations and Warranties of Buyer...........................28 4.1 Organization and Qualification..............................29 4.2 Authorization; Binding Effect...............................29 4.3 No Violations...............................................29 4.4 Brokers.....................................................30 4.5 No Other Seller Representations and Warranties..............30 4.6 Sufficiency of Funds........................................31 4.7 No Other Representations or Warranties......................31 5. Certain Covenants.................................................31 5.1 Access and Information......................................31 5.2 Conduct of Business.........................................32 5.3 Tax Reporting and Allocation of Consideration...............34 5.4 Business Employees..........................................34 5.5 Collateral Agreements; Leased Equipment.....................40 5.6 Regulatory Compliance.......................................41 5.7 Contacts with Suppliers, Employees and Customers............41 5.8 Use of Lucent's Name; Brazilian JV Comany Name..............41 5.9 No Hire and Non-Solicitation of Employees...................43 5.10 No Negotiation or Solicitation..............................43 5.11 Non-Competition.............................................43 6. Confidential Nature of Information................................44 6.1 Confidentiality Agreement...................................44 6.2 Seller's Proprietary Information............................44 6.3 Buyer's Proprietary Information.............................46 6.4 Confidential Nature of Agreement............................47 7. Closing...........................................................47 7.1 Deliveries by Seller or the Subsidiaries....................47 7.2 Deliveries by Buyer.........................................48 7.3 Closing Date................................................48 8. Conditions Precedent to Closing...................................49 8.1 General Conditions..........................................49 8.2 Conditions Precedent to Buyer's Obligations.................49 8.3 Conditions Precedent to Seller's Obligations................50 9. Status of Agreements..............................................50 9.1 Effect of Breach............................................50 9.2 Survival of Representations and Warranties..................50 9.3 General Agreement to Indemnify..............................51 9.4 General Procedures for Indemnification......................53 -ii- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 10. Miscellaneous Provisions..........................................54 10.1 Notices.....................................................54 10.2 Expenses....................................................55 10.3 Entire Agreement; Modification..............................55 10.4 Assignment; Binding Effect; Severability....................55 10.5 Governing Law...............................................55 10.6 Execution in Counterparts...................................56 10.7 Public Announcement.........................................56 10.8 No Third-Party Beneficiaries................................56 11. Termination and Waiver............................................57 11.1 Termination.................................................57 11.2 Effect of Termination.......................................57 11.3 Waiver of Agreement.........................................57 11.4 Amendment of Agreement......................................57 11.5 Disputes; Waiver of Jury Trial..............................58 -iii- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS SCHEDULES SCHEDULE 2.1(h) Licenses SCHEDULE 2.1(j) Governmental Permits SCHEDULE 2.2(f) Excluded Contracts SCHEDULE 2.3(b) 9/30/2000 Inventory Statement SCHEDULE 2.3(d) Allocation of Purchase Price Among Seller, Subsidiaries of Seller, and Buyer Designees SCHEDULE 3.2 Subsidiaries SCHEDULE 3.4(b) Required Consents SCHEDULE 3.7(a) Assumed Leases; Leased Premises SCHEDULE 3.7(b) Transferred Premises SCHEDULE 3.8(a) Compliance with Laws SCHEDULE 3.8(b) Litigation SCHEDULE 3.9(a) Business Employees SCHEDULE 3.9(b) Benefit Plans SCHEDULE 3.10 Material Contracts SCHEDULE 3.11 Environmental Matters SCHEDULE 3.12 Financial Statements SCHEDULE 3.13(b) Intellectual Property SCHEDULE 3.16 Product Liability and Recalls SCHEDULE 3.17 Product Warranty Terms SCHEDULE 3.19 Customers and Suppliers SCHEDULE 5.4(m) Labor Agreements EXHIBITS EXHIBIT A Form of Assignment and Bill of Sale EXHIBIT B Form of Assumption Agreement EXHIBIT C Form of Lease Assignment EXHIBIT D Form of Sublease EXHIBIT E Form of Supply Agreement EXHIBIT F Form of Intellectual Property Agreement EXHIBIT G Form of Transition Services Agreement EXHIBIT H Form of Opinion - Buyer's Savings Plan -iv- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS THIS AGREEMENT FOR THE PURCHASE AND SALE OF ASSETS ("AGREEMENT") is made as of November 13, 2000 by and between LUCENT TECHNOLOGIES INC., a Delaware corporation ("SELLER" or "LUCENT"), and TYCO GROUP S.A.R.L., a company organized under the laws of Luxembourg ("BUYER"). R E C I T A L S A. WHEREAS, Seller and the Subsidiaries are, among other things, engaged through a unit (referred to herein as "POWER SYSTEMS") of its Microelectronics and Communications Technology Group in the worldwide manufacturing, marketing, sales and distribution of power supply, power conversion and backup power equipment for wireless, optical, switching and other equipment that run communications networks and a full line of power products, including Titania(TM) power products, for computer manufacturers; and provide custom design, engineering, installation and technical support related to such power products (collectively, the "BUSINESS"); B. WHEREAS, the Business is composed of certain assets and liabilities that are currently part of Seller and the Subsidiaries; C. WHEREAS, Seller and the Subsidiaries desire to sell, transfer and assign to Buyer, and Buyer desires to purchase and assume from Seller and the Subsidiaries, the Purchased Assets (as hereinafter defined), and Buyer is willing to assume, the Assumed Liabilities (as hereinafter defined), in each case as more fully described and upon the terms and subject to the conditions set forth herein; and D. WHEREAS, Seller and/or one or more of the Subsidiaries and Buyer desire to enter into each Assignment and Bill of Sale, each Assumption Agreement, the Supply Agreement, the Intellectual Property Agreement, the Transition Services Agreement, each Lease Assignment, each Sublease and each Real Estate Deed (collectively, the "COLLATERAL AGREEMENTS"). NOW, THEREFORE, in consideration of the mutual agreements and covenants herein contained and intending to be legally bound hereby, the parties hereto hereby agree as follows: LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 1. DEFINITIONS 1.1 DEFINED TERMS For the purposes of this Agreement, in addition to the words and phrases that are described throughout the body of this Agreement, the following words and phrases shall have the following meanings: "AFFILIATE" of any Person means any Person that controls, is controlled by, or is under common control with such Person. As used herein, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. "AGREEMENT" has the meaning assigned in the preamble hereof. "ASSET ACQUISITION STATEMENT" has the meaning assigned in Section 5.3(b). "ASSIGNMENT AND BILL OF SALE" means each agreement in substantially the form set forth as EXHIBIT A. "ASSUMED LEASES" means the Leases to be assumed by the Buyer pursuant to a Lease Assignment or Sublease and identified on SCHEDULE 3.7(a). "ASSUMED LIABILITIES" means the liabilities and obligations of Seller and the Subsidiaries assumed by Buyer pursuant to the Assumption Agreement and Section 2.4. "ASSUMPTION AGREEMENT" means each agreement in substantially the form set forth as EXHIBIT B. "BENEFIT PLAN" means, in respect of any Business Employee, each "employee benefit plan," as defined in Section 3(3) of ERISA (including any "multiemployer plan" as defined in Section 3(37) of ERISA) and each employment, severance, retention, consulting, or similar agreement or arrangement related to profit-sharing, bonus, stock option, stock purchase, stock ownership, pension, retirement, severance, deferred compensation, excess benefit, supplemental unemployment, post-retirement medical or life insurance, welfare or incentive plan, or sick leave, long-term disability, medical, hospitalization, life insurance, other insurance plan, or other employee benefit plan, program or arrangement, qualified or non-qualified, funded or unfunded, maintained or contributed to by Seller or the Subsidiaries, provided such plans, programs, or arrangements are in writing. "BRAZILIAN JV COMPANY" has the meaning assigned in Section 2.1(k). -2- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "BUSINESS" has the meaning assigned in Recital A hereof. "BUSINESS DAY" means a day that is not a Saturday, a Sunday or a statutory or civic holiday in the State of New York or any other day on which the principal offices of Seller or Buyer are closed or become closed prior to 2:00 p.m. local time. "BUSINESS EMPLOYEES" means the employees of Seller or the Subsidiaries employed in the Business and identified on SCHEDULE 3.9(a). "BUSINESS RECORDS" means all books, records, ledgers and files or other similar information used primarily in the conduct of the Business, including price lists, customer lists, vendor lists, mailing lists, warranty information, catalogs, sales promotion literature, advertising materials, brochures, records of operation, standard forms of documents, manuals of operations or business procedures, research materials and product testing reports required by any national, federal, state, provincial or local court, administrative body or other Governmental Body of any country, but excluding any such items to the extent (i) they are included in, or primarily related to, any Excluded Assets or Excluded Liabilities, or (ii) any applicable Law prohibits their transfer. "BUYER" has the meaning assigned in the preamble hereof. "BUYER DESIGNEE" means one or more Affiliates of Buyer identified to Seller prior to the Closing Date. "BUYER NONREPRESENTED SAVINGS PLAN" has the meaning assigned in Section 5.4(e). "BUYER PENSION PLAN" has the meaning assigned in Section 5.4(g). "BUYER REPRESENTED SAVINGS PLAN" has the meaning assigned in Section 5.4(e). "BUYER SAVINGS PLAN" has the meaning assigned in Section 5.4(e). "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.ss.ss.9601 ET SEQ. as amended. "CLOSING" means the closing of the transactions described in Article 7. "CLOSING DATE" means the date of the Closing as determined pursuant to Section 7.3. "CLOSING DATE INVENTORY STATEMENT" has the meaning assigned in Section 2.3(b). "CODE" means the U.S. Internal Revenue Code of 1986, as amended. -3- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "COLLATERAL AGREEMENTS" has the meaning assigned in Recital D hereof. "CONFIDENTIALITY AGREEMENT" shall mean the agreement between Seller and Buyer dated June 1, 2000. "CONTRACTS" means all Third-Party contracts, agreements, leases and subleases, supply contracts, purchase orders, sales orders and instruments used or held for use in each case primarily in the conduct of the Business, that will be in effect on the Closing Date to which Seller or a Subsidiary is a party, (i) for the lease of machinery and equipment, motor vehicles, or furniture and office equipment, (ii) for the provision of goods or services, (iii) for the sale of goods or performance of services by the Business, including teaming agreements relating thereto, (iv) for the sale and distribution of the products, and (v) any such contracts, agreements, instruments and leases referred to in clauses (i) - (iv), inclusive, entered into between the date hereof and outstanding as of the Closing Date by Seller or a Subsidiary, but "CONTRACTS" excludes the Excluded Contracts. "COUNSEL FOR BUYER" means a corporate counsel of Buyer. "COUNSEL FOR SELLER" means a corporate counsel of Seller. "DALLAS RECEIVABLES" has the meaning assigned in Section 2.1(l). "ENCUMBRANCE" means any lien, claim, charge, security interest, mortgage, pledge, easement, conditional sale or other title retention agreement, covenant or other similar restrictions or third party rights affecting the Purchased Assets other than Permitted Encumbrances. "ENVIRONMENTAL LAW" means any foreign, local, county, state or federal Law that governs the existence of or provides a remedy for release of Hazardous Substances, the protection of persons, natural resources or the environment, the management of Hazardous Substances, or other activities involving Hazardous Substances including, without limitation, under CERCLA, the Hazardous Materials Transportation Act, 49 U.S.C.ss.1801 ET SEQ., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C.ss.6901 ET SEQ., the Clean Water Act, 33 U.S.C. Sectionss.1251 ET SEQ., the Clean Air Act, 42 U.S.C.ss.7401 ET SEQ., the Toxic Substance Control Act, 15 U.S.C.ss.2601 ET SEQ., the Oil Pollution Act of 1990, 33 U.S.C.ss.2701 ET SEQ., and the Occupational Safety and Health Act, 29 U.S.C.ss.651 ET SEQ., or any other similar foreign, federal, state, local or county Laws, as such laws have been amended or supplemented, and the regulations promulgated pursuant thereto, in each case as in effect on or prior to the Closing Date or, with respect to representations and warranties made on the date hereof, on or prior to the date hereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. -4- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "EXCLUDED ASSETS" means the properties and assets of the Business excluded from the Purchased Assets by Section 2.2. "EXCLUDED CONTRACTS" means those Contracts (i) identified in SCHEDULE 2.2(f), (ii) under which performance by Seller or an Affiliate has been completed and for which there is no remaining warranty, maintenance, or support obligation, (iii) relating to any General Purchase Agreement, and (iv) relating to Excluded Assets or Excluded Liabilities. "EXCLUDED LEASED EQUIPMENT" has the meaning assigned in Section 5.5(b). "EXCLUDED LIABILITIES" means the liabilities and obligations that are not assumed by Buyer as provided in Section 2.5. "EXISTING INVENTORY" has the meaning assigned in Section 5.8(a). "FINANCIAL STATEMENTS" has the meaning assigned in Section 3.12(a). "FIRST TRANSFER DATE" has the meaning assigned in Section 5.4(g). "FIXTURES AND SUPPLIES" means all furniture, furnishings and other tangible personal property owned by Seller or a Subsidiary and used or held for use primarily in the conduct of the Business and located on the Premises, including, without limitation desks, tables, chairs, file cabinets and other storage devices and office supplies but excluding any such items related to Excluded Assets or Excluded Liabilities. "GENERAL PURCHASE AGREEMENTS" shall mean Third-Party supply contracts or other agreements between Seller or an Affiliate and a Third Party pursuant to which Seller or an Affiliate purchases products or services from such Third-Party for any of Seller's or an Affiliate's businesses other than primarily for the Business. "GOVERNMENTAL BODY" means any legislative, executive or judicial unit of any governmental entity (foreign, federal, state or local) or any department, commission, board, agency, bureau, official or other regulatory, administrative or judicial authority thereof. "GOVERNMENTAL PERMITS" means all governmental permits and licenses, certificates of inspection, approvals or other authorizations issued to Seller or a Subsidiary with respect to the Business or the Premises and necessary for the operation of the Business or the Premises as currently conducted under applicable Laws. "HAZARDOUS SUBSTANCE" means (i) any hazardous, toxic or dangerous waste, substance or material defined as such in (or for the purposes of) any Environmental Law, including Environmental Laws relating to or imposing liability or standards or conduct concerning any hazardous, toxic or dangerous waste, substance or material in effect on the date of this -5- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Agreement, (ii) asbestos, flammable explosives, radioactive materials, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products (including but not limited to waste petroleum and petroleum products), or methane, and (iii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Body pursuant to any Environmental Law or any health and safety or similar law, code, ordinance, rule or regulation, order or decree, and which may or could pose a hazard to the health and safety of workers at or users of any properties of Seller or any Subsidiary or cause damage to the environment. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "INDEMNIFIED PARTY" has the meaning assigned in Section 9.3(a). "INDEMNIFYING PARTY" has the meaning assigned in Section 9.4(a). "INTELLECTUAL PROPERTY" has the meaning assigned in Section 3.13. "INTELLECTUAL PROPERTY AGREEMENT" means the agreement in substantially the form set forth as EXHIBIT F. "INVENTORY" means all inventory, wherever located, including raw materials, work in process, recycled materials, finished products, inventoriable supplies, and non-capital spare parts owned by Seller or a Subsidiary and used or held for use primarily in the conduct of the Business, and any rights of Seller or a Subsidiary to the warranties received from suppliers and any related claims, credits, rights of recovery and setoff with respect to such Inventory, but only to the extent such rights are assignable, but excluding any inventory related to Excluded Assets or Excluded Liabilities. "IRS" means the U.S. Internal Revenue Service. "LAWS" shall mean any national, federal, state, provincial or local law, statute, ordinance, rule, regulation, code, order, judgment, injunction or decree of any country. "LEASE" means the lease for any of the Leased Premises. "LEASE ASSIGNMENT" means each assignment agreement with respect to a Lease in substantially the form set forth as EXHIBIT C. "LEASED EQUIPMENT" means the computers, servers, machinery and equipment and other similar items leased and used by Seller or a Subsidiary primarily in the conduct of the Business but excluding any such items related to Excluded Assets or Excluded Liabilities. -6- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "LEASED PREMISES" means the real property that is leased by Seller or a Subsidiary from Third Parties and used by Seller or a Subsidiary primarily in the conduct of the Business as identified on SCHEDULE 3.7(a). "LICENSES" means all licenses, agreements and other arrangements identified on SCHEDULE 2.1(h) under which Seller or a Subsidiary has the right to use any Proprietary Information of a Third Party to the extent used or held for use primarily in the conduct of the Business but not the Nonassignable Licenses or any such items related to Excluded Assets or Excluded Liabilities. "LOSSES" has the meaning assigned in Section 9.3(a). "LSP" has the meaning assigned in Section 5.4(e). "LTSSP" has the meaning assigned in Section 5.4(e). "LUCENT" has the meaning assigned in the preamble hereof. "LUCENT OCCUPATIONAL PLAN" has the meaning assigned in Section 5.4(g). "MARKED ASSETS" has the meaning assigned in Section 5.8(a). "MARKED INSTRUMENTALITIES" has the meaning assigned in Section 5.8(a). "MATERIAL ADVERSE EFFECT" means any condition or event that has material and adverse effect upon the financial condition or results of operations of the Business taken as a whole, other than any condition or event (i) relating to the economy in general, (ii) relating to the industries in which the Business operates in general, (iii) arising out of or resulting from actions of Buyer or a Buyer Designee in connection with this Agreement. "MATERIAL CONTRACTS" has the meaning assigned in Section 3.10. "9/30/2000 INVENTORY STATEMENT" has the meaning assigned in Section 2.3(b). "NONASSIGNABLE ASSETS" has the meaning assigned in Section 2.6(c). "NONASSIGNABLE LICENSES" means those Licenses of Proprietary Information to which Seller or an Affiliate is the licensee that are (i) not by their terms assignable to Buyer, or (ii) related to other businesses of Seller or an Affiliate and not solely to the Business. "NONREPRESENTED TRANSFERRED EMPLOYEES" means Transferred Employees in the United States who are not Represented Transferred Employees. -7- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "OTHER MARKED ASSETS" has the meaning assigned in Section 5.8(a). "PENSION PLAN" has the meaning assigned in Section 3.9(b). "PENSION TRANSFER AMOUNT" has the meaning assigned in Section 5.4(h). "PERMITTED ENCUMBRANCES" means any (i) liens for taxes, assessments and other governmental charges or of landlords, liens of carriers, warehouseman, mechanics and material men incurred in the ordinary course of business, in each case for sums not yet due and payable or due but not delinquent or being contested in good faith by appropriate proceedings, (ii) liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases government contracts, performance and return of money bonds and similar obligations, (iii) licenses granted by Seller or an Affiliate in connection with sales of products in the ordinary course of business, and (iv) any Encumbrance or minor imperfection in title and minor encroachments, if any, not material in amount that, individually or in the aggregate, do not materially interfere with the conduct of the Business or with the use of the Purchased Assets and do not materially affect the value of the Purchased Assets. "PERSON" means any individual, corporation, partnership, firm, association, joint venture, joint stock company, trust, unincorporated organization or other entity, or any government or regulatory, administrative or political subdivision or agency, department or instrumentality thereof. "POWER SYSTEMS" has the meaning assigned in Recital A hereof. "PREMISES" means the Leased Premises and the Transferred Premises. "PRINCIPAL EQUIPMENT" means the computers, servers, machinery and equipment (including any related spare parts, dies, molds, tools, and tooling) and other similar items used by Seller or a Subsidiary primarily in the conduct of the Business but not the Leased Equipment or any such items related to Excluded Assets or Excluded Liabilities. Principal Equipment includes rights to the warranties received from the manufacturers and distributors of said items and to any related claims, credits, rights of recovery and setoff with respect to said items, but only to the extent such rights are assignable. "PROPRIETARY INFORMATION" means all information (whether or not protectable by patent, copyright, mask works or trade secret rights) not generally known to the public (except for patents), including, but not limited to, works of authorship, inventions, discoveries, patentable subject matter, patents, patent applications, industrial models, industrial designs, trade secrets, trade secret rights, software, works, copyrightable subject matters, copyright rights and registrations, mask works, know-how and show-how, -8- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS trademarks, trade names, service marks, emblems, logos, insignia and related marks and registrations, specifications, technical manuals and data, libraries, blueprints, drawings, proprietary processes, product information and development work-in-process. "PURCHASE PRICE" has the meaning assigned in Section 2.3(a). "PURCHASE PRICE ADJUSTMENT" has the meaning assigned in Section 2.3(b). "PURCHASED ASSETS" has the meaning assigned in Section 2.1. "PURCHASED LEASED EQUIPMENT" has the meaning assigned in Section 5.5(b). "REAL ESTATE DEED" means each deed with respect to Transferred Premises. "REASONABLE COMMERCIAL EFFORTS" means that the obligated party is required to make a diligent, reasonable and good faith effort to accomplish the applicable objective. Such obligation, however, does not require an expenditure of funds or the incurrence of a liability on the part of the obligated party, nor does it require that the obligated party act in a manner that would be contrary to normal commercial practices in order to accomplish the objective. The fact that the objective is or is not actually accomplished is no indication that the obligated party did or did not in fact utilize its reasonable commercial efforts in attempting to accomplish the objective. "RELEASE" means any past or present spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the environment. "REPRESENTED TRANSFERRED EMPLOYEES" means Transferred Employees in the United States who are represented by the Communications Workers of America. "REPRESENTED TRUST" has the meaning assigned in Section 5.4(g). "REQUIRED CONSENT" has the meaning assigned in Section 3.4(b). "RETURN" means any return, declaration, report, statement, and any other document required to be filed in respect of any Tax. "SECOND TRANSFER DATE" has the meaning assigned in Section 5.4(g). "SELLER" has the meaning assigned in the preamble hereof. "SELLER NAME" has the meaning assigned in Section 5.8(a). -9- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS "SELLER'S ADJUSTMENT RESPONSE" has the meaning assigned in Section 2.3(b). "SENIOR EXECUTIVES" means, in the case of Seller, Robert C. Holder, Executive Vice President, Corporate Operations of Lucent, and in the case of Buyer, Edward Federman, Chief Financial Officer of Tyco Electronics Corporation, or their respective successors. "SUBLEASE" means each sublease with respect to a Lease in substantially the form set forth as EXHIBIT D. "SUBSIDIARY" means each entity listed on SCHEDULE 3.2. "SUPPLY AGREEMENT" means the agreement in substantially the form set forth as EXHIBIT E. "TAXES" means, (A) all taxes of any kind, charges, fees, customs, levies, duties, imposts, required deposits or other assessments, including, without limitation, all net income, capital gains, gross income, gross receipt, property, franchise, sales, use, excise, withholding, payroll, employment, social security, worker's compensation, unemployment, occupation, capital stock, ad valorem, value added, transfer, gains, profits, net worth, asset, transaction, and other taxes, imposed upon any Person by federal, foreign, state, or local Law or taxing authority, together with any interest and any penalties, or additions to tax, with respect to such taxes and (B) any liability of a Person for the payment of any amount of any type described in clause (A) as a result of the Person being a transferee or a member of an affiliated or combined group prior to the Closing. "THIRD PARTY" means any Person not an Affiliate of the other referenced Person or Persons. "THIRD-PARTY CLAIM" has the meaning assigned in Section 9.4(a). "TRANSFERRED EMPLOYEES" has the meaning assigned in Section 5.4(a). "TRANSFERRED PREMISES" means the real property that is owned and used by Seller or a Subsidiary primarily in the conduct of the Business identified on SCHEDULE 3.7(b). "TRANSFERRED SAVINGS PLAN PARTICIPANTS" has the meaning assigned in Section 5.4(e). "TRANSITION SERVICES AGREEMENT" means the agreement in substantially the form set forth as EXHIBIT G. 1.2 OTHER DEFINITIONAL AND INTERPRETIVE MATTERS -10- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply: CALCULATION OF TIME PERIOD. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. GENDER AND NUMBER. Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa. HEADINGS. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement. All references in this Agreement to any "SECTION" are to the corresponding Section of this Agreement unless otherwise specified. HEREIN. The words such as "HEREIN," "HEREINAFTER," "HEREOF," and "HEREUNDER" refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. INCLUDING. The word "INCLUDING" or any variation thereof means "INCLUDING, WITHOUT LIMITATION" and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. SCHEDULES AND EXHIBITS. The Schedules and Exhibits attached to this Agreement 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. 2. PURCHASE AND SALE OF THE BUSINESS 2.1 PURCHASE AND SALE OF ASSETS Upon the terms and subject to the conditions of this Agreement and in reliance on the representations and warranties contained herein, on the Closing Date, Seller shall, or shall cause one or more of the Subsidiaries to, grant, bargain, sell, transfer, assign, convey and deliver to Buyer or one or more Buyer Designees, and Buyer or one or more Buyer Designees shall purchase, acquire and accept from Seller or the applicable Subsidiary, all of the right, title and interest in, to and under the Purchased Assets that Seller or the applicable Subsidiary possesses and has the right to transfer as the same shall exist on the Closing Date. For purposes of this Agreement, "PURCHASED ASSETS" shall mean all the assets, properties and -11- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS rights used by Seller or the applicable Subsidiary, whether tangible or intangible, real, personal or mixed, set forth or described in Sections 2.1(a) through 2.1(l), inclusive (except in each case for the Excluded Assets), whether or not any of such assets, properties or rights have any value for accounting purposes or are carried or reflected on or specifically referred to in Seller's or the applicable Subsidiary's books or financial statements: (a) the Assumed Leases; (b) the Transferred Premises; (c) the Principal Equipment and the Purchased Leased Equipment; (d) the Fixtures and Supplies; (e) the Inventory; (f) the Intellectual Property; (g) the Contracts; (h) the Licenses; (i) the Business Records; (j) the Governmental Permits that are identified on SCHEDULE 2.1(j) but only to the extent that such Governmental Permits are assignable or transferable to Buyer; (k) the quotas of Lucent Inepar Sistemas de Energia Ltda. (the "BRAZILIAN JV COMPANY"); and (l) the accounts receivable imbedded on Power Systems' SAP that are billed directly by the Business and not by other Lucent operations (the "DALLAS RECEIVABLES"). 2.2 EXCLUDED ASSETS Notwithstanding the provisions of Section 2.1, it is hereby expressly acknowledged and agreed that the Purchased Assets shall not include, and neither Seller nor any of the Subsidiaries is selling, transferring, assigning, conveying or delivering to Buyer or a Buyer Designee, and neither Buyer nor a Buyer Designee is purchasing, acquiring or accepting from Seller or any of the Subsidiaries, the following (the rights, properties and assets expressly excluded by this Section 2.2 or otherwise excluded by the terms of Section 2.1 from the Purchased Assets being referred to herein as the "EXCLUDED ASSETS"): -12- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (a) any of Seller's or its Affiliate's receivables (except the Dallas Receivables), cash, bank deposits or similar cash items or employee receivables; (b) any Proprietary Information of Seller or any Affiliate other than the Intellectual Property; (c) any (i) books and records that Seller or any Affiliate is required by Law to retain or that Seller determines are necessary or advisable to retain; PROVIDED, HOWEVER, that Buyer shall have the right to make copies of any portions of such retained books and records that relate to the Business or any of the Purchased Assets; and (ii) any information management system of Seller or any Affiliate other than those used primarily in the conduct of the Business and contained within computer hardware included as a Purchased Asset pursuant to Section 2.1(c); (d) any claim, right or interest of Seller or any Affiliate in or to any refund, rebate, abatement or other recovery for Taxes, together with any interest due thereon or penalty rebate arising therefrom, the basis of which arises or accrues in any period prior to the Closing Date; (e) subject to Section 5.8, all "Lucent Technologies" marked sales and marketing or packaging materials, samples, prototypes, other similar Lucent Technologies-identified sales and marketing or packaging materials and any marketing studies; (f) the Excluded Contracts and the Nonassignable Licenses; (g) any insurance policies or rights of proceeds thereof; (h) the Excluded Leased Equipment; (i) any of Seller's or any Affiliate's rights, claims or causes of action against Third Parties relating to the assets, properties, business or operations of Seller or any Affiliate arising out of transactions occurring prior to, and including, the Closing Date; and (j) all other assets, properties, interests and rights of Seller or any Affiliate not related primarily to the Business. -13- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 2.3 PURCHASE PRICE (a) In consideration of the sale, transfer, assignment, conveyance and delivery by Seller and the Subsidiaries of the Purchased Assets to Buyer or a Buyer Designee, and in addition to assuming the Assumed Liabilities, Buyer or a Buyer Designee shall pay to Seller at the Closing, an aggregate amount equal to $2,500,000,000.00 (the "PURCHASE PRICE") in cash by wire transfer of immediately available funds to an account designated by Seller's written instructions to Buyer at least two (2) Business Days prior to Closing. (b) (i) Attached hereto as SCHEDULE 2.3(b) is a valuation of the Inventory as of September 30, 2000 (the "9/30/2000 INVENTORY STATEMENT"). (ii) Within one hundred and twenty (120) days after the Closing Date, Buyer shall submit to Seller a valuation of the Inventory as of the Closing Date (the "CLOSING DATE INVENTORY STATEMENT") wherein Buyer shall set forth in reasonable detail Buyer's valuation of the Inventory and its proposed Purchase Price Adjustment (upward or downward). The Closing Date Inventory Statement shall be prepared in accordance with GAAP (unless otherwise indicated or agreed to in writing by Buyer and Seller) and shall use the same methodology used to prepare the 9/30/2000 Inventory Statement. (iii) Seller shall review the Closing Date Inventory Statement promptly upon receipt thereof. If Seller believes that the Closing Date Inventory Statement is incorrect in any respect, Seller shall deliver to Buyer a statement without thirty (30) days after Seller's receipt of the Closing Date Inventory Statement, identifying the specific aspects of the Closing Date Inventory Statement with which Seller disagrees and the reasons therefor with supporting detail, and setting forth Seller's valuation of the Inventory and a proposed Purchase Price Adjustment (the "SELLER'S ADJUSTMENT RESPONSE"). The Seller's Adjustment Response shall be prepared in accordance with GAAP (unless otherwise indicated or agreed to in writing by Buyer and Seller) and shall use the same methodology used to prepare the 9/30/2000 Inventory Statement. (iv) Within the thirty (30) day period after Buyer's receipt of Seller's Adjustment Response, the parties shall use reasonable commercial efforts to resolve mutually their differences with regard to, and agree upon, the valuation of the Inventory and the Purchase Price Adjustment. (v) If the parties are able to reach an Agreement with regard to the valuation of the Inventory and the Purchase Price Adjustment, payment will be made by either Seller or Buyer, as applicable, to the other within ten (10) Business Days after such agreement as follows: the Purchase Price shall be adjusted (x) upward if the value of the Inventory on the Closing Date Inventory Statement is greater than the value of the Inventory on the 9/30/2000 -14- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Inventory Statement, or (y) downward if the value of the Inventory on the Closing Date Inventory Statement is less than the value of the Inventory on the 9/30/2000 Inventory Statement, in each case by the absolute difference between the value of the Inventory on the respective inventory statements (the "PURCHASE PRICE ADJUSTMENT"). If the Purchase Price is adjusted upward, then Buyer or a Buyer Designee shall pay the Purchase Price Adjustment to Seller, and if Purchase Price is adjusted downward, then Seller shall pay the Purchase Price Adjustment to Buyer or a Buyer Designee. (vi) If the Parties are unable to resolve mutually their dispute with regard to the valuation of the Inventory and the Purchase Price Adjustment within the thirty (30) day calendar period provided for doing so, then the issue shall be submitted to a mutually agreed auditing firm other than PricewaterhouseCoopers LLC (the "AUDITOR") to resolve any dispute. The Auditor, acting as an expert and not as an arbitrator, shall determine the Purchase Price Adjustment. The determination of the Auditor shall be final, binding and conclusive on the parties. Buyer and Seller shall provide all documents and information requested by Auditor promptly and shall use their reasonable efforts to cause the Auditor to make its determination within thirty (30) days after the dispute is submitted to it. The fees and expenses of the Auditor shall be borne by Seller and Buyer equally. (c) Within thirty (30) days after the Closing Date, Buyer shall pay to Seller as an addition to the Purchase Price an amount equal to the Dallas Receivables minus (a) the Warranty Liability of $14,700,000 as of September 30, 2000 and (b) net of allowance for doubtful accounts allocable to the Dallas Receivables. Any disagreements related to this provision shall be handled as set forth in Section 2.3(b). (d) Prior to the Closing Date, Buyer and Seller shall agree to allocate the Purchase Price as between Seller (or any selling Subsidiary listed on Schedule 3.2, as appropriate) and Buyer (or any appropriate Buyer Designee). Such allocation shall be attached to this Agreement prior to Closing as SCHEDULE 2.3(d) and shall be modified after the Closing to reflect any adjustments to the Purchase Price pursuant to Sections 2.3(b) and (c). Buyer and Seller shall act in accordance with such allocation (as adjusted) in the preparation, filing and audit of any Return. 2.4 ASSUMED LIABILITIES On the Closing Date, Buyer or one or more Buyer Designees shall execute and deliver to Seller the one or more Assumption Agreements and one or more Lease Assignments or Subleases pursuant to which Buyer or any such Buyer Designee shall accept, assume and agree to pay, perform or otherwise discharge, in accordance with the respective terms and subject to the respective conditions thereof, the liabilities and obligations of Seller or a Subsidiary pursuant to and under the Assumed Liabilities. "ASSUMED LIABILITIES" shall mean only those liabilities and obligations set forth in this Section 2.4, whether or not any such obligation has a value for accounting purposes or is carried or reflected on or specifically referred to in either Seller's or the applicable Subsidiary's books or financial statements: -15- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (a) the vacation, personal days and floating holidays of Transferred Employees; (b) the liabilities and obligations arising on or after the Closing Date under the Assumed Leases and the transferred Contracts, Licenses and Government Permits; (c) with respect to the Business, any product warranty liabilities arising from sales of products in the ordinary course of business; (d) the Permitted Encumbrances and all other Encumbrances and other obligations related to the Purchased Assets that are specifically identified in this Agreement or the Schedules hereto; and (e) the obligations and liabilities with respect to the Transferred Employees, the Business or the Purchased Assets, known or unknown, absolute or contingent, the basis of which arises or accrues on or after the Closing Date. 2.5 EXCLUDED LIABILITIES Neither Buyer nor any Buyer Designee shall assume or be obligated to pay, perform or otherwise assume or discharge any liabilities or obligations of Seller or any of its Affiliates, whether direct or indirect, known or unknown, absolute or contingent, except for the Assumed Liabilities (all of such liabilities and obligations not so assumed being referred to herein as the "EXCLUDED LIABILITIES"). For the avoidance of doubt, the parties agree that the Excluded Liabilities include, but are not limited to, (i) any violation, liability, penalty or obligation of Seller or any of its Affiliates (or any predecessor company that historically operated the Business or conducted other operations at the Premises) relating to, or arising in connection with, any Environmental Law, known or unknown, absolute or contingent, the basis of which arises or accrues on or before the Closing Date (other than any violation, liability, penalty or obligation caused by a Third Party), (ii) any wages, salary, bonuses, commissions or retention bonuses relating to Transferred Employees which accrue on or prior to the Closing Date irrespective of when any such wages, salary, bonuses, commissions or retention bonuses are paid, and (iii) any liabilities in connection with, or relating to, any actions, suits, claims or proceedings against Seller or any Affiliate which arise or accrue on or before the Closing Date. 2.6 FURTHER ASSURANCES; FURTHER CONVEYANCES AND ASSUMPTIONS; CONSENT OF THIRD PARTIES (a) From time to time following the Closing, Seller hereby agrees to make available, or to cause its Affiliates to make available, to Buyer or Buyer Designees non-confidential data in personnel records of Transferred Employees as is reasonably necessary for Buyer or Buyer Designees to transition such employees into Buyer's or Buyer Designees' records. -16 LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (b) From time to time following the Closing, Seller and Buyer shall, and shall cause their respective Affiliates to, execute, acknowledge and deliver all such further conveyances, notices, assumptions, releases and acquittances and such other instruments, and shall take such further actions, as may be necessary or appropriate to assure fully to Buyer and its Affiliates and their respective successors or assigns, all of the properties, rights, titles, interests, estates, remedies, powers and privileges intended to be conveyed to Buyer and/or its Affiliates under this Agreement and the Collateral Agreements and to assure fully to Seller and its Affiliates and their successors and assigns, the assumption of the liabilities and obligations intended to be assumed by Buyer and/or its Affiliates under this Agreement and the Collateral Agreements, and to otherwise make effective the transactions contemplated hereby and thereby. (c) Nothing in this Agreement nor the consummation of the transactions contemplated hereby shall be construed as an attempt or agreement to assign any Purchased Asset, including any Contract, Lease, License, Governmental Permit, certificate, approval, authorization or other right, which by its terms or by Law is nonassignable without the consent of a Third Party or a Governmental Body or is cancelable by a Third Party in the event of an assignment ("NONASSIGNABLE ASSETS") unless and until such consents shall be given. Seller agrees, or to cause its Affiliates to use reasonable commercial efforts, with the cooperation of Buyer and Buyer Designees, where appropriate, to obtain such consents promptly; PROVIDED, HOWEVER, that such cooperation shall not require Seller or any of its Affiliates to remain secondarily liable or to make any payment to obtain any such consent with respect to any Nonassignable Asset. Seller agrees to use reasonable best efforts in conjunction with Buyer to obtain approval from the applicable license vendor to the assignment of the seats allocated to the Business related to the Nonassignable Licenses. Seller agrees not to re-deploy any such seats allocated to the Business outside of the Business after the date hereof, and upon the assignment of such seats, if any, Seller shall amend its licenses (if necessary) reducing the amount of Seller's seats by the number of seats allocated to the Business. As soon as practicable after the date hereof, Seller and Buyer agree to jointly negotiate with the appropriate license vendors of shared mainframe-based software to obtain the approval for the temporary use of such software in order for Seller and Buyer to perform their respective obligations under the Transition Services Agreement. (d) Buyer and Seller agree to use their respective reasonable commercial efforts to obtain, or to cause to be obtained, any consent, substitution, approval, or amendment required to novate all obligations under any and all Contracts or other obligations or liabilities that constitute Assumed Liabilities or to obtain in writing the unconditional release of Seller and its Affiliates so that, in any such case, Buyer and its Affiliates shall be solely responsible for such liabilities and obligations. To the extent permitted by applicable Law, in the event consents to the assignment thereof cannot be obtained, such Nonassignable Assets shall be held, as and from the Closing Date, by Seller or its Affiliates in trust for Buyer and the covenants and obligations thereunder shall be performed by Buyer in Seller's or one of its -17- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Affiliate's name and all benefits and obligations existing thereunder shall be for Buyer's account. Seller shall take or cause to be taken at Buyer's expense such action in its name or otherwise as Buyer may reasonably request so as to provide Buyer with the benefits of the Nonassignable Assets and to effect collection of money or other consideration to become due and payable under the Nonassignable Assets, and Seller or its Affiliates shall promptly pay over to Buyer all money or other consideration received by it in respect to all Nonassignable Assets. (e) As of and from the Closing Date, Seller on behalf of itself and its Affiliates authorizes Buyer, to the extent permitted by applicable Law and the terms of the Nonassignable Assets, at Buyer's expense, to perform all the obligations and receive all the benefits of Seller or its Affiliates under the Nonassignable Assets and appoints Buyer its attorney-in-fact to act in its name on its behalf or in the name of the applicable Affiliate of Seller and on such Affiliate's behalf with respect thereto. 2.7 NO LICENSES Unless expressly set forth in the Intellectual Property Agreement, no title, right or license of any kind is granted to Buyer pursuant to this Agreement with respect to Seller's or any of its Affiliate's Proprietary Information, either directly or indirectly, by implication, by estoppel or otherwise. 2.8 BULK SALES LAW Buyer hereby waives compliance by Seller and any of the Subsidiaries with the requirements and provisions of any "bulk-transfer" Laws of any jurisdiction, including Article 6 of the New York Commercial Code, that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer. 2.9 TAXES (a) Buyer shall pay all applicable Taxes (other than real estate transfer taxes which shall be paid as set forth in the last sentence of this Section 2.9(a)) and all recording and filing fees that may be imposed, assessed or payable by reason of the operation or as a result of this Agreement including the sales, transfers, leases, rentals, licenses, and assignments contemplated hereby, except for Seller's or any Subsidiary's net income and capital gains taxes or franchise or other taxes based on Seller's or any Subsidiary's net income. Buyer and Seller agree to each pay one-half (1/2) of any applicable real estate transfer taxes that arise as a result of this Agreement. (b) Buyer shall be responsible for all Taxes attributable to, levied upon or incurred in connection with the Purchased Assets pertaining to the period (or that portion of the period) immediately beginning after the Closing Date. Seller shall be responsible for all -18- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Taxes attributable to, levied upon or incurred in connection with the Purchased Assets pertaining to the period (or that portion of the period) prior to or on the Closing Date. 2.10 BUYER DESIGNEE The parties agree that Buyer may assign the right to purchase certain of the Purchased Assets to one or more Buyer Designees or that one or more Buyer Designees may enter into a Collateral Agreement. Notwithstanding any such assignment or execution of a Collateral Agreement by a Buyer Designee, Buyer shall remain liable for, and any such assignment or execution shall not relieve Buyer of, its obligations hereunder or thereunder. Any reference to Buyer in this Agreement shall to the extent applicable also be deemed a reference to the applicable Buyer Designee, except where in context of this Agreement such use would not be appropriate. 3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Buyer that: 3.1 ORGANIZATION AND QUALIFICATION Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and has all requisite corporate power and authority to carry on the Business as currently conducted and to own or lease and operate the Purchased Assets. Seller is duly qualified to do business and is in good standing as a foreign corporation (in any jurisdiction that recognizes such concept) in each jurisdiction where the ownership or operation of the Purchased Assets or the conduct of the Business requires such qualification, except for failures to be so qualified or in good standing, as the case may be, that could not reasonably be expected to have a Material Adverse Effect. 3.2 SUBSIDIARIES SCHEDULE 3.2 sets forth a list of each Subsidiary of Seller that has title to any asset reasonably expected to be a Purchased Asset or an obligation reasonably expected to be an Assumed Liability, together with its jurisdiction of organization and its authorized and outstanding capital stock or other equity interests as of the date hereof. Except as set forth on SCHEDULE 3.2, each entity is duly organized and validly existing under the Laws of its jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate the Purchased Assets owned by it and to carry on its portion of the Business as presently conducted and is duly qualified to do business and is in good standing as a foreign corporation or other entity (in any jurisdiction that recognizes such concept) in each jurisdiction where the ownership or operation of its properties and assets or the conduct of its business requires such qualification, except for failures to be so duly organized, validly existing, qualified or in good standing that could not reasonably be expected to have a -19- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Material Adverse Effect. The Subsidiaries listed on SCHEDULE 3.2 are the only Affiliates of Seller that have title to any Purchased Asset or any obligation that is an Assumed Liability, in each case related to the Business as currently conducted. 3.3 AUTHORIZATION; BINDING EFFECT (a) (i) Seller has all requisite corporate power and authority to execute and deliver this Agreement and the Collateral Agreements to which it will be a party and to effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and the Collateral Agreements to which it will be a party by all requisite corporate action. (ii) Each Subsidiary that has title to any asset reasonably expected to be a Purchased Asset or an obligation reasonably expected to be an Assumed Liability has all requisite corporate power and authority to execute and deliver the Collateral Agreements to which it will be a party and to effect the transactions contemplated thereby and has duly authorized the execution, delivery and performance of the Collateral Agreements to which it will be a party by all requisite corporate action. (b) This Agreement has been duly executed and delivered by Seller and this Agreement is, and the Collateral Agreements to which Seller and each Subsidiary that has title to any asset reasonably expected to be a Purchased Asset or an obligation reasonably expected to be an Assumed Liability will be a party when duly executed and delivered by Seller or such Subsidiary will be, valid and legally binding obligations of Seller or such Subsidiary, enforceable against Seller or such Subsidiary, as applicable, in accordance with their respective terms, except to the extent that enforcement of the rights and remedies created hereby and thereby may be affected by bankruptcy, reorganization, moratorium, insolvency and similar Laws of general application affecting the rights and remedies of creditors and by general equity principles. 3.4 NON-CONTRAVENTION; CONSENTS (a) Assuming that all Required Consents have been made, the execution, delivery and performance of this Agreement by Seller and the Collateral Agreements by Seller or any Subsidiary that is a party thereto and the consummation of the transactions contemplated hereby and thereby do not and will not: (i) result in a breach or violation of any provision of Seller's or the applicable Subsidiary's charter, by-laws or similar organizational document, (ii) violate or result in a breach of or constitute an occurrence of default under any provision of, result in the acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, lease, agreement, instrument, order, judgment, decree or other arrangement or commitment to which Seller or the applicable Subsidiary is a party or by which it is bound and which relates to the Business or the -20- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Purchased Assets, which violation, breach or default could be reasonably expected to have a Material Adverse Effect, or (iii) violate any order, judgment, decree, rule or regulation of any court or any Governmental Body having jurisdiction over Seller, a Subsidiary or the Purchased Assets, and which violation could be reasonably expected to have a Material Adverse Effect. (b) No consent, approval, order or authorization of, or registration, declaration or filing with, any Person is required to be obtained by Seller or a Subsidiary in connection with the execution and delivery of this Agreement and the Collateral Agreements to which Seller or such Subsidiary will be a party or for the consummation of the transactions contemplated hereby or thereby by Seller or such Subsidiary, except for (i) any filings required to be made under the HSR Act and any applicable filings required under foreign antitrust Laws, (ii) consents or approvals of Third Parties that are required to transfer or assign to Buyer any Purchased Assets or assign the benefits of or delegate performance with regard thereto, (iii) those set forth in SCHEDULE 3.4(b) (items (i), (ii) and (iii) being referred to herein as the "REQUIRED CONSENTS"), and (iv) such consents, approvals, orders, authorizations, registrations, declarations or filings where failure of compliance could not reasonably be expected to have a Material Adverse Effect. 3.5 TITLE TO PROPERTY; PRINCIPAL EQUIPMENT; SUFFICIENCY OF ASSETS (a) Seller or a Subsidiary has and at the Closing will have good and valid title to, or a valid and binding leasehold interest or license in, all real and personal tangible Purchased Assets free and clear of any Encumbrance except for Permitted Encumbrances. (b) Each material item of Principal Equipment is in good operating condition, in light of its respective age, for the purposes for which it is currently being used, but is otherwise being transferred on a "where is" and, as to condition, "as is" basis. (c) Except for (i) the assets that will be used in connection with providing services under the Transition Services Agreement, and (ii) the Excluded Assets, the Purchased Assets and the Business Employees and the rights to be acquired under this Agreement and the Collateral Agreements (including the services to be provided pursuant to the Transition Services Agreement) include all assets, personnel and rights that are used in or necessary to conduct the Business as currently conducted. In the event this Section 3.5(c) is breached because Seller or a Subsidiary has in good faith failed to identify and transfer any assets or properties or provide any services used in the Business, such breach shall be deemed cured if Seller or the applicable Subsidiary promptly transfers such properties or assets or provide such services to Buyer or a Buyer Designee at no additional cost to Buyer or a Buyer Designee. 3.6 PERMITS, LICENSES -21- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Except as set forth on SCHEDULE 2.1(j), there are no material Governmental Permits necessary for or used by Seller or a Subsidiary to operate the Business as now being operated or to use or occupy the Premises, which Governmental Permits are required by currently effective Laws. Seller or one of its Subsidiaries owns, holds or possesses in their own name, all Governmental Permits necessary to own or lease, operate and use the Purchased Assets or use or occupy the Premises and to carry on and conduct the Business and its operations as presently conducted, except for such Governmental Permits, the absence of which could not reasonably be expected to have a Material Adverse Effect. Neither Seller nor any Subsidiary is in violation of or default under any such Governmental Permits, which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or which could reasonably be expected to interfere materially with the consummation of the transactions contemplated herein. 3.7 REAL ESTATE (a) SCHEDULE 3.7(a) contains a complete and accurate list of the Leased Premises and the Assumed Leases. Buyer has been provided with a complete and correct copy of each Assumed Lease. Except as set forth in SCHEDULE 3.7(a), each Assumed Lease is in full force and effect and, to Seller's knowledge, neither Seller nor any Subsidiary has violated, and the landlord has not waived, any of the material terms or conditions of any Assumed Lease and, to Seller's knowledge, all the material covenants to be performed by the Seller or a Subsidiary and the landlord under each Assumed Lease prior to the date hereof or the Closing Date, as applicable, have been performed in all material respects. (b) SCHEDULE 3.7(b) contains a complete and accurate list of the Transferred Premises. Seller or a Subsidiary has good and valid title to the Transferred Premises. Except as set forth on SCHEDULE 3.7(b), none of such Transferred Premises are subject to any Encumbrance except for Permitted Encumbrances. (c) The use of any Leased Premises or Transferred Premises, as presently used by the Business, does not violate any local zoning or similar land use laws or governmental regulations which violation could reasonably be expected to have a Material Adverse Effect. Neither Seller nor any Subsidiary is in violation of or in noncompliance with any covenant, condition, restriction, order or easement affecting any Leased Premises or Transferred Premises where such violation or noncompliance could reasonably be expected to have a Material Adverse Effect. There is no condemnation or, to the best knowledge of Seller, threatened condemnation affecting any Leased Premises or Transferred Premises. 3.8 COMPLIANCE WITH LAWS; LITIGATION (a) Except as set forth on SCHEDULE 3.8(a), with respect to the Business conducted by it and the Subsidiaries, Seller and each Subsidiary engaged in the conduct of the Business (including the use and occupation of the Premises) is in compliance in all material respects -22- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS with all applicable Laws and all decrees, orders, judgments, permits and licenses of or from Governmental Bodies except for failures to comply that could not reasonably be expected to have a Material Adverse Effect. (b) Except as set forth on SCHEDULE 3.8(b), there are no actions, suits, proceedings, arbitrations or governmental investigations pending or, to Seller's knowledge, threatened against it or the Subsidiaries with respect to the Business that could be reasonably expected to have a Material Adverse Effect. 3.9 BUSINESS EMPLOYEES (a) SCHEDULE 3.9(a) contains a complete and accurate list of all the Business Employees as of October 31, 2000, showing for each Business Employee, the name, position held, service date, salary or wages and aggregate annual compensation for Seller's or the applicable Subsidiary's last fiscal year, and which employees are represented by the Communications Workers of America and the Confederacion de Trabajadores de Mexico. Except as set forth on SCHEDULE 5.4(m), none of the Business Employees is covered by any union, collective bargaining or other similar labor agreements. Seller will update Schedule 3.9(a) to be accurate as of the Closing Date at least five Business Days prior to the Closing. (b) Except as set forth in SCHEDULE 3.9(b), with respect to all Business Employees, neither Seller nor any Subsidiary currently maintains, contributes to or has any liability under any Benefit Plan. With respect to each of the Benefit Plans identified on SCHEDULE 3.9(b), Seller has made available to the Buyer true and complete copies of the most recent summary plan or other written description. Each Benefit Plan listed on SCHEDULE 3.9(b) has been operated in material compliance with applicable law, including ERISA. Each Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("PENSION PLAN") and which is intended to be qualified under Section 401(a) of the Code, has received a favorable determination letter from the Internal Revenue Service with respect to "TRA" (as defined in Section 1 of Rev. Proc. 93-39), and Seller is not aware of any circumstances likely to result in revocation of any such favorable determination letter. Except as disclosed on SCHEDULE 3.9(b), neither Seller nor any Subsidiary has any obligations for retiree health and life benefits under any Benefit Plan or has ever represented, promised or contracted (whether in oral or written form) to any employee(s) that such employee(s) would be provided with retiree health or life benefits. Any amount that could be received (whether in cash, property, or vesting of property) as a result of the transaction contemplated by this Agreement by any officer, director, employee or independent contractor of the Seller or any Subsidiary, who is a "disqualified individual" (as defined in proposed Treasury Regulation Section 1.280G-1), under any Contract that will be assumed by the Buyer, would not be characterized as an "excess parachute payment" (as defined in Section 280G of the Code). (d) As relates to the Business, there is not presently pending or existing, and to Seller's knowledge there is not threatened, (i) any strike, slowdown, picketing, or work -23- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS stoppage, (ii) any application for certification of a collective bargaining agent, or (iii) except as set forth in SCHEDULE 3.8(b), any controversies pending, or to Seller's knowledge, threatened between Seller or any Subsidiary and any of their respective employees that could reasonably be expected to have a Material Adverse Effect. 3.10 CONTRACTS SCHEDULE 3.10 contains a complete and accurate list of all outstanding Contracts that would require over the full term thereof payments by or to Seller or a Subsidiary of more than $250,000 (the "MATERIAL CONTRACTS"). The Material Contracts include all existing contracts and commitments of Seller or a Subsidiary that are (i) primarily related to the Business, or (ii) by which the Purchased Assets may be bound or affected, in each case whether written or oral. Each of such Material Contracts is valid, binding and enforceable against Seller or the applicable Subsidiary and, to Seller's knowledge, the other parties thereto in accordance with its terms and is in full force and effect. Except as set forth on SCHEDULE 3.10, neither Seller nor any Subsidiary is in default or breach of or is otherwise delinquent in performance under any such Material Contracts which default or breach could reasonably be expected to have a Material Adverse Effect, and, to Seller's knowledge, each of the other parties thereto has performed in all material respects all obligations required to be performed by it under, and is not in default in any material respect under, any of such Contracts and no event has occurred that, with notice or lapse of time, or both, would constitute such a default. 3.11 ENVIRONMENTAL MATTERS Except as set forth in SCHEDULE 3.11 and in respect of the Business and the Premises: (a) the operations of the Business and the Premises comply in all material respects with all applicable Environmental Laws; (b) Seller and each Subsidiary has obtained all environmental, health and safety Governmental Permits necessary for its operations, and all such Governmental Permit are in good standing and Seller and each Subsidiary is in compliance with all terms and conditions of such permits except where the failure to obtain, maintain in good standing or be in compliance with, such permits could not reasonably be expected to have a Material Adverse Effect; (c) none of Seller, any Subsidiary or any of the Premises or the operations of the Business, is subject to any on-going investigation by, order from or agreement with any Person respecting (i) any Environmental Law, or (ii) any remedial action arising from the Release or threatened Release of a Hazardous Substance into the environment; -24- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (d) neither Seller nor any Subsidiary is subject to any judicial or administrative proceeding, order, judgment, decree or settlement alleging or addressing a violation of or liability under any Environmental Law; (e) Seller or each applicable Subsidiary has filed all notices required to be filed under any Environmental Law indicating past or present treatment, storage or disposal of a Hazardous Substance or reporting a spill or release of a Hazardous Substance into the environment except where the failure to file any such notices could not reasonably be expected to have a Material Adverse Effect; (f) there is not now, nor to Seller's knowledge, has there ever been, on or in any Premise any aboveground or underground storage tanks; (g) neither Seller nor any Subsidiary has received any written notice, or to Seller's knowledge, other claim to the effect that it is or may be liable to any Person as a result of the Release or threatened Release of a Hazardous Substance; (h) to Seller's knowledge, there have been no Releases, or threatened Releases of any Hazardous Substances into, on or under any of the Premises, in any case in such a way as to create any liability (including the costs of investigation and remediation) under any applicable Environmental Law; and (i) Seller has delivered to Buyer true and complete copies of all asbestos and other environmental reports disclosing the presence of asbestos or other Hazardous Materials on any of the Premises. 3.12 FINANCIAL STATEMENT; ABSENCE OF CHANGES (a) SCHEDULE 3.12 contains true and complete copies of the following financial statements of the Business (the "FINANCIAL STATEMENTS"): (i) audited balance sheets as of September 30, 1999 and June 30, 2000 with a report by PricewaterhouseCoopers LLP; (ii) audited statements of operations and cash flows for the years ended September 30, 1998 and 1999 and for the nine months ended June 30, 2000 with a report by PricewaterhouseCoopers LLP; and (iii) unaudited balance sheet as of June 30, 1999 and unaudited statements of operations and cash flows for nine months ended June 30, 1999. (b) The Financial Statements were prepared in accordance with GAAP (except, in the case of the unaudited financial statements, for normal and recurring year-end adjustments and the omission of footnotes). The Financial Statements were prepared on the basis of the books and records of the Business (in each case, as of the date of such Financial Statements) -25- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS and present fairly, in all material respects, the financial position of the Business as of the dates thereof and the results of its operations and cash flows for each of the periods then ended in conformity with GAAP. (c) The 9/30/2000 Inventory Statement was prepared in accordance with GAAP and on a basis consistent with prior practices of Seller and fairly presents the Inventory as of September 30, 2000. (d) Since June 30, 2000, Seller and the Subsidiaries have conducted and operated the Business in the ordinary course and the Business has not suffered any change that could reasonably be expected to have a Material Adverse Effect. 3.13 INTELLECTUAL PROPERTY (a) Seller or one of the Subsidiaries owns or has a valid right to grant the licenses in all of the copyrights, know how, patents, service marks, trademarks, trade secrets and other proprietary intellectual property rights that it is assigning or licensing to Buyer pursuant to the Intellectual Property Agreement (collectively, the "INTELLECTUAL PROPERTY"). (b) Except as set forth in SCHEDULE 3.13(b), to the knowledge of the senior management of the Business and the members of Seller's intellectual property legal department, none of the products of the Business manufactured and currently sold by Seller infringe any intellectual property rights owned by any other Third Party. Except as set forth in SCHEDULE 3.13 (b), to Seller's knowledge, there are no claims or demands of any Third Party pertaining to the Intellectual Property being assigned or licensed to Buyer pursuant to the Intellectual Property Agreement, excluding immaterial assertions of rights which have not been presented in the form of a specific claim or demand, with respect to the operation of the Business by Seller or the Subsidiaries as of the date hereof with respect to the Purchased Assets. Except as set forth in SCHEDULE 3.13(b), to the knowledge of the senior management of the Business and the members of Seller's intellectual property legal department, no proceedings have been instituted, are pending, or are threatened which challenge the rights of Seller or any Subsidiary in respect any of the Intellectual Property, excluding immaterial assertions of rights which have not been presented in the form of a specific claim or demand. (c) At the Closing, Seller or one of the Subsidiaries will provide, either by assignment or license to Buyer in accordance with the Intellectual Property Agreement, all of the Intellectual Property which is necessary for Buyer to conduct the Business as it is presently conducted and to make, have made, use, lease, import, offer to sell or sell the products, as such products existed as of the Closing Date, of the Business. Buyer's sole remedy for breach of this Section 3.13(c) shall be the assignment or licensing by Seller or one of the Subsidiaries to Buyer, in accordance with the transfers and licenses provided in the Intellectual Property Agreement, of those components of such Intellectual Property which are required by Buyer to conduct the Business after the Closing and to make, have made, use, -26- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS lease, import, offer to sell or sell any products of the Business as to which ownership or license rights were not adequately conveyed. Notwithstanding the foregoing, under no circumstances shall Seller be required to grant to Buyer a license, right, or other permission to use the trademarks "Lucent," "Lucent Technologies," "Bell Labs" or the Lucent Innovation Ring logo, other than as set forth in Section 5.8. 3.14 BROKERS Other than Salomon Smith Barney Inc., the fees and expenses of which will be paid by Seller, no broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or any Affiliate. 3.15 TAXES Seller has paid or will pay when due or finally settled all Taxes relating to the Business or to the Purchased Assets which are or become due and payable for all periods up to and including the Closing Date. Seller has properly filed on a timely basis, or so will file, when due, all Returns relating to the Business or the Purchased Assets for all periods up to and including the Closing Date. There are no Encumbrances for Taxes (other than Permitted Encumbrances) on the Purchased Assets. 3.16 PRODUCT LIABILITY AND RECALLS (a) Except as set forth in SCHEDULE 3.16, since January 1, 1997, there has been no action, suit, claim, inquiry, proceeding or investigation in any case by or before any court or governmental body pending or, to the best knowledge of Seller, threatened, against or involving the Business relating to any product alleged to have been designed, manufactured or sold by the Business and alleged to have been defective or improperly designed or manufactured. (b) Except as set forth in Schedule 3.16, since January 1, 1997, there has been no pending, or to the best knowledge of Seller, threatened recall or investigation of any product sold by Seller in connection with the Business. 3.17 PRODUCT WARRANTY SCHEDULE 3.17 includes copies of the standard terms and conditions of sale for the Business (containing applicable guaranty, warranty and indemnity provisions). Except as set forth in SCHEDULE 3.17, the products manufactured by the Business have been sold by the Business in accordance with the standard terms and conditions of sale. -27- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 3.18 INVENTORY The Inventory as reflected in the Financial Statements and the 9/30/2000 Inventory Statement (i) is stated at the lower of cost (determined principally on a first-in, first-out basis) or market, and (ii) is of quality and quantity usable or saleable in the ordinary course of the Business, except for obsolete items and items of below-standard quality that have been written down in the Financial Statements to net realizable values. 3.19 CUSTOMER AND SUPPLIERS SCHEDULE 3.19 contains a list setting forth the 10 largest customers of the Business, by dollar amount, over the 12 months ended September 30, 2000, and the 10 largest suppliers of the Business, by dollar amount, over the 12 months ended September 30, 2000. All purchase and sale orders and other commitments for purchases and sales made by Seller in connection with the Business have been made in the ordinary course of business in accordance with past practices, and no payments have been made to any supplier or customers or any of their respective representatives other than payments to such suppliers for the payment of the invoiced price of supplies purchased or goods sold in the ordinary course of business. 3.20 RESTRICTIONS ON THE BUSINESS Except for this Agreement, to the best knowledge of Seller, there is no agreement, judgment, injunction, order or decree binding upon Seller or any of its Affiliates affecting Seller's or its Affiliates' conduct of the Business as currently conducted. 3.21 NO OTHER REPRESENTATIONS OR WARRANTIES Except for the representations and warranties contained in this Section 3, none of Seller, any Affiliate or any other Person makes any representations or warranties, and Seller hereby disclaims any other representations or warranties, whether made by Seller or any Affiliate, or any of their officers, directors, employees, agents or representatives, with respect to the execution and delivery of this Agreement or any Collateral Agreement, the transactions contemplated hereby or the Business, notwithstanding the delivery or disclosure to Buyer or its representatives of any documentation or other information with respect to any one or more of the foregoing. Notwithstanding anything to the contrary herein, no representation or warranty contained in this Section 3 is intended to, or do, cover or otherwise pertain to any assets that are not included in the Purchased Assets or any liabilities that are not included in the Assumed Liabilities. 4. REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller that: -28- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 4.1 ORGANIZATION AND QUALIFICATION Each of Buyer and any Buyer Designee is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, and each of Buyer and any Buyer Designee has all requisite corporate power and authority to carry on its business as currently conducted and to own or lease and operate its properties. Each of Buyer and any Buyer Designee is duly qualified to do business and is in good standing as a foreign corporation (in any jurisdiction that recognizes such concept) in each jurisdiction where the ownership or operation of its assets or the conduct of its business requires such qualification, except for failures to be so qualified or in good standing, as the case may be, that could not reasonably be expected to have a material adverse effect on Buyer's or any Buyer Designee's business taken as a whole. 4.2 AUTHORIZATION; BINDING EFFECT (a) Each of Buyer and any Buyer Designee has all requisite corporate power and authority to execute and deliver this Agreement and the Collateral Agreements, as the case may be, and to effect the transactions contemplated hereby and thereby and has duly authorized the execution, delivery and performance of this Agreement and the Collateral Agreements, as the case may be, by all requisite action (corporate or other). (b) This Agreement has been duly executed and delivered by and this Agreement is, and the Collateral Agreements when duly executed and delivered by Buyer and any Buyer Designee will be, valid and legally binding obligations of Buyer and any such Buyer Designee, enforceable against them in accordance with their terms, except to the extent that enforcement of the rights and remedies created hereby and thereby may be affected by bankruptcy, reorganization, moratorium, insolvency and similar Laws of general application affecting the rights and remedies of creditors and by general equity principles. 4.3 NO VIOLATIONS (a) The execution, delivery and performance of this Agreement and the Collateral Agreements by Buyer and any Buyer Designee and the consummation of the transactions contemplated hereby and thereby do not and will not (i) result in a breach or violation of any provision of Buyer's or any Buyer Designee's charter or by-laws or similar organizational document, (ii) violate or result in a breach of or constitute an occurrence of default under any provision of, result in the acceleration or cancellation of any obligation under, or give rise to a right by any party to terminate or amend its obligations under, any material mortgage, deed of trust, conveyance to secure debt, note, loan, indenture, lien, lease, agreement, instrument, order, judgment, decree or other material arrangement or commitment to which Buyer or any Buyer Designee is a party or by which it or its assets or properties are bound which violation, breach or default could be reasonably expected to have a material adverse effect on Buyer or the applicable Buyer Designee, or (iii) violate any material order, judgment, decree, rule or -29- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS regulation of any court or any Governmental Body having jurisdiction over Buyer or any Buyer Designee or any of their respective properties which could be reasonably expected to have a material adverse effect on Buyer or the applicable Buyer Designee. (b) No consent, approval, order or authorization of, or registration, declaration or filing with, any Person is required to be obtained by Buyer or any Buyer Designee in connection with the execution and delivery of this Agreement and the Collateral Agreements or the consummation of the transactions contemplated hereby or thereby other than any (i) any filings required to be made under the HSR Act and any applicable filings required under foreign antitrust Laws, and (ii) such consents, approvals, orders, authorizations, registrations, declarations or filings where failure of compliance would not, individually or in the aggregate, have a material adverse effect on Buyer's or any Buyer Designee's ability to consummate the transactions contemplated hereby. 4.4 BROKERS No broker, investment banker, financial advisor or other Person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based on arrangements made by or on behalf of Buyer or an Affiliate of Buyer. 4.5 NO OTHER SELLER REPRESENTATIONS AND WARRANTIES (a) With respect to the Purchased Assets, the Business, or any other rights or obligations to be transferred hereunder or under the Collateral Agreements or pursuant hereto or thereto, Buyer has not been induced by and has not relied upon any representations, warranties or statements, whether express or implied, made by Seller, any Affiliate, or any agent, employee, attorney or other representative of Seller or by any Person representing or purporting to represent Seller that are not expressly set forth in this Agreement or in the Collateral Agreements (including the Schedules and Exhibits hereto and thereto), whether or not any such representations, warranties or statements were made in writing or orally. (b) Buyer acknowledges that it has made its own assessment of the future of the Business and is sufficiently experienced to make an informed judgment with respect thereto. Buyer further acknowledges that neither Seller nor any Affiliate has made any warranty, express or implied, as to the future of the Business or its profitability for Buyer, or with respect to any forecasts, projections or business plans prepared by or on behalf of Seller and delivered to Buyer in connection with the Business and the negotiation and the execution of this Agreement. (c) To the extent reasonably apparent from its context, disclosure by Seller on any one Schedule delivered pursuant to this Agreement at or prior to the Closing shall be disclosure as to all such Schedules and, to the extent such disclosure conflicts with any -30- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS representation or warranty of Seller, Seller shall have no liability for breach of any such representation or warranty relating to such conflicts. 4.6 SUFFICIENCY OF FUNDS Each of Buyer and any Buyer Designee (i) has funds available to pay their respective portions of the Purchase Price and any expenses incurred by Buyer or any Buyer Designee in connection with the transactions contemplated by this Agreement; (ii) has the resources and capabilities (financial or otherwise) to perform hereunder and under the Collateral Agreements; and (iii) has not incurred any obligation, commitment, restriction or liability of any kind, absolute or contingent, present or future, which would impair or adversely affect such resources and capabilities. 4.7 NO OTHER REPRESENTATIONS OR WARRANTIES Except for the representations and warranties contained in this Section 4, none of Buyer, any Buyer Designee, any Affiliate or any other Person makes any representations or warranties, and Buyer hereby disclaims any other representations or warranties, whether made by Buyer, any Buyer Designee, or any Affiliate, or any of their officers, directors, employees, agents or representatives, with respect to the execution and delivery of this Agreement or any Collateral Agreement or the transactions contemplated, notwithstanding the delivery or disclosure to Seller or its representatives of any documentation or other information with respect to any one or more of the foregoing. 5. CERTAIN COVENANTS 5.1 ACCESS AND INFORMATION (a) Seller will give, and cause its Affiliates to give, to Buyer and its Affiliates and to their respective officers, employees, accountants, counsel and other representatives reasonable access during Seller's or the applicable Affiliate's normal business hours throughout the period prior to the Closing to all of Seller's or the applicable Affiliate's properties, books, contracts, commitments, reports of examination and records directly relating to the Business or the Purchased Assets (but excluding the Excluded Assets and Excluded Liabilities and subject to any limitations that are reasonably required to preserve any applicable attorney-client privilege or Third-Party confidentiality obligation). Seller shall assist, and cause its Affiliates to assist, Buyer and its Affiliates in making such investigation and shall cause its counsel, accountants, engineers, consultants and other non-employee representatives to be reasonably available to Buyer for such purposes; IT BEING UNDERSTOOD that Buyer shall reimburse Seller or the applicable Affiliate promptly for reasonable and necessary out of pocket expenses incurred by Seller or any Affiliate in complying with any such request by or on behalf of Buyer. -31- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (b) After the Closing Date, Seller and Buyer will provide, and will cause their respective Affiliates to provide, to each other and to their respective officers, employees, counsel and other representatives, upon request (subject to any limitations that are reasonably required to preserve any applicable attorney-client privilege or Third-Party confidentiality obligation), reasonable access for inspection and copying of all Business Records, Governmental Permits, Licenses, Contracts and any other information existing as of the Closing Date and relating to the Business or the Purchased Assets, and will make their respective personnel reasonably available for interviews, depositions and testimony in any legal matter concerning transactions, operations or activities relating to the Business or the Purchased Assets, and as otherwise may be necessary or desirable to enable the party requesting such assistance to: (i) comply with reporting, filing or other requirements imposed by any foreign, local, state or federal court, agency or regulatory body; (ii) assert or defend any claims or allegations in any litigation or arbitration or in any administrative or legal proceeding other than claims or allegations that one party to this Agreement has asserted against the other; or (iii) subject to clause (ii) above, perform its obligations under this Agreement. The party requesting such information or assistance shall reimburse the other party for all out-of-pocket costs and expenses incurred by such party in providing such information and in rendering such assistance. The access to files, books and records contemplated by this Section 5.1(b) shall be during normal business hours and upon reasonable prior notice and shall be subject to such reasonable limitations as the party having custody or control thereof may impose to preserve the confidentiality of information contained therein. (c) Buyer agrees to preserve all Business Records, Licenses and Governmental Permits in accordance with its corporate policies related to preservation of records. Buyer further agrees that, to the extent Business Records, Licenses or Governmental Permits are placed in storage, they will be indexed in such a manner as to make individual document retrieval possible in an expeditious manner. 5.2 CONDUCT OF BUSINESS From and after the date of this Agreement and until the Closing Date, except as otherwise contemplated by this Agreement or the Schedules hereto or as Buyer shall otherwise consent to in writing, Seller and each of the Subsidiaries, with respect to the Business: (a) will carry on the Business in the ordinary course consistent with past practice including taking or refraining from taking any actions likely to significantly change its existing relationships with customers, suppliers and others having business relationships with Power Systems; (b) will not permit, other than in the ordinary course of business consistent with past practice or as may be required by Law or a Governmental Body, all or any of the -32- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Purchased Assets (real or personal, tangible or intangible) presently and actively used in the operation of the Business to be sold, licensed or subjected to any Encumbrance (other than a Permitted Encumbrance); (c) will not acquire, sell, lease, license, transfer or dispose of any asset that would otherwise be a Purchased Asset except in the ordinary course of business consistent with past practice; (d) will not terminate or materially extend or materially modify any Material Contract except in the ordinary course of business consistent with past practice; (e) will not do any other act which would cause any representation or warranty of Seller in this Agreement to be or become untrue in any material respect or intentionally omit to take any action necessary to prevent any such representation or warranty from being untrue in any material respect at such time; (f) will not increase the compensation payable or to become payable to any of the Business Employees, except for increases in the ordinary course of business and consistent with past practice, or otherwise enter into or alter any employment, consulting, or service agreement, except in the ordinary course of business and consistent with past practice, or enter into any retention agreements or agreements for enhanced or extraordinary severance with any Business Employees other than at the request of Buyer; (g) will not commence, enter into, or alter any profit sharing, deferred compensation, bonus, stock option, stock purchase, pension, retirement, or incentive plan or any fringe benefit plan for employees of the Business, except in the ordinary course of business and consistent with past practice; (h) will not sever or terminate any Business Employees except for cause or in the ordinary course of business; or (i) will not enter into any agreement or commitment with respect to any of the foregoing. -33- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 5.3 TAX REPORTING AND ALLOCATION OF CONSIDERATION (a) Seller and Buyer acknowledge and agree that (i) Seller will be responsible for and will perform all tax withholding, payment and reporting duties with respect to any wages and other compensation paid by Seller or a Subsidiary to any Business Employee in connection with operating the Business prior to or on the Closing Date, and (ii) Buyer will be responsible for and will perform all tax withholding, payment and reporting duties with respect to any wages and other compensation paid by Buyer to any Transferred Employee in connection with operating the Business after the Closing Date. (b) Seller and Buyer recognize their mutual obligations pursuant to Section 1060 of the Code to timely file IRS Form 8594 (the "ASSET ACQUISITION STATEMENT") with each of their respective federal income tax returns. Accordingly, within thirty (30) days after the parties finalize the Purchase Price Adjustment pursuant to Section 2.3, Seller and Buyer agree to attempt in good faith to (i) enter into a Purchase Price allocation agreement providing for the allocation of the Purchase Price among the Purchased Assets consistent with the provisions of Section 1060 of the Code and the Treasury Regulations thereunder, and (ii) cooperate in the preparation of the Asset Acquisition Statement for timely filing in each of their respective federal income tax returns. If Seller and Buyer agree on a Purchase Price allocation, then neither Seller nor Buyer shall file any Return taking a position inconsistent with such allocation. 5.4 BUSINESS EMPLOYEES (a) As of the Closing Date, Buyer shall make offers of employment to all Business Employees listed on SCHEDULE 3.9(a) (including those absent due to vacation, holiday, illness, leave of absence or short-term disability, but excluding any Business Employees on long-term disability). Seller shall cooperate in facilitating the performance of Buyer's obligation to make such offers. Business Employees who accept Buyer's offer of employment, as of the effective date of their employment with Buyer, shall be referred to as "TRANSFERRED EMPLOYEES". (b) As of the Closing Date, Buyer shall provide Transferred Employees, until at least December 31, 2001, a total compensation package of salary and benefits that, in the aggregate, are substantially similar to that offered by Seller or its applicable Subsidiary immediately prior to the Closing Date. Except as otherwise agreed to in this Section 5.4, Buyer shall be under no obligation to establish any pension plan or any retiree medical, dental, or life insurance plans for Business Employees. Except as expressly set forth in this Section 5.4, Seller or its designated Affiliates shall retain or reimburse Buyer for all liabilities and obligations with respect to benefits accrued under all benefit plans or arrangements maintained, administered, or contributed to by Seller or its Affiliates, including any such plans or arrangements applicable to Business Employees, employees, or former employees (including any beneficiary thereof). Except as expressly set forth in this Section -34- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 5.4, no assets of any benefit plan or arrangement maintained, administered, or contributed to by Seller or any Affiliate thereof shall be transferred to Buyer or any Affiliate thereof. Buyer's benefit plans and policies, including vacation, retirement, severance and welfare plans, shall recognize (i) for purposes of satisfying any deductibles, co-pays and out-of-pocket maximums during the coverage period that includes the Closing Date, any payment made by any Transferred Employee towards deductibles, co-pays and out-of-pocket maximums in any health or other insurance plan of Seller or a Subsidiary, and (ii) for purposes of determining eligibility to participate, vesting and for any schedule of benefits based on service (other than for benefits accrued under any defined benefit plan not described in Section 5.4(g)), all service with Seller or a Subsidiary, including service with predecessor employers that was recognized by Seller or a Subsidiary and any prior unbridged service with Seller or a Subsidiary, provided that such service shall not be recognized to the extent such recognition would result in a duplication of benefits. Buyer will continue to provide relocation assistance to those Transferred Employees receiving it as of the Closing Date and tuition assistance to those Transferred Employees who are receiving such benefits as of the Closing Date for the current academic session. Buyer will honor the terms and conditions of Seller's international assignee program, including, without limitation, repatriation upon completion of assignment, completion bonuses, tax equalization and tax return preparation, with respect to Transferred Employees who are on international assignment as of the Closing Date, except that these costs shall be allocated between Buyer and Seller based on the portion of the international assignment occurring before the Closing Date (which shall be Seller's obligation) and on or after the Closing Date (which shall be Buyer's obligation). Until at least December 31, 2001, Buyer shall provide severance benefits to Nonrepresented Transferred Employees in the United States equivalent to the benefits, if any, that would have been paid to such Transferred Employees under the terms of the Lucent Management Separation Plan in effect as of the Closing Date had such employees continued to participate in such plan. (c) Employment with Buyer of Transferred Employees shall be effective as of the Business Day following the close of business on the Closing Date, except that the employment of individuals receiving short-term disability benefits or on approved leave of absence on the Closing Date will become effective as of the date they present themselves for work with the Buyer. (d) Buyer agrees that its health and welfare plans shall waive any pre-existing condition exclusion (to the extent such exclusion was waived under applicable health and welfare plans offered to the Transferred Employees by the Seller or any Subsidiary) and any proof of insurability. Seller agrees to transfer the cafeteria plan accounts and experience of Transferred Employees to substantially equivalent plans that exist or will be established by Buyer to the extent permitted by applicable plan terms and applicable law. (e) (i) As soon as possible after the Closing Date, Buyer shall cause one or more defined contribution savings plans intended to qualify under sections 401(a) and 401(k) -35- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS of the Code (the "BUYER NONREPRESENTED SAVINGS PLAN") to provide for the receipt of Nonrepresented Transferred Employees' lump sum cash distributions, in the form of an eligible rollover distribution, which includes outstanding participant loans, from the Lucent Savings Plan, provided such rollovers are made at the election of the Nonrepresented Transferred Employees and in accordance with the terms of the Buyer Nonrepresented Savings Plan. Seller shall cause the Lucent Savings Plan to permit the Nonrepresented Transferred Employees to elect a lump sum cash distribution of benefits accrued through the Closing Date in accordance with the Code. (ii) As soon as possible following the Closing Date, but in no event later than 120 days after the Closing Date, Buyer shall cause one or more defined contribution savings plans intended to qualify under sections 401(a) and 40l(k) of the Code (the "BUYER REPRESENTED SAVINGS PLAN") to provide, for two years after the Closing Date, an election to retain Lucent common stock or Avaya Inc. common stock held in the Lucent Stock Fund, Avaya Stock Fund or Employer Shares Fund within the Lucent Technologies Inc. Long Term Savings and Security Plan ("LTSSP"). Upon the receipt by Seller of written evidence of (i) the adoption of the Buyer Represented Savings Plan by Buyer, (ii) the creation of the trust thereunder, (iii) the submission by Buyer of the Buyer Represented Savings Plan to the Internal Revenue Service for a favorable determination letter, and (iv) an opinion of Buyer's counsel satisfactory to Seller, substantially as set forth in Exhibit H, to the effect that the terms of Buyer Represented Savings Plan meet the applicable requirements of sections 401(a) and (k) of the Code, Seller shall direct the trustee of the LTSSP to transfer to the trust under the Buyer Represented Savings Plan liability for the account balance of each participant in the LTSSP who is a Represented Transferred Employee (the "TRANSFERRED SAVINGS PLAN PARTICIPANTS"), together with cash, cash equivalents or other mutually acceptable property, the value of which on such transfer date is equal to the liability. Upon completion of the transfer described herein, Seller and the LTSSP shall be relieved of all liabilities for the payment of the account balances of the Transferred Savings Plan Participants transferred to the Buyer Represented Savings Plan. Buyer and Seller shall cooperate in the filing of any IRS Forms 5310 required by the transfer of assets and liabilities described herein, and anything contained herein to the contrary notwithstanding, the transfer of assets and liabilities described herein shall not take place until the 31st day following the filing of all required Forms 5310. (f) Buyer agrees that effective as of the Closing Date, it will provide to all Represented Transferred Employees pension plans and post retirement medical, dental and life insurance plans in accordance with Section 5.4(m). Such pension plan shall, as of the Closing Date and through the Second Transfer Date (as defined in Section 5.4(g)), protect benefit rights and features as required by the regulations promulgated under Section 411(d)(6) of the Code provided under the Lucent Occupational Plan referred to in Section 5.4(g). Seller shall remain responsible for any benefits payable under a Benefit Plan with respect to claims incurred by Business Employees prior to the Closing Date except to the extent that the liability for such benefits has been transferred to and assumed by Buyer and -36- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS the Buyer's plans in accordance with this Section 5.4. The medical and dental plans maintained by Buyer shall recognize as dependents of the Transferred Employees any Class 2 dependents recognized by Seller. (g) In connection with the performance of its obligations under Section 5.4(f), Buyer shall, on or prior to a date (the "FIRST TRANSFER DATE") to be mutually agreed by Buyer and Seller but in no event more than 30 days after the Closing Date, establish or amend a defined benefit pension plan ("BUYER'S PENSION PLAN"), with a trust thereunder (the "REPRESENTED TRUST"), for the purpose of holding the pension plan liabilities and assets attributable to Represented Transferred Employees as described herein. On the First Transfer Date, Seller will transfer or cause to be transferred from the trust under the Lucent Technologies Inc. Pension Plan (the "LUCENT OCCUPATIONAL PLAN") to the Represented Trust cash or, to the extent agreed by the parties, marketable securities in an amount equal to 90% of the estimated Pension Transfer Amount for the Represented Transferred Employees, which obligation and associated liability shall be assumed by the Buyer Pension Plan and Represented Trust, plus interest on the amounts transferred from the Closing Date through the First Transfer Date at a rate equal to 8% per annum. As of the date six months after the First Transfer Date or such later date as may be agreed to by the parties (the "SECOND TRANSFER DATE"), Seller shall transfer or cause to be transferred from the trust under the Lucent Occupational Plan to the Represented Trust cash or, to the extent agreed by the parties, marketable securities in an amount equal to remaining balance of the Pension Transfer Amount, plus interest on the amounts transferred from the Closing Date through the Second Transfer Date at a rate equal to 8% per annum. The amount to be transferred as of the Second Transfer Date shall be reduced by the aggregate amount of any pension benefit payments made by the Lucent Occupational Plan on behalf of the Buyer Pension Plan prior to the Second Transfer Date. In the event an amount to be transferred on the Second Transfer Date is a negative amount, then Buyer shall transfer or cause to be transferred from the Represented Trust back to the trust under the Lucent Occupational Plan such amount in cash. Subject to the completion of the foregoing asset transfers, as of the Closing Date, all of the obligations and associated liabilities of the Lucent Occupational Plan relating to the Represented Transferred Employees shall be assumed in full by the Represented Trust and the Buyer Pension Plan. (h) For purposes of this Section 5.4, "PENSION TRANSFER AMOUNT" shall mean the greater of (A) and (B), where (A) shall be the minimum required transfer amount determined in accordance with the terms of Seller's pension plans and the requirements of Section 414(1) of the Code, utilizing the "safe harbor" rates and assumptions set forth in the regulations promulgated under Section 4044 of ERISA as of the Closing Date, except that the termination and retirement rate assumptions utilized for purposes of this Section 5.4(h) shall be the assumptions used by Seller to determine the funding requirements for the 2000 plan year and that no expense load, including any loading charge determined under the Loading Assumptions set forth in Appendix C to Part 4044 of the PBGC Regulations, shall be charged, and (B) shall be the sum of (I) and (II) less (III), where (I) is the accumulated benefit -37- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS obligation under FAS 87 as of the Closing Date with respect to Represented Transferred Employees, (II) is the accumulated postretirement benefit obligation for post-retirement medical and dental plans under FAS 106 as of the Closing Date with respect to Represented Transferred Employees, and (III) is the amount transferred under Section 5.4(i) with respect to the postretirement medical and dental plans for Represented Transferred Employees. For purposes of the preceding sentence, such accumulated benefit obligation and accumulated postretirement benefit obligation shall be determined on the basis of the plan provisions in effect on the Closing Date and the actuarial methods and assumptions (based on the terms and conditions of the United States collective bargaining agreement in effect as of September 30, 2000) utilized for purposes of Seller's financial disclosures under FAS 87 and 106 for such plans as of September 30, 2000. For purposes of Sections 5.4(g), (h), and (i), the term "Transferred Employee" shall include Business Employees as of the date hereof who terminate employment with the Seller or any Affiliate thereof between the date of this Agreement and the Closing Date and who are hired by Buyer or an Affiliate thereof within the first three months after the Closing Date. (i) Assets of Seller's VEBAs will be transferred to Buyer's VEBAs as described in this Section 5.4(i). This Section 5.4(i) shall govern the transfer of assets from the Lucent Postretirement Health VEBA for occupational employees to a corresponding Buyer Postretirement Health VEBA, which Buyer shall establish and submit to the IRS for a favorable ruling as to its tax-exempt status prior to the Second Transfer Date. On or prior to the Second Transfer Date, Seller shall determine the aggregate value, as of the Closing Date, of the accumulated postretirement benefit obligation of each Lucent plan funded by such Lucent Postretirement Health VEBA, with respect to all Represented Transferred Employees, and shall transfer or cause to be transferred cash or, to the extent agreed by the parties, marketable securities in an amount determined as set forth below. Such amount shall be equal to the fair market value as of the Closing Date of the assets of the plan funded by such Lucent VEBA multiplied by a fraction, the numerator of which shall be the accumulated postretirement health benefit obligation under FAS 106 for Represented Transferred Employees whose postretirement health benefit is funded by such VEBA, and the denominator of which shall be the accumulated postretirement health benefit obligation under FAS 106 for all participants and dependents whose postretirement health benefit is funded by such VEBA. This Section 5.4(i) shall govern the transfer of assets from the Lucent Postretirement Life VEBA to a corresponding Buyer Postretirement Life VEBA, which Buyer shall establish and submit to the IRS for a favorable ruling as to its tax-exempt status prior to the Second Transfer Date. On or prior to the Second Transfer Date, Seller shall determine the aggregate value, as of the Closing Date, of the accumulated postretirement benefit obligation of the Lucent plan funded by such Lucent Postretirement Life VEBA, with respect to all Represented Transferred Employees, and shall transfer or cause to be transferred cash in an amount determined as set forth below. Such amount shall be equal to the accumulated -38- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS postretirement benefit obligation under FAS 106 for Represented Transferred Employees whose postretirement life benefit is funded by such VEBA. Buyer and Seller shall adopt, and shall use their reasonable best efforts to cause their insurers to adopt, procedures to implement such asset transfers in a reasonable and expeditious manner that is consistent with the underlying group life insurance contracts and applicable legal requirements. For purposes of this Section 5.4(i), all determinations shall be made as of the Closing Date, based on the active and inactive census data as of the Closing Date. For purposes of determining the accumulated postretirement benefit obligation, the assumptions and methods used by Lucent in determining the disclosure of accumulated postretirement benefit obligation under FAS 106 as of September 30, 2000 shall be used. The amounts to be transferred as described above shall be adjusted by the aggregate amount of any payments made by a Lucent VEBA in respect of Represented Transferred Employees (and by the aggregate amount of any payments made by a Buyer VEBA on behalf of the Lucent VEBA) prior to such transfer, and increased by interest of 8% per annum on such amounts from the Closing Date through the date of such transfer. Nothing in this Agreement shall be interpreted to provide that any assets so transferred have reverted to Seller or Buyer. (j) Seller, on or prior to the Second Transfer Date, shall notify Buyer in writing of Seller's determination of the amounts of assets required to be transferred in accordance with the provisions of Sections 5.4(g), (h), and (i), shall provide Buyer with a copy of the actuarial reports relating to the determination of such amounts, together with such related materials as Buyer may reasonably request, and, in the case of the transfers of pension assets contemplated by Section 5.4(g) and (h), shall provide Buyer with a written determination by Seller's actuary that the amounts of assets proposed to be transferred are not less than the required amounts determined in accordance with this Agreement. (k) Buyer shall notify Seller in writing of Buyer's disagreement with any determination made by Seller pursuant to Section 5.4(j) as soon as practicable and in any event within 75 days after the date on which the information specified in Section 5.4(j) is provided to Buyer. If no such notice is given by Buyer prior to the expiration of the foregoing period, the determinations contained in Seller's notice to Buyer shall be conclusive and binding upon the parties. If Buyer gives written notice to Seller prior to the expiration of the foregoing period setting forth any objections to the determinations made by Seller, the parties shall attempt in good faith to reach an agreement as to all matters in dispute. Buyer shall not be entitled to object to the determinations of Seller based on any disagreement as to the rates or assumptions used by Seller so long as such rates and assumptions are those specified in this Section 5.4. The determinations of Seller's actuary under Sections 5.4(h), (i), and (j) shall be conclusive unless Buyer's actuary claims that the proper total of such amounts differs from Seller's determination by more than 1%. If the parties, notwithstanding such good faith effort, fail to resolve all matters in dispute within 30 days after Buyer advises Seller of its objections, and the amount in dispute is greater than 1% of the total amount determined by Seller's actuary under Sections 5.4(h), (i), and (j), then any remaining disputed -39- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS matters shall be finally and conclusively determined by a qualified independent actuary selected by Seller and Buyer, which actuary shall not be the regular actuary of either party. Promptly, but in no event later than 30 days after its acceptance of its appointment, the actuary shall determine (based solely on presentations by Seller and Buyer and not by independent review) only those matters in dispute and shall render a written report as to the disputed matters and the resulting calculation of the pension or other assets required to be transferred by Seller in accordance with the provisions of Section 5.4(g) or (i), which report shall be conclusive and binding upon the parties. The fees and expenses of the actuary shall be shared equally by the parties. (l) Seller hereby acknowledges that for FICA and FUTA tax purposes, Buyer qualifies as a successor employer with respect to the Transferred Employees. In connection with the foregoing, at Buyer's option, Seller agrees to follow the "Alternative Procedures" set forth in Section 5 of Revenue Procedure 96-60. Buyer shall notify Seller of its intention to follow the "Alternative Procedures" on or immediately after the Closing Date. If the "Alternative Procedures" are followed, Seller and Buyer understand that Buyer shall assume Seller's entire obligation to furnish a Form W-2, Wage and Tax Statement, to the Transferred Employees. In addition to all personnel files and records relating to the Transferred Employees that Seller shall deliver to Buyer as of the Closing Date or as otherwise required by this Agreement, Seller shall timely provide Buyer with any and all other information (and in such format and media) as it shall reasonably request to properly comply with the requirements in the preceding sentence, which in no event shall be more than 10 business days from the date of a written request for such information. (m) Buyer or one or more Buyer Designee that purchases the assets of the Business shall, on and as of the Closing Date, assume any and all collective bargaining agreements and other labor agreements, as identified in SCHEDULE 5.4(m), applicable to the Transferred Employees who are represented by the Communications Workers of America or the Confederacion de Trabajadores de Mexico (other than provisions of such agreements that are specific to Seller or its predecessors or Affiliates). (n) Seller shall make and be responsible for incentive compensation payments to Nonrepresented Transferred Employees for the period from October 1, 2000 to the Closing Date in accordance with its short-term incentive plan in effect for such period. 5.5 COLLATERAL AGREEMENTS; LEASED EQUIPMENT (a) (i) On or prior to the Closing Date, Buyer or a Buyer Designee shall execute and deliver to Seller, and Seller or the applicable Subsidiary shall execute and deliver to Buyer or a Buyer Designee the Collateral Agreements. (ii) Prior to the Closing Date, Seller and Buyer shall negotiate in good faith the schedules for the services to be attached to the Transition Services Agreement. -40- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (b) At least ten Business Days prior to the Closing Date, Seller shall provide Buyer with the costs and other terms applicable to the Leased Equipment and Buyer shall decide whether such Leased Equipment will (a) transfer to Buyer or a Buyer Designee as of the Closing Date by Buyer or a Buyer Designee assuming the leases for such equipment, (b) become the property of Buyer or a Buyer Designee as of the Closing Date by Buyer or a Buyer Designee paying for the costs of purchasing such equipment pursuant to the leases (the "PURCHASED LEASED EQUIPMENT"), or (c) remain the property of the Seller or a Subsidiary as of the Closing Date (the "EXCLUDED LEASED EQUIPMENT"). 5.6 REGULATORY COMPLIANCE Buyer and Seller shall cooperate, and shall cause their respective Affiliates to cooperate, with the other in making filings under the HSR Act and any applicable filings required under foreign antitrust Laws, and each party shall use its reasonable commercial efforts to resolve such objections, if any, as the Antitrust Division of the Department of Justice or the Federal Trade Commission or state antitrust enforcement or other Governmental Body may assert under the antitrust Laws with respect to the transactions contemplated hereby. In the event an action is instituted by any Person challenging the transactions contemplated hereby as violative of the antitrust Laws, Buyer and Seller shall use, and shall cause their respective Subsidiaries to use, their respective reasonable commercial efforts to resist or resolve such action. 5.7 CONTACTS WITH SUPPLIERS, EMPLOYEES AND CUSTOMERS Seller and Buyer agree to cooperate in contacting any suppliers to, or customers of, the Business or any Business Employees in connection with or pertaining to any subject of this Agreement. 5.8 USE OF LUCENT'S NAME; BRAZILIAN JV COMPANY NAME (a) Buyer and Seller agree as follows: (i) Within three (3) months after the Closing Date, Buyer and the Buyer Designees shall, remove "Lucent," "Lucent Technologies" or other similar mark (the "SELLER NAME") and any other trademark, design or logo previously or currently used by Seller or any of its Affiliates that is not part of the Intellectual Property from all buildings, signs and vehicles of the Business; (ii) Immediately after the Closing Date, Buyer and the Buyer Designees shall cease using the Seller Name and any other trademark, design or logo previously or currently used by Seller or any of its Affiliates that is not part of the Intellectual Property in all invoices, letterhead, advertising and promotional materials, office forms or business cards; -41- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (iii) Within three (3) months after the Closing Date, Buyer and the Buyer Designees shall cease using the Seller Name and any other trademark, design or logo previously or currently used by Seller or any of its Affiliates that is not part of the Intellectual Property in electronic databases, web sites, product instructions, packaging (except as provided below) and other materials, printed or otherwise (all such materials, together with buildings, signs and vehicles of the Business described in clauses (i) and (ii) above, "MARKED ASSETS"). Notwithstanding the foregoing, Buyer and the Buyer Designees shall not be restricted in using any packaging materials that are in inventory as of the Closing Date; (iv) Buyer and the Buyer Designees shall not be required at any time to remove the Seller Name and any other trademark, design or logo previously or currently used by Seller that is not part of the Intellectual Property from inventory of the Business that is in existence as of the Closing Date ("EXISTING INVENTORY"), nor shall Buyer or the Buyer Designees be required at any time to remove such Seller Name and any such other trademark, design or logo from schematics, plans, manuals, drawings, machinery, tooling including hand tools, and the like of the Business in existence as of the Closing Date to the extent that such instrumentalities are used in the ordinary internal conduct of the Business and are not generally observed by the public or are intended for use as means to effectuate or enhance sales (such items, "MARKED INSTRUMENTALITIES"). Buyer and the Buyer Designees shall use Reasonable Efforts to remove the Seller Name and any other trademark, design or logo previously or currently used by Seller that is not part of the Intellectual Property from those assets of the Business that are not Marked Instrumentalities or Existing Inventory, including those assets (such as, but not limited to, tools, molds, and machines) used in association with the manufacture of the products of the Business or otherwise reasonably used in the conduct of the Business after the Closing Date (such assets, "OTHER MARKED ASSETS"). For the purposes of this Section 5.8, "REASONABLE EFFORTS" means Buyer and the Buyer Designees shall remove the Seller Name from such Other Marked Assets but only at such time when such asset is not operated or otherwise is taken out of service in the normal course of business due to regular maintenance or repair (but only for such repairs or maintenance where such removal could normally be undertaken, for example, repair or maintenance of a mold cavity) whichever occurs first; PROVIDED that, in no event shall Buyer or the Buyer Designees use the Seller Name after the date which is two (2) years from the Closing Date. Neither Buyer nor the Buyer Designees shall be required to perform such removal on such Other Marked Assets that are not or no longer used to manufacture the products of the Business or other parts, or if discontinuance of use of such Other Marked Assets is reasonably anticipated during such time period. (iv) Seller hereby grants to Buyer and the Buyer Designees a limited right to use Seller's Name and associated trademarks, designs and logos with regard to the Marked Assets, Existing Inventory, Other Marked Assets and Marked Instrumentalities during the periods, if any, specified in clauses (i) - (iv) above. -42- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS (b) In no event shall Buyer or any Affiliate of Buyer advertise or hold itself out as Lucent or an Affiliate of Lucent after the Closing Date. (c) As soon as reasonably practicable after the Closing Date, but in no event later than three (3) months following the Closing Date, Buyer shall change the name of the Brazilian JV Company to delete any references to "Lucent". 5.9 NO HIRE AND NON-SOLICITATION OF EMPLOYEES None of Seller, any of its respective representatives or any of its Affiliates will at any time prior to one year from the date hereof, directly or indirectly, hire (or continue the employment of any Business Employee that rejects an offer of employment from Buyer) or solicit the employment of any Transferred Employee without Buyer's prior written consent. The term "solicit the employment" shall not be deemed to include generalized searches for employees through media advertisements, employment firms or otherwise that are not focused on persons employed by Buyer or any successor. This restriction shall not apply to any Transferred Employee whose employment with the Buyer or its successor is involuntarily terminated by Buyer or its successor after the Closing. Solicitation of employment shall be deemed to occur if the persons who perform such solicitation have knowledge of the existence of this Agreement or if such persons have no knowledge of the existence of this Agreement but Seller's employees with knowledge of the existence of this Agreement have advance knowledge of any such solicitation. 5.10 NO NEGOTIATION OR SOLICITATION Prior to the Closing Date, Seller and its Affiliates will not (and Seller will cause each of its employees, officers and agents not to) (a) solicit, initiate, entertain or encourage the submission of any proposal or offer from any Person relating to the direct or indirect acquisition of the Business or any portion of the Purchased Assets (other than in the ordinary course of business), or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. Seller will notify Buyer if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing within two Business Days after receipt of any such offer or proposal. 5.11 NON-COMPETITION (a) Seller agrees that, as part of the consideration for the payment of the Purchase Price, for a period of four (4) years immediately following the Closing Date, neither Seller nor any of its Affiliates will, directly or indirectly, operate, perform or have any ownership interest in a business that develops, manufactures, sells, installs (on a stand-alone basis and not as part of Seller's communications equipment) or distributes (on a stand-alone basis and not as part of Seller's communications equipment) products or perform services in -43- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS competition with the Business, except that Lucent or its Affiliates may (i) provide any service, engineering and installation functions currently performed by Seller or an Affiliate related to the Business, (ii) purchase or otherwise acquire by merger, purchase of assets, stock, controlling interest or otherwise any Person or business or engage in any similar merger and acquisition activity with any Person the primary business of which is not in competition with the Business and/or (iii) continue the activities of the New Ventures Group and Lucent Venture Partners or successors thereto. In addition, for these purposes, ownership of securities of a company whose securities are publicly traded under a recognized securities exchange not in excess of 10% of any class of such securities shall not be considered to be competition with the Business. For purposes of Section 5.11(b)(ii) above, a Person shall not be considered to be in the "primary business" of competing with the Business if such Person derives less than twenty-five percent (25%) of its revenues from products that compete with the Business. (b) Seller acknowledges that the restrictions set forth in Section 5.11(a) constitute a material inducement to Buyer's entering into and performing this Agreement. Seller further acknowledges, stipulates and agrees that a breach of such obligation could result in irreparable harm and continuing damage to Buyer for which there may be no adequate remedy at law and further agrees that in the event of any breach of said obligation, Buyer may be entitled to injunctive relief and to such other relief as is proper under the circumstances. 6. CONFIDENTIAL NATURE OF INFORMATION 6.1 CONFIDENTIALITY AGREEMENT Buyer agrees that the Confidentiality Agreement shall apply to (a) all documents, materials and other information that it shall have obtained regarding Seller or its Affiliates during the course of the negotiations leading to the consummation of the transactions contemplated hereby (whether obtained before or after the date of this Agreement), any investigations made in connection therewith and the preparation of this Agreement and related documents and (b) all analyses, reports, compilations, evaluations and other materials prepared by Buyer or its counsel, accountants or financial advisors that contain or otherwise reflect or are based upon, in whole or in part, any of the provided information; PROVIDED, HOWEVER, that subject to Section 6.2(a), the Confidentiality Agreement shall terminate as of the Closing with respect to Buyer's obligations thereunder and shall be of no further force and effect thereafter with respect to information of Seller or a Subsidiary the ownership of which is transferred to Buyer. 6.2 SELLER'S PROPRIETARY INFORMATION (a) Except as provided in Section 6.2(b), after the Closing and for a period of five (5) years following the Closing Date, Buyer agrees that it will keep confidential all of Seller's -44- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS and its Affiliates' Proprietary Information that is received from, or made available by, Seller or a Subsidiary in the course of the transactions contemplated hereby, including, for purposes of this Section 6.2, information about Seller's and its Affiliates' business plans and strategies, marketing ideas and concepts, especially with respect to unannounced products and services, present and future product plans, pricing, volume estimates, financial data, product enhancement information, business plans, marketing plans, sales strategies, customer information (including customers' applications and environments), market testing information, development plans, specifications, customer requirements, configurations, designs, plans, drawings, apparatus, sketches, software, hardware, data, prototypes, connecting requirements or other technical and business information, except for such Proprietary Information as is conveyed to Buyer as part of the Purchased Assets. (b) Notwithstanding the foregoing, such Proprietary Information shall not be deemed confidential and Buyer shall have no obligation with respect to any such Proprietary Information that: (i) at the time of disclosure was already known to Buyer other than through this transaction, free of restriction as evidenced by documentation in Buyer's possession; (ii) is or becomes publicly known through publication, inspection of a product, or otherwise, and through no negligence or other wrongful act of Buyer; (iii) is received by Buyer from a Third Party without similar restriction and without breach of any agreement; (iv) to the extent it is independently developed by Buyer; or (v) is, subject to Section 6.2(c), required to be disclosed under applicable Law or judicial process. (c) If Buyer (or any of its Affiliates) is requested or required (by oral question, interrogatory, request for information or documents, subpoena, civil investigative demand or similar process) to disclose any Proprietary Information, Buyer will promptly notify Seller of such request or requirement and will cooperate with Seller such that Seller may seek an appropriate protective order or other appropriate remedy. If, in the absence of a protective order or the receipt of a waiver hereunder, Buyer (or any of its Affiliates) is in the opinion of Buyer's counsel compelled to disclose the Proprietary Information or else stand liable for contempt or suffer other censure or significant penalty, Buyer (or its Affiliate) may disclose only so much of the Proprietary Information to the party compelling disclosure as is required by Law. Buyer will exercise its (and will cause its Affiliates to exercise their) reasonable commercial efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to such Proprietary Information. -45- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 6.3 BUYER'S PROPRIETARY INFORMATION (a) Except as provided in Section 6.3(b), after the Closing Date and for a period of five (5) years thereafter, Seller agrees that it will keep confidential all of Buyer's and its Affiliates' Proprietary Information that is conveyed to Buyer or a Buyer Designee as part of the Purchased Assets, including, for purposes of this Section 6.3, information about the Business' business plans and strategies, marketing ideas and concepts, especially with respect to unannounced products and services, present and future product plans, pricing, volume estimates, financial data, product enhancement information, business plans, marketing plans, sales strategies, customer information (including customers' applications and environments), market testing information, development plans, specifications, customer requirements, configurations, designs, plans, drawings, apparatus, sketches, software, hardware, data, prototypes, connecting requirements or other technical and business information. (b) Notwithstanding the foregoing, such Proprietary Information regarding the Business shall not be deemed confidential and Seller shall have no obligation with respect to any such Proprietary Information that: (i) is or becomes publicly known through publication, inspection of a product, or otherwise, and through no negligence or other wrongful act of Seller; (ii) is received by Buyer from a Third Party without similar restriction and without breach of any agreement; or (iii) is, subject to Section 6.3(c), required to be disclosed under applicable Law or judicial process. (c) If Seller (or any of its Affiliates) is requested or required (by oral question, interrogatory, request for information or documents, subpoena, civil investigative demand or similar process) to disclose any Proprietary Information regarding the Business, Seller will promptly notify Buyer of such request or requirement and will cooperate with Buyer such that Buyer may seek an appropriate protective order or other appropriate remedy. If, in the absence of a protective order or the receipt of a waiver hereunder, Seller (or any of its Affiliates) is in the opinion of Seller's counsel compelled to disclose the Proprietary Information or else stand liable for contempt or suffer other censure or significant penalty, Seller (or its Affiliate) may disclose only so much of the Proprietary Information to the party compelling disclosure as is required by Law. Seller will exercise its (and will cause its Affiliates to exercise their) reasonable commercial efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded to such Proprietary Information. -46- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 6.4 CONFIDENTIAL NATURE OF AGREEMENT Except to the extent that disclosure thereof is required under accounting, stock exchange or Federal Securities Laws disclosure obligations, or labor relations law, both parties agree that the terms and conditions of this Agreement, and all attachments and amendments hereto and thereto shall be considered Proprietary Information protected under this Article 6. Notwithstanding anything in this Article 6 to the contrary, in the event that any such Proprietary Information is also subject to a limitation on disclosure or use contained in another written agreement between Buyer and Seller or either of their respective Affiliates that is more restrictive than the limitation contained in this Article 6, then the limitation in such agreement shall supersede this Article 6. 7. CLOSING At the Closing, the following transactions shall take place: 7.1 DELIVERIES BY SELLER OR THE SUBSIDIARIES On the Closing Date, Seller shall, or shall cause a Subsidiary to, deliver to Buyer or a Buyer Designee the following: (a) the Collateral Agreements; (b) all consents, waivers or approvals theretofore obtained by Seller with respect to the sale of the Purchased Assets or the consummation of the transactions contemplated by this Agreement or the Collateral Agreements; (c) an opinion or opinions of Counsel for Seller dated the Closing Date with respect to the matters described in Sections 3.1, 3.2, 3.3 and 3.4 (other than subparagraph (a)(ii)) in a form and subject to such exceptions as are customary for transactions similar to those contemplated hereby, which form shall be reasonably acceptable to Buyer; (d) a certificate of an appropriate officer of Seller, dated the Closing Date, certifying to the fulfillment of the conditions set forth in Sections 8.2(a) and (b) and a certificate of an Assistant Secretary's of Seller, dated the Closing Date, in customary form; and (e) all such other bills of sale, assignments and other instruments of assignment, transfer or conveyance as Buyer or a Buyer Designee may reasonably request or as may be otherwise necessary to evidence and effect the sale, transfer, assignment, conveyance and delivery of the Purchased Assets to Buyer or a Buyer Designee and to put Buyer in actual possession or control of the Purchased Assets. -47- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 7.2 DELIVERIES BY BUYER On the Closing Date, Buyer or a Buyer Designee shall deliver to Seller the following: (a) the Purchase Price as provided in Section 2.3; (b) the Collateral Agreements; (c) an opinion or opinions of Counsel for Buyer dated the Closing Date with respect to the matters described in Sections 4.1, 4.2 and 4.3 (other than subparagraph (a)(ii)) in a form and subject to such exceptions as are customary for transactions similar to those contemplated hereby, which form shall be reasonably acceptable to Seller; (d) a certificate of an appropriate officer of Buyer, dated the Closing Date, certifying to the fulfillment of the conditions set forth in Sections 8.3(a) and (b), and a certificate of an appropriate officer of Buyer, dated the Closing Date, in customary form of a secretary's certificate; and (e) all such other documents and instruments as Seller may reasonably request or as may be otherwise necessary or desirable to evidence and effect the assumption by Buyer or a Buyer Designee of the Assumed Liabilities. 7.3 CLOSING DATE The Closing shall take place at the offices of Seller, 600 Mountain Avenue, Murray Hill, New Jersey 07974, at 10:00 a.m. local time within five (5) Business Days following the date on which the last of the conditions specified in Article 8 to be satisfied or waived has been satisfied or waived, or at such other place or time or on such other date as Seller and Buyer may agree upon in writing (such date and time being referred to herein as the "CLOSING DATE"). 7.4 CONTEMPORANEOUS EFFECTIVENESS All acts and deliveries prescribed by this Article 7, regardless of chronological sequence, will be deemed to occur contemporaneously and simultaneously on the occurrence of the last act or delivery, and none of such acts or deliveries will be effective until the last of the same has occurred. -48- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 8. CONDITIONS PRECEDENT TO CLOSING 8.1 GENERAL CONDITIONS The respective obligations of Buyer and Seller to effect the Closing of the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: (a) NO INJUNCTIONS. No order of any court or administrative agency shall be in effect that enjoins, restrains, conditions or prohibits consummation of this Agreement or the Collateral Agreements. (b) ANTITRUST LAWS. Any applicable waiting period under the HSR Act or other applicable antitrust Laws relating to the transactions contemplated by this Agreement or the Collateral Agreements shall have expired or been terminated. 8.2 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS The obligations of Buyer to effect the Closing of the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any of which may be waived in writing by Buyer: (a) REPRESENTATIONS AND WARRANTIES OF SELLER TRUE AT CLOSING. The representations and warranties of Seller contained in this Agreement or in any schedule, certificate or document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date, as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true in all material respects as of the specified date. (b) PERFORMANCE BY SELLER. Seller and/or the applicable Subsidiary shall have delivered all of the documents required under Section 7.1 and shall have otherwise performed in all material respects all obligations and agreements and complied in all material respects with all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing, including executing the Collateral Agreements. (c) MATERIAL ADVERSE EFFECT. There shall not have been any Material Adverse Effect from the date hereof to the Closing Date. -49- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 8.3 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS The obligations of Seller to effect the Closing of the transactions contemplated hereby are subject to the fulfillment, prior to or at the Closing, of each of the following conditions, any of which may be waived in writing by Seller: (a) REPRESENTATIONS AND WARRANTIES OF BUYER TRUE AT CLOSING. The representations and warranties of Buyer contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true in all material respects at and as of the Closing Date as though such representations and warranties were made at and as of the Closing Date, except to the extent that such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true in all material respects as of the specified date. (b) PERFORMANCE BY BUYER. Buyer or a Buyer Designee shall have delivered all of the documents required under Section 7.1 and shall have otherwise performed in all material respects all obligations and agreements and complied in all material respects with all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing, including executing the Collateral Agreements. 9. STATUS OF AGREEMENTS The rights and obligations of Buyer and Seller under this Agreement shall be subject to the following terms and conditions: 9.1 EFFECT OF BREACH In the event of a material breach of any representation, certification or warranty, or agreement or covenant of Seller under this Agreement that is discovered by the Buyer prior to Closing and that cannot be or is not cured by Seller upon prior notice and the passage of a reasonable period of time, the Buyer may elect not to proceed with the Closing hereunder, which shall be the Buyer's sole remedy for such breach. 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES The representations and warranties of Buyer and Seller contained in this Agreement shall survive the Closing for eighteen (18) months provided, however, that (i) the representations and warranties in Sections 3.5(a) and 3.13(a) relating to title matters shall survive the Closing and shall not terminate and (ii) the representations and warranties in Section 3.11 relating to environmental matters shall survive the Closing and shall terminate at the close of business on the 120th day following the expiration of the applicable statute of limitations with respect to the environmental liabilities in question. Neither Seller nor Buyer -50- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS shall have any liability whatsoever with respect to any such representations or warranties after the survival period for such representation or warranty expires. 9.3 GENERAL AGREEMENT TO INDEMNIFY (a) Seller and Buyer shall indemnify, defend and hold harmless the other party hereto and any director, officer or Affiliate of the other party (each an "INDEMNIFIED PARTY") from and against any and all claims, actions, suits, proceedings, liabilities, obligations, losses, and damages, amounts paid in settlement, interest, costs and expenses (including reasonable attorney's fees, court costs and other out-of-pocket expenses incurred in investigating, preparing or defending the foregoing) (collectively, "LOSSES") incurred or suffered by any Indemnified Party to the extent that the Losses arise by reason of, or result from (i) the failure of any representation or warranty of such party contained in this Agreement to have been true in all material respects when made and as of the Closing Date except as expressly provided otherwise in Section 8.2(a) or 8.3(a), or (ii) the breach by such party of any covenant or agreement of such party contained in this Agreement to the extent not waived by the other party. (b) Seller further agrees to indemnify and hold harmless Buyer from and against any Losses incurred by Buyer arising out of, resulting from, or relating to: (i) the Excluded Liabilities; (ii) Buyer's waiver of any applicable Bulk Sales Laws; (iii) any claim, demand or liability for the Taxes accruing in connection with the Purchased Assets prior to and including the Closing Date or Seller's agreement to pay one-half (1/2) of the real estate transfer taxes referred to in Section 2.9; and (iv) any claims of any Business Employee employed by Buyer in connection with any Benefit Plan of Seller or such Business Employee's employment with Seller accruing prior to and including the Closing Date. (c) Buyer further agrees to indemnify and hold harmless Seller with respect to: (i) any failure of Buyer to discharge any of the Assumed Liabilities; (ii) any claim, demand or liability for the Taxes referred to in Section 2.9 other than one-half (1/2) of the real estate transfer taxes allocated to Seller; and (iii) any medical, health or disability claims of any Transferred Employee, except for claims for expenses incurred on or before the close of business on the Closing Date in accordance with the terms of the applicable Benefit Plan of Seller. (d) Amounts payable in respect of the parties' indemnification obligations shall be treated as an adjustment to the Purchase Price. Buyer and Seller agree to cooperate in the preparation of a supplemental Asset Acquisition Statement as required by Section 5.3 and Treasury Reg. ss. 1.1060-1T(e) as a result of any adjustment to the Purchase Price pursuant to the preceding sentence. Whether or not the Indemnifying Party (as defined below) chooses to defend or prosecute any Third-Party Claim (as defined in Section 9.4(a)), both parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, -51- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS trials and appeals, as may be reasonably requested in connection therewith or as provided in Section 5.1. (e) The amount of the Indemnifying Party's liability under this Agreement shall be determined taking into account any applicable insurance proceeds actually received by, and other savings, including tax savings, that actually reduce the overall impact of the Losses upon, the Indemnified Party. The indemnification obligations of each party hereto under this Article 9 shall inure to the benefit of the directors, officers and Affiliates of the other party hereto on the same terms as are applicable to such other party. (f) The Indemnifying Party's liability for all claims including those made under Section 9.3(a)(i) shall be subject to the following limitations: (i) the Indemnifying Party shall have no liability for such claims until the aggregate amount of the Losses incurred shall exceed $7,000,000, in which case the Indemnifying Party shall be liable only for the portion of the Losses exceeding $7,000,000, and (ii) the Indemnifying Party's aggregate liability for all such claims shall not exceed $300,000,000, provided, however, that the forgoing limitations shall not be applicable to any claims under Sections 3.5(a) or 3.13(a) nor to Losses based on fraud or intentional misrepresentation. The Indemnified Party may not make a claim for indemnification under Section 9.3(a)(i) for breach by the Indemnifying Party of a particular representation or warranty after the expiration of the survival period specified in Section 9.2. (g) The indemnification provided in this Article 9 shall be the sole and exclusive remedy after the Closing Date for damages available to the parties to this Agreement for breach of any of the terms, conditions, representations or warranties contained herein or any right, claim or action arising from the transactions contemplated by this Agreement; PROVIDED, HOWEVER, this exclusive remedy for damages does not preclude a party from bringing an action for (i) specific performance or other equitable remedy to require a party to perform its obligations under this Agreement or any Collateral Agreement, or (ii) based on fraud or intentional misrepresentation. (h) Notwithstanding anything contained in this Agreement to the contrary, no party shall be liable to the other party for indirect, special, punitive, exemplary or consequential loss or damage (including any loss of revenue or profit) arising out of this Agreement, PROVIDED, HOWEVER, the foregoing shall not be construed to preclude recovery by the Indemnified Party in respect of Losses directly incurred from (i) Third Party Claims or (ii) any claim based on fraud or intentional misrepresentation. Both parties shall mitigate their damages. (i) The rights to indemnification under Section 9.3 shall not be subject to set-off for any claim by the Indemnifying Party against any Indemnified Party, whether or not arising from the same event giving rise to such Indemnified Party's claim for indemnification. -52- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 9.4 GENERAL PROCEDURES FOR INDEMNIFICATION (a) The Indemnified Party seeking indemnification under this Agreement shall promptly notify the party against whom indemnification is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or the commencement of any action, suit or proceeding by any Third Party, in respect of which indemnity may be sought hereunder and will give the Indemnifying Party such information with respect thereto as the Indemnifying Party may reasonably request, but failure to give such notice shall not relieve the Indemnifying Party of any liability hereunder (unless and to the extent that the Indemnifying Party has suffered material prejudice by such failure). The Indemnifying Party shall have the right, but not the obligation, exercisable by written notice to the Indemnified Party within thirty (30) days of receipt of notice from the Indemnified Party of the commencement of or assertion of any claim, action, suit or proceeding by a Third Party in respect of which indemnity may be sought hereunder (a "THIRD-PARTY CLAIM"), to assume the defense and control the settlement of such Third-Party Claim that (i) involves (and continues to involve) solely money damages, or (ii) involves (and continues to involve) claims for both money damages and equitable relief against the Indemnified Party that cannot be severed, where the claims for money damages are the primary claims asserted by the Third Party and the claims for equitable relief are incidental to the claims for money damages. (b) The Indemnifying Party or the Indemnified Party, as the case may be, shall have the right to participate in (but not control), at its own expense, the defense of any Third-Party Claim that the other is defending, as provided in this Agreement. (c) The Indemnifying Party, if it has assumed the defense of any Third-Party Claim as provided in this Agreement, shall not consent to a settlement of, or the entry of any judgment arising from, any such Third-Party Claim without the Indemnified Party's prior written consent (which consent shall not be unreasonably withheld or delayed) unless such settlement or judgment relates solely to monetary damages. The Indemnifying Party shall not, without the Indemnified Party's prior written consent, enter into any compromise or settlement that (i) commits the Indemnified Party to take, or to forbear to take, any action, or (ii) does not provide for a complete release by such Third Party of the Indemnified Party. The Indemnified Party shall have the sole and exclusive right to settle any Third-Party Claim, on such terms and conditions as it deems reasonably appropriate, to the extent such Third-Party Claim involves equitable or other non-monetary relief against the Indemnified Party, and shall have the right to settle any Third-Party Claim involving money damages for which Indemnifying Party has not assumed the defense pursuant to this Section 9.4 with the written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. (d) In the event an Indemnified Party shall claim a right to payment pursuant to this Agreement, such Indemnified Party shall send written notice of such claim to the -53- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Indemnifying Party. Such notice shall specify the basis for such claim. As promptly as possible after the Indemnified Party has given such notice, and subject to the limitations set forth in Section 9.3, the Indemnified Party and the Indemnifying Party shall establish the merits and amount of such claim by mutual agreement, or, if necessary, by arbitration in a manner reasonably determined by mutual agreement of such parties. 10. MISCELLANEOUS PROVISIONS 10.1 NOTICES All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given upon receipt if (i) mailed by certified or registered mail, return receipt requested, (ii) sent by Federal Express or other express carrier, fee prepaid, (iii) sent via facsimile with receipt confirmed, or (iv) delivered personally, addressed as follows or to such other address or addresses of which the respective party shall have notified the other. (a) If to Seller, to: Lucent Technologies Inc. Attn: Executive Vice President, Corporate Operations 600 Mountain Avenue Murray Hill, NJ 07974-0636 United States of America Facsimile: (908) 582-3560 With a copy to: Lucent Technologies Inc. Attn: Vice President - Law 600 Mountain Avenue Murray Hill, NJ 07974-0636 United States of America Facsimile: (908) 582-6978 (b) If to Buyer, to: Tyco Group S.a.r.l. 6, Avenue Emile Reuter Second Floor L-2420 Luxembourg Attn: Managing Director Facsimile: 352-021-181-281 With a copy to: Tyco International (US) Inc. One Tyco Park Exeter, New Hampshire 03833 Attn: General Counsel -54- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS Facsimile: (603) 778-7700 10.2 EXPENSES Except as otherwise provided in this Agreement, each party to this Agreement will bear all the fees, costs and expenses that are incurred by it in connection with the transactions contemplated hereby, whether or not such transactions are consummated. 10.3 ENTIRE AGREEMENT; MODIFICATION The agreement of the parties, which is comprised of this Agreement, the Schedules and Exhibits hereto and the documents referred to herein and such other written agreements between the parties dated the date hereof, sets forth the entire agreement and understanding between the parties and supersedes any prior agreement or understanding, written or oral, relating to the subject matter of this Agreement. With respect to the Purchased Assets, the Business, or any other rights or obligations to be transferred hereunder or pursuant hereto, no party has been induced by or has relied upon any representations, warranties, or statements, whether express or implied, made by any other party, its agents, employees, attorneys or other representatives or by any Person representing or purporting to represent the other party that are not expressly set forth in this Agreement or the Collateral Agreements (including the Schedules and Exhibits hereto and thereto), whether or not any such representations, warranties or statements were made in writing or orally. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby, and in accordance with Section 11.4. 10.4 ASSIGNMENT; BINDING EFFECT; SEVERABILITY This Agreement may not be assigned by any party hereto without the other party's written consent; provided that, Buyer may transfer or assign in whole or in part to one or more Buyer Designee its the right to purchase all or a portion of the Purchased Assets, but no such transfer or assignment will relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors, legal representatives and permitted assigns of each party hereto. The provisions of this Agreement are severable, and in the event that any one or more provisions are deemed illegal or unenforceable the remaining provisions shall remain in full force and effect unless the deletion of such provision shall cause this Agreement to become materially adverse to either party, in which event the parties shall use reasonable commercial efforts to arrive at an accommodation that best preserves for the parties the benefits and obligations of the offending provision. 10.5 GOVERNING LAW -55- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK IRRESPECTIVE OF THE CHOICE OF LAWS PRINCIPLES OF THE STATE OF NEW YORK, AS TO ALL MATTERS, INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, ENFORCEABILITY, PERFORMANCE AND REMEDIES. 10.6 EXECUTION IN COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.7 PUBLIC ANNOUNCEMENT Upon signing of this Agreement, Seller and Buyer shall prepare a mutually agreeable release announcing the transaction contemplated hereby. Except for such press release, neither Seller nor Buyer shall, without the approval of the other, make any press release or other announcement concerning the existence of this Agreement or the terms of the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by Law, in which case the other party shall be advised and the parties shall use their reasonable commercial efforts to cause a mutually agreeable release or announcement to be issued; PROVIDED, HOWEVER, that the foregoing shall not preclude communications or disclosures necessary to comply with accounting, stock exchange or Federal Securities Law disclosure obligations. 10.8 NO THIRD-PARTY BENEFICIARIES Nothing in this Agreement, express or implied, is intended to or shall (a) confer on any Person other than the parties hereto and their respective successors or assigns any rights (including Third-Party beneficiary rights), remedies, obligations or liabilities under or by reason of this Agreement, or (b) constitute the parties hereto as partners or as participants in a joint venture. This Agreement shall not provide Third Parties with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to the terms of this Agreement. Nothing in this Agreement shall be construed as giving to any Business Employee, or any other individual, any right or entitlement under any Benefit Plan, policy or procedure maintained by Seller, except as expressly provided in such Benefit Plan, policy or procedure. No Third Party shall have any rights under Section 502, 503 or 504 of ERISA or any regulations thereunder because of this Agreement that would not otherwise exist without reference to this Agreement. No Third Party shall have any right, independent of any right that exist irrespective of this Agreement, under or granted by this Agreement, to bring any suit at law or equity for any matter governed by or subject to the provisions of this Agreement. -56- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 11. TERMINATION AND WAIVER 11.1 TERMINATION This Agreement may be terminated at any time prior to the Closing Date by: (a) MUTUAL CONSENT. The mutual written consent of Buyer and Seller; (b) COURT OR ADMINISTRATIVE ORDER. Buyer or Seller if there shall be in effect a non-appealable order of a court or government administrative agency of competent jurisdiction prohibiting the consummation of the transactions contemplated hereby. (c) DELAY. Buyer or Seller if the Closing shall not have occurred by January 31, 2001, provided that the terminating party is not otherwise in material default or breach of this Agreement. 11.2 EFFECT OF TERMINATION In the event of the termination of this Agreement in accordance with Section 11.1, this Agreement shall become void and have no effect, without any liability on the part of any party or its directors, officers or stockholders, except for the obligations of the parties hereto as provided in Article 6, Sections 10.2 and 10.7 and this Section 11.2. 11.3 WAIVER OF AGREEMENT Any term or condition hereof may be waived at any time prior to the Closing Date by the party hereto which is entitled to the benefits thereof by action taken by its Board of Directors or its duly authorized officer or employee, whether before or after the action of such party; PROVIDED, HOWEVER, that such action shall be evidenced by a written instrument duly executed on behalf of such party by its duly authorized officer or employee. The failure of either party to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision nor shall it in any way affect the validity of this Agreement or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. 11.4 AMENDMENT OF AGREEMENT This Agreement may be amended with respect to any provision contained herein at any time prior to the Closing Date by action of the parties hereto taken by their Boards of Directors or by their duly authorized officers or employees, whether before or after such party's action; PROVIDED, HOWEVER, that such amendment shall be evidenced by a written instrument duly executed on behalf of each party by its duly authorized officer or employee. -57- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS 11.5 DISPUTES; WAIVER OF JURY TRIAL (a) Prior to initiating any litigation with respect to this Agreement, the parties shall first in good faith consult among appropriate officers of Buyer and Seller, which shall begin promptly after one party has delivered to the other a written request for consultation. At any time thereafter, either party may request in writing that the dispute be referred to appropriate Senior Executives of Buyer and Seller. Within ten (10) Business Days after such request, the Senior Executives (and not their designees) shall meet and attempt in good faith to resolve the dispute. (b) The parties hereby irrevocably and unconditionally waive trial by jury in any legal action or proceeding relating to this Agreement or any Collateral Agreement and for any counterclaim therein. -58- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed on its behalf by its duly authorized officer as of the date first written above. LUCENT TECHNOLOGIES INC. By: --------------------------- Name: William Viqueira Title: Senior Vice President, Business Development TYCO GROUP S.A.R.L. By: --------------------------- Name: Richard W. Brann Title: General Manager LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT A Form of Assignment and Bill of Sale - --------- ASSIGNMENT AND BILL OF SALE FOR GOOD AND SUFFICIENT CONSIDERATION, the receipt of which is hereby acknowledged, LUCENT TECHNOLOGIES INC., a Delaware corporation ("SELLER"), by these presents GRANTS, BARGAINS, SELLS, TRANSFERS, ASSIGNS, CONVEYS AND DELIVERS to ____________________________, a _______________ corporation ("BUYER"), all right, title and interest in and to all of the Purchased Assets, as that term is defined in the Agreement for the Purchase and Sale of Assets by and between Seller and Buyer, dated as of _________ ___, 2000 (the "AGREEMENT") but excluding the Excluded Assets, in accordance with, and subject to, the terms and conditions of the Agreement, which are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings provided in the Agreement. Seller, for itself, its Affiliates, and its successors and assigns, hereby covenants and agrees that, at any time and from time to time forthwith upon the written request of Buyer, Seller will do, or cause its Affiliates to, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may reasonably be required by Buyer or as required pursuant to the Agreement in order to assign, transfer, set over, convey, assure and confirm unto and vest in Buyer, its successors and assigns, title to the Purchased Assets sold, assigned, conveyed, transferred and delivered by this Assignment and Bill of Sale. This Assignment and Bill of Sale is subject to the terms and conditions of the Agreement, which are incorporated herein by reference, and shall be binding upon Seller and Buyer, and their respective successors and assigns. THIS ASSIGNMENT AND BILL OF SALE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK IRRESPECTIVE OF THE CHOICE OF LAWS PRINCIPLES OF THE STATE OF NEW YORK, AS TO ALL MATTERS, INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, ENFORCEABILITY, PERFORMANCE AND REMEDIES. Date: __________ __, 2000 LUCENT TECHNOLOGIES INC. By: --------------------------- Name: Title: LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT B Form of Assumption Agreement - --------- ASSUMPTION AGREEMENT Pursuant to that certain Agreement for the Purchase and Sale of Assets, dated as of _______ __, 2000 (the "AGREEMENT"), by and between LUCENT TECHNOLOGIES INC., a Delaware corporation ("SELLER"), and ___________________________, a ___________ corporation ("BUYER"), FOR GOOD AND SUFFICIENT CONSIDERATION, the receipt of which is hereby acknowledged, Buyer hereby ACCEPTS, ASSUMES AND AGREES TO PAY, PERFORM OR OTHERWISE DISCHARGE the Assumed Liabilities, but excluding the Excluded Liabilities, in accordance with, and subject to, the terms and conditions of the Agreement, which are incorporated herein by reference. Capitalized terms used but not defined herein shall have the meanings provided in the Agreement. This Assumption Agreement is subject to the terms and conditions of the Agreement, which are incorporated herein by reference, and shall be binding upon Seller and Buyer, and their respective successors and assigns. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK IRRESPECTIVE OF THE CHOICE OF LAWS PRINCIPLES OF THE STATE OF NEW YORK, AS TO ALL MATTERS, INCLUDING MATTERS OF VALIDITY, CONSTRUCTION, EFFECT, ENFORCEABILITY, PERFORMANCE AND REMEDIES. Date: __________ __, 2000 [BUYER] By: -------------------------- Name: Title: LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT C Form of Lease Assignment - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT D Form of Sublease - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT E Form of Supply Agreement - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT F Form of Intellectual Property Agreement - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT G Form of Transition Services Agreement - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EXHIBIT H Form of Opinion - Buyer's Savings Plan - --------- LUCENT TECHNOLOGIES PROPRIETARY USE PURSUANT TO COMPANY INSTRUCTIONS EX-2.6 3 a2030822zex-2_6.txt EXHIBIT 2.6 EXHIBIT 2.6 STOCK PURCHASE AGREEMENT BY AND BETWEEN MANHEIM AUCTIONS, INC. AND ADT GENERAL HOLDINGS, INC. DATED AS OF JANUARY 13, 2000 TABLE OF CONTENTS PAGE 1. DEFINITIONS............................................................1 2. COVENANTS AND UNDERTAKINGS.............................................1 2.1 Purchase and Sale of Shares......................................1 2.2 Purchase Price...................................................2 2.3 Discharge of Debt and Other Obligations..........................4 2.4 Cooperation......................................................4 2.5 Consents and Approvals...........................................5 2.6 Non-Competition Agreement........................................6 2.7 Resignations.....................................................6 2.8 Tax Matters......................................................6 2.9 Employee Plans and Compensation Arrangements....................12 2.10 Conduct of Parties Prior to the Closing.........................16 2.11 Brokers.........................................................18 2.12 Publicity.......................................................18 2.13 No Shop.........................................................19 2.14 Redemption or Repurchase of Preferred Stock.....................19 2.15 Access to Books and Records.....................................19 2.16 Confidentiality.................................................20 2.17 Certain Post-Closing Environmental Procedures...................20 2.18 Certain Intellectual Property Matters...........................22 2.19 Insurance Claims................................................23 3. REPRESENTATIONS AND WARRANTIES OF SELLER..............................23 3.1 Organization, Standing and Foreign Qualification................23 3.2 Authority and Status............................................23 3.3 Capitalization..................................................24 3.4 Absence of Equity Investments...................................24 3.5 Liabilities and Obligations of the Company Entities.............25 3.6 Tax Matters.....................................................25 3.7 Personal Property...............................................26 3.8 Bank Accounts...................................................26 -i- TABLE OF CONTENTS (CONTINUED) PAGE 3.9 Consents and Approvals; Noncontravention........................27 3.10 Absence of Changes..............................................27 3.11 Litigation......................................................28 3.12 Licenses and Permits; Compliance With Law.......................28 3.13 Real Property...................................................29 3.14 Environmental Matters...........................................30 3.15 Contracts, Etc..................................................31 3.16 Patents, Trademarks, Trade Names, Etc...........................31 3.17 Labor Matters and Employee Relations............................31 3.18 Benefit Plans...................................................33 3.19 Title to Assets.................................................36 3.20 Accounts Receivable.............................................36 3.21 Insurance.......................................................36 3.22 Guaranties......................................................36 3.23 Full Disclosure.................................................37 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER...........................37 4.1 Organization and Standing.......................................37 4.2 Authority and Status............................................37 4.3 Consents and Approvals; Noncontravention........................37 4.4 Purchase for Investment.........................................38 4.5 Inspections; No Other Representations...........................38 4.6 Availability of Funds...........................................38 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER......................38 5.1 Representations True at Closing.................................39 5.2 Covenants.......................................................39 5.3 No Material Adverse Change......................................39 5.4 Officer's Certificate...........................................39 5.5 Consents and Waivers............................................39 5.6 Regulatory Approvals............................................39 5.7 Judgment........................................................40 -ii- TABLE OF CONTENTS (CONTINUED) PAGE 5.8 Redemption or Repurchase of Preferred Stock.....................40 5.9 Deliveries......................................................40 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.........................40 6.1 Representations True at Closing.................................40 6.2 Covenants.......................................................40 6.3 Officers' Certificate...........................................41 6.4 Regulatory Approvals............................................41 6.5 Judgment........................................................41 6.6 Deliveries......................................................41 7. CLOSING...............................................................41 7.1 Time and Place of Closing.......................................41 7.2 Transactions at Closing.........................................42 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION........44 8.1 Survival of Representations and Warranties of Seller............44 8.2 Survival of Representations and Warranties of Purchaser.........45 8.3 Assertion of Indemnification Claims.............................45 8.4 Certain Limitations on Obligation to Indemnify..................46 9. TERMINATION...........................................................47 9.1 Agreement between Seller and Purchaser..........................47 9.2 Termination by Seller...........................................47 9.3 Termination by Purchaser........................................48 9.4 Effect of Termination...........................................48 9.5 Attorneys' Fees.................................................49 9.6 Exclusivity.....................................................49 10. GENERAL PROVISIONS....................................................49 10.1 Notices.........................................................49 10.2 Further Assurances..............................................50 10.3 Waiver..........................................................50 10.4 Expenses........................................................51 -iii- TABLE OF CONTENTS (CONTINUED) PAGE 10.5 Assignment......................................................51 10.6 Headings........................................................51 10.7 Entire Agreement; Amendment.....................................51 10.8 Counterparts....................................................51 10.9 Pronouns and Number.............................................51 10.10 Schedules and Exhibits Incorporated.............................52 10.11 Disclosure Schedules............................................52 10.12 Severability....................................................52 10.13 Governing Law...................................................52 10.14 Jurisdiction....................................................52 10.15 Third-Party Beneficiaries.......................................53 10.16 Waiver of Jury Trial............................................53 -iv- EXHIBITS Exhibit A List of Subsidiaries and Auctions Exhibit B Definitions Exhibit C Form of Closing Report Exhibit D Form of Adjustment Escrow Agreement Exhibit E Form of Non-Competition Agreement Exhibit F Form of ADT License Agreement Exhibit G Form of Opinion of Counsel for Seller, Parent and U.S. Parent Exhibit H Form of Opinion of Counsel for Purchaser SCHEDULES Schedule 2.2.2(a) Excluded Current Assets and Current Liabilities Schedule 2.2.2.2 Certain Capital Expenditures Schedule 2.3 Debt and Other Obligations to be Discharged Schedule 2.8 Responsibility for Returns Schedule 2.9.5 Severance Benefits Schedule 3.1 Jurisdiction of Organization, Subsidiaries and Qualifications Schedule 3.3.1 Capitalization of Company Entities Schedule 3.4 Investment Interests Schedule 3.5.1 Financial Statements Schedule 3.5.2 Liabilities Schedule 3.5.3 Default Schedule 3.6 Tax Matters Schedule 3.8 Bank Accounts Schedule 3.9 Consents and Noncontravention Schedule 3.10 Changes and Events Schedule 3.11 Litigation Schedule 3.12 Licenses and Permits; Compliance with Law Schedule 3.13 Real Property Schedule 3.14 Environmental Matters Schedule 3.15 Material Contracts Schedule 3.16 Patents, Trademarks, Trade Names, Etc. Schedule 3.17 Employees; Labor Matters Schedule 3.18 Benefit Plans Schedule 3.19 Title to Assets Schedule 3.21 Insurance Policies Schedule 3.22 Guaranties Schedule 4.3 Consents and Noncontravention Schedule 5.6 Certain Regulatory Approvals STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT"), made as of this 13th day of January 2000, by and between MANHEIM AUCTIONS, INC., a Delaware corporation ("PURCHASER"), and ADT GENERAL HOLDINGS, INC., a Delaware corporation ("SELLER"), W I T N E S S E T H: - - - - - - - - - - WHEREAS, ADT Automotive Holdings, Inc., a Delaware corporation (the "ACQUIRED COMPANY"), directly and/or through the subsidiaries listed on EXHIBIT A attached hereto (which, together with the Acquired Company, are referred to herein as the "COMPANY ENTITIES") owns and operates 28 automobile auction facilities listed on EXHIBIT A, together with certain ancillary businesses, including vehicle transport, reconditioning and title services, and related assets, including patents, intellectual property and technology; WHEREAS, the parties hereto desire to enter into this Agreement pursuant to which Purchaser will purchase from Seller all of the issued and outstanding shares of capital stock of the Acquired Company (the "SHARES") upon the terms and subject to the conditions set forth herein; and WHEREAS, pursuant to that certain Guaranty, dated of even date herewith (the "GUARANTY"), among Purchaser, Tyco International Ltd., a Bermuda corporation ("PARENT"), and Tyco International (U.S.) Inc., a Delaware corporation ("U.S. PARENT"), Parent and U.S. Parent have guaranteed the performance of Seller's obligations hereunder; NOW, THEREFORE, in consideration of the premises and the mutual promises, representations, warranties and covenants hereinafter set forth, the parties hereto agree as follows: 1. DEFINITIONS. Unless otherwise stated in this Agreement, certain terms used herein shall have the meanings set forth in EXHIBIT B attached hereto. 2. COVENANTS AND UNDERTAKINGS. -------------------------- 2.1 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions hereinafter set forth, Seller shall, at Closing, sell, assign, transfer, convey and deliver to Purchaser the Shares, free and clear of all Encumbrances. Such sale, assignment, transfer, conveyance and delivery shall be evidenced by a share certificate duly endorsed in blank or by instruments of transfer reasonably satisfactory in form and substance to Purchaser and its counsel. 2.2 Purchase Price. -------------- 2.2.1 Subject to the adjustments to be made in accordance with the provisions set forth in this Section 2.2, in consideration of the sale, assignment, transfer, conveyance and delivery of the Shares and in reliance upon the representations and warranties made herein by Seller, Purchaser, in full payment for the Shares, the Non-Competition Agreement and the royalties under the ADT License Agreement, shall pay to Seller by wire transfer at Closing, the aggregate amount of One Billion Dollars ($1,000,000,000) (the "PURCHASE PRICE"). The parties agree that the Purchase Price shall be paid as follows: 2.2.1.1 Fifty Million Dollars ($50,000,000) shall be paid to Licensor in full payment for the royalties under the ADT License Agreement; and 2.2.1.2 the balance of the Purchase Price after the payment set forth in Section 2.2.1.1 shall be paid to Seller in full payment for the Shares and to Seller and U.S. Parent in full payment for the Non-Competition Agreement. 2.2.2 Adjustments to Purchase Price. ----------------------------- 2.2.2.1 The Purchase Price shall be (i) increased by the amount by which the Working Capital (as defined below) as of the Adjustment Time exceeds the Target Working Capital (as defined below) or (ii) decreased by the amount by which the Working Capital as of the Adjustment Time is less than the Target Working Capital. "WORKING CAPITAL" as of any date shall mean, on a consolidated basis, current assets less current liabilities of the Company Entities as defined below. "TARGET WORKING CAPITAL" shall mean Forty-Two Million Four Hundred Thousand Dollars ($42,400,000). Current assets shall include cash and cash equivalents, accounts receivable, notes receivable, prepaid expenses, federal and state income tax receivables that are Booked Taxes and other current assets consistently reported in accordance with the Financial Statements and in each case in accordance with GAAP (except as otherwise set forth on SCHEDULE 2.2.2(a)). Current liabilities shall include accounts payable, accrued expenses, Booked Taxes and unearned income consistently reported in accordance with the Financial Statements and in each case in accordance with GAAP (except as otherwise set forth on SCHEDULE 2.2.2(a)). Any adjustments to the Purchase Price shall be an adjustment to the portion of the Purchase Price paid to Seller for the Shares. 2.2.2.2 The Purchase Price shall be increased by the amount of the capital expenditures that are set forth on SCHEDULE 2.2.2.2, subject to the limitations that are set forth on SCHEDULE 2.2.2.2, made by or on behalf of the Company Entities between the date hereof and the Closing Date. 2.2.3 Determination of Adjusted Purchase Price. ---------------------------------------- 2.2.3.1 At least seven business days prior to the Closing, Seller will deliver to Purchaser a report substantially in the form of EXHIBIT C attached hereto (the 2 "PRELIMINARY REPORT"), certified as to completeness and accuracy by Seller, showing in detail the preliminary determination of the adjustments referred to in this Section 2.2, which are calculated in accordance with this Section 2.2 as of the Adjustment Time (or as of any other date(s) to which the parties agree), together with any documents substantiating the determination of the adjustments to the Purchase Price proposed in the Preliminary Report. The parties shall negotiate in good faith to resolve any dispute and to reach an agreement prior to the Closing Date on such preliminary adjustments to the Purchase Price as of the Closing Date. The adjustments shown in the Preliminary Report, as adjusted by agreement of the parties, will be reflected as an adjustment to the Purchase Price payable at the Closing; provided that Purchaser has not given notice to Seller that, in Purchaser's reasonable opinion, the proposed adjustments are materially incorrect. If Purchaser gives Seller notice that in its reasonable opinion the proposed adjustments are materially incorrect, and if the parties have not been able to resolve the matter prior to the Closing Date, any disputed amounts shall be paid by the party to be charged with a disputed adjustment into escrow and shall be held by an escrow agent (which shall be a commercial bank selected by Purchaser and reasonably acceptable to Seller) in accordance with an escrow agreement, substantially in the form of EXHIBIT D attached hereto, until the adjustments are finally determined pursuant to Section 2.2.3.2, at which time Seller and Purchaser shall deliver a joint written notice to such escrow agent setting forth appropriate instructions as to the disposition from escrow of such disputed amounts deposited thereunder. 2.2.3.2 Within 90 days after the Closing Date, Purchaser shall deliver to Seller a report (the "FINAL REPORT"), certified as to completeness and accuracy by Purchaser, showing in detail the final determination of any adjustments which were not calculated as of the Closing Date and containing any corrections to the Preliminary Report, together with any documents substantiating the final calculation of the adjustments proposed in the Final Report. If Seller shall conclude that the Final Report does not accurately reflect the adjustments to be made to the Purchase Price in accordance with this Section 2.2, Seller shall, within 30 days after its receipt of the Final Report, provide to Purchaser its written statement of any discrepancies believed to exist. Purchaser and Seller shall use good faith efforts to jointly resolve the discrepancies within 30 days of Purchaser's receipt of Seller's written statement of discrepancies, which resolution, if achieved, shall be binding upon all parties to this Agreement and not subject to dispute or judicial review. If Purchaser and Seller cannot resolve the discrepancies to their mutual satisfaction within such 30-day period, Purchaser and Seller shall, within the following ten days, jointly designate a national independent public accounting firm to be retained to review the Final Report together with Seller's discrepancy statement and any other relevant documents. The parties agree that the foregoing independent public accounting firm shall not be one that is, or within two years prior to the Closing Date has been, regularly engaged by Purchaser or Seller. Such firm shall report its conclusions as to adjustments pursuant to this Section 2.2, which shall be conclusive on all parties to this Agreement and not subject to dispute or judicial review. If Purchaser or Seller is determined to owe an amount to the other, the appropriate party shall pay such amount thereof to the other, within three business days after receipt of such determination. The cost of retaining such independent public accounting firm shall be borne (i) by the party whose amounts, on Purchaser's Final Report or Seller's written statement of any discrepancies 3 thereto, were further from the determination of the conclusion of the independent public accounting firm as to the adjustments pursuant to this Section 2.2, or (ii) equally by the parties in the event that such conclusion is equidistant between the amounts on Purchaser's Final Report and Seller's written statement of any discrepancies thereto. Purchaser shall provide Seller with reasonable access to all records that Purchaser has in its possession that are necessary for Seller to review the Final Report. 2.3 Discharge of Debt and Other Obligations. --------------------------------------- 2.3.1 On or before the Closing Date, Seller shall cause the Company Entities to cause to be paid, discharged in full or otherwise satisfied and released, and shall deliver satisfactory releases, and terminations of any security interest held in respect of, or other evidence thereof reasonably satisfactory to Purchaser, (i) all Indebtedness of the Company Entities; (ii) unpaid consulting or non-competition fees or additional payments due in connection with any acquisitions or other similar obligations of the Company Entities, if any; (iii) any debt or liabilities or any other inter-company arrangement owed by any of the Company Entities to Seller or any Affiliate of Seller (other than a Company Entity); and (iv) any long-term obligations (including any guaranties or similar obligations) of the Company Entities whether or not directly related to the operations of the Auctions owned by such entities other than obligations under the Material Licenses or agreements, leases, contracts or other instruments which have been disclosed under this Agreement or which otherwise are not required to be disclosed hereunder. All documents evidencing obligations under subsections (i), (ii) and (iv) of this Section 2.3.1 are listed on SCHEDULE 2.3 attached hereto. 2.3.2 On or before the Closing Date, Seller shall also cause any Affiliate of Seller (other than a Company Entity) to cause to be paid, discharged in full or otherwise satisfied and released, and shall deliver evidence thereof reasonably satisfactory to Purchaser, any inter-company debt or liabilities owed by any of such Affiliates to any of the Company Entities (A) without any residual or continuing obligation or liability on the part of any of the Company Entities, (B) which action shall not result in any equity of any of the Company Entities being issued to an entity that is not in the Selling Group, and (C) so that immediately prior to Closing, all of the issued and outstanding capital stock of the Acquired Company shall be held by Seller. 2.3.3 On or before the Closing Date, Seller shall cause the Acquired Company to distribute to Seller or otherwise dispose of the 10,000 shares of 7.25% preferred stock, par value $10,000 per share, of ADT Security Services, Inc. held by the Acquired Company without any residual or continuing obligation or liability on the part of any of Company Entities. 2.4 Cooperation. Purchaser and Seller shall cooperate fully with each other and their respective counsel and accountants in connection with any actions required to be taken as a part of their respective obligations under this Agreement, and Purchaser and Seller shall execute such other documents as may be necessary and desirable to the implementation and consummation of 4 this Agreement and otherwise use their commercially reasonable efforts to consummate the transactions contemplated hereby and to fulfill their obligations hereunder. 2.5 Consents and Approvals. ---------------------- 2.5.1 Subject to the last sentence of this Section 2.5.1, Purchaser and Seller agree to use commercially reasonable efforts and to take any and all commercially reasonable actions necessary to obtain the written waiver, consent and approval of all Persons whose waiver, consent or approval is required (i) in order to consummate the transactions contemplated by this Agreement, or (ii) by any agreement, lease, instrument, arrangement, judgment, writ, decree, order or license to which any of the Company Entities is a party or subject on the Closing Date and which would prohibit, or require the waiver, consent or approval of any Person to such transactions or under which, without such waiver, consent or approval, the consummation of such transactions would constitute an occurrence of default under the provisions thereof, result in the acceleration of any obligation thereunder or result in the creation or imposition of any Encumbrance upon the Shares or any property or asset of the Company Entities or give rise to a right of any party thereto to terminate its obligations thereunder. Notwithstanding anything to the contrary contained in this Agreement (including obligations to act commercially reasonably), Purchaser shall not be required to accept or honor (nor shall any of the Company Entities be permitted to accept or honor except with Purchaser's prior written consent) any conditions, changes, modifications or additions to, or in connection with, any contracts, agreements, licenses, permits or other authorizations of any Company Entity that may be imposed or required by the party from whom consent or approval is sought under this Agreement or in connection with the transactions contemplated hereby, other than those of an immaterial or ministerial nature. 2.5.2 Purchaser and Seller shall within ten business days after the date hereof file or cause to be filed all necessary Notification and Report Forms (the "HSR REPORTS") mandated by the HSR Act and the HSR Rules to be filed by them or by any other Person as a result of the transactions contemplated by this Agreement and coordinate the concurrent filing of such HSR Reports with the Federal Trade Commission (the "FTC") and the Department of Justice (the "DOJ"). The parties shall use best efforts to respond, or to cause such other Persons to respond, as promptly as reasonably practicable to any inquiries received from the FTC or the DOJ for additional information or documentation, including, without limitation, a "second request" for information from the FTC or the DOJ, and to respond, or to cause such other Persons to respond, as promptly as reasonably practicable to all inquiries and requests received from any other Governmental Authority in connection with antitrust matters. The parties shall use their respective best efforts to overcome any objections that may be raised by the FTC or the DOJ or any other Governmental Authority having jurisdiction over antitrust matters. Notwithstanding anything to the contrary in this Agreement, Purchaser shall not be required to agree to any prohibition, limitation or other requirement that would (i) prohibit or limit the ownership or operation by Purchaser or any of its Affiliates of any portion of the business, operations or assets of Purchaser or any of its Affiliates, (ii) compel Purchaser or any of its 5 Affiliates to dispose of or hold separate any portion of the business, operations or assets of Purchaser or any of its Affiliates, (iii) impose limitations (other than routine reporting requirements) on the ability of Purchaser to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of any of the Company Entities, including the right to vote such capital stock on all matters properly presented to the applicable shareholders, or (iv) prohibit Purchaser or any of its Affiliates from effectively controlling in any respect the business or operations of Purchaser or any of its Affiliates. 2.6 Non-competition Agreement. Seller, U.S. Parent and Purchaser shall enter into the Non-Competition Agreement at Closing. 2.7 Resignations. At Closing, Seller shall cause to be delivered to Purchaser the resignation of each of the directors and officers of each of the Company Entities, which resignations shall be effective immediately subsequent to Closing. 2.8 Tax Matters. ----------- 2.8.1 "BOOKED TAXES" means Taxes of each Company Entity payable with respect to a Straddle Period (as defined in Section 2.8.2.1 below) that are reflected on the Final Report as current assets or current liabilities with respect to such Taxes and that are taken into account in computing the adjustment to the Purchase Price under Section 2.2 hereof. 2.8.2 Taxes of each Company Entity with respect to the period ending on (and including) the Closing Date, other than Booked Taxes, shall be the responsibility of Seller. Taxes of each Company Entity with respect to the period after the Closing Date shall be the responsibility of Purchaser. 2.8.2.1 Seller agrees to pay and, notwithstanding any disclosure of potential tax liabilities made by Seller or the Company Entities, to indemnify, reimburse and hold harmless Purchaser and the Company Entities and their respective successors, and their respective officers, directors, employees, agents and representatives, from and against any and all Taxes of the Company Entities payable with respect to, and any and all claims, liabilities, losses, damages, costs and expenses (including, without limitation, court costs and reasonable professional fees incurred in the investigation, defense or settlement of any claims covered by this indemnity) (herein referred to as "INDEMNIFIABLE TAX DAMAGES"), arising out of or in any manner incident, relating or attributable to Taxes of the Company Entities payable with respect to, or Tax Returns required to be filed by the Company Entities under Section 2.8.7 with respect to, (i) any taxable year (or other applicable reporting period) (a "REPORTING PERIOD") of the Company Entities ending on or before the Closing Date, and (ii) any Reporting Period of the Company Entities that begins before the Closing Date and that ends after the Closing Date (a "STRADDLE PERIOD"), whether such Taxes are imposed directly on the Company Entities or as a result of including the Company Entities in consolidated or combined returns filed by the affiliated group of which the Company Entities are members (the "SELLER CONSOLIDATED 6 GROUP"), except that with respect to any Straddle Period, Seller shall be responsible for the payment of such Taxes only to the extent that they exceed Booked Taxes. Seller shall be entitled to any credits or refunds of Taxes of the Company Entities payable with respect to any Reporting Period of the Company Entities ending on or before the Closing Date. Purchaser shall cause the amount of any credits or refunds of Taxes to which Seller is entitled under this Section 2.8, but which are received by or credited to the Company Entities after the Closing Date, to be paid to Seller within ten business days following such receipt or crediting; provided that Seller shall reimburse the Company Entities to the extent of any required subsequent repayment of, or reduction in, the amount of such credits or refunds of Taxes so received or credited. 2.8.2.2 In accordance with Code Section 1442 and the Treasury Regulations promulgated thereunder, Purchaser shall withhold from the payment to Licensor set forth in Section 2.2.1.1 hereof, and pay-over to the U.S. Treasury, a U.S. federal withholding tax in an amount equal to 30% of the gross amount of such payment, or such other withholding percentage rate reflected on a properly completed and duly executed original I.R.S. Form W-8BEN (or other appropriate form) delivered to Purchaser at Closing pursuant to Section 7.2.1 of this Agreement. Seller shall also indemnify and hold harmless Purchaser and the Company Entities from and against any and all Taxes of Seller and members of the Seller Consolidated Group other than the Company Entities for any and all periods, whether before or after the Closing Date, and from and against any and all Indemnifiable Tax Damages arising out of or in any manner incident, relating or attributable to such Taxes or to Tax Returns filed or required to be filed by Seller and members of the Seller Consolidated Group other than the Company Entities (including Taxes and Indemnifiable Tax Damages arising from any and all of Purchaser's U.S. federal withholding tax obligations with respect to payments made by Purchaser in accordance with this Agreement, the ADT License Agreement and the Non-Competition Agreement, but not including Taxes and Indemnifiable Tax Damages arising from Purchaser's failure to pay over to the U.S. Treasury U.S. federal withholding tax as required by this Section 2.8.2.2). 2.8.2.3 Purchaser agrees to pay and to indemnify, reimburse and hold harmless Seller (and other members of the Seller Consolidated Group) and their successors, and their officers, directors, employees, agents and representatives, from and against (i) any and all Booked Taxes and (ii) any and all Taxes of the Company Entities payable with respect to, and any and all Indemnifiable Tax Damages, arising out of or in any manner incident, relating or attributable to Taxes of the Company Entities payable with respect to, or Tax Returns required to be filed by the Company Entities with respect to, (A) any Reporting Period of the Company Entities beginning after the Closing Date and (B) any Reporting Period that includes the Closing Date but only for that portion of such period commencing the day after the Closing Date, whether such Taxes are imposed directly on the Company Entities or as a result of including the Company Entities in consolidated or combined returns filed by any consolidated group of which the Company Entities are members. 7 2.8.3 Any tax sharing agreement, practice or other similar arrangement between the Company Entities and other members of the Seller Consolidated Group shall be terminated as of the Closing Date. 2.8.4 The Tax liabilities for each Straddle Period for the Company Entities shall be determined by closing the books and records of the Acquired Company as of the Closing Date, by treating each such Straddle Period as if it were a separate Reporting Period and by employing accounting methods which are consistent with those employed in preparing the Tax Returns for the Company Entities in prior Reporting Periods and which do not have the effect of distorting income or expenses (taking into account the transactions contemplated by this Agreement), except that Taxes based on items other than income or sales shall be computed for the Reporting Period beginning on the first day of the applicable Straddle Period and prorated on a time basis between the Straddle Period and the period beginning on the first day after the Closing Date and ending on the last day of the Reporting Period which includes the Closing Date; provided that with respect to any Tax which is not in effect during the entire Straddle Period, the proration of such Tax shall be based on the period during the Straddle Period that such Tax was in effect. 2.8.5 Except as shown on SCHEDULE 2.8, Seller shall be responsible for preparing and filing on behalf of the Company Entities all Tax Returns for Reporting Periods of the Company Entities ending on or before the Closing Date, including Tax Returns of the Company Entities for such periods which are due after the Closing Date, and Seller shall be responsible for the contents of such returns; provided, however, that Seller shall furnish Purchaser and the Company Entities with copies of such returns of the Company Entities, on a separate company basis, within 30 days following the filing date. Purchaser shall be responsible for preparing and filing on behalf of the Company Entities all Tax Returns for Reporting Periods of the Company Entities ending after the Closing Date (including for Reporting Periods beginning before and ending after the Closing Date). 2.8.6 Section 338(h)(10) Election. --------------------------- 2.8.6.1 Seller represents and warrants to Purchaser, with respect to its most recently filed federal income tax return, that (i) ADT Holdings, Inc. has filed or has caused to be filed a consolidated federal income tax return on the basis that ADT Holdings, Inc. is the parent corporation of an affiliated group of corporations pursuant to Code Section 1501 (the "SELLING GROUP"), (ii) each of the Company Entities was included as a member of the Selling Group on such recently filed tax return, and (iii) the Selling Group has not elected to discontinue the filing of consolidated federal income tax returns pursuant to Code Section 1501. 2.8.6.2 The Selling Group shall make timely and irrevocable elections under Section 338(h)(10) of the Code and, if permissible, similar elections under any applicable state or local income tax laws with respect to the Company Entities (the "SECTION 338(h)(10) ELECTIONS"), and Seller shall cause the Selling Group to join with Purchaser in making the 8 Section 338(h)(10) Elections. Seller and Purchaser shall report the transactions contemplated by this Agreement consistent with such Section 338(h)(10) Elections and shall take no position contrary thereto, unless otherwise required by a determination within the meaning of Section 1313 of the Code (or similar provision of state or local law). Seller shall pay to the applicable taxing authority any Tax attributable to the Section 338(h)(10) Elections. 2.8.6.3 Seller and Purchaser agree to allocate the modified Aggregate Deemed Sale Price (as defined under applicable Treasury Regulations) among the assets of the Company Entities in accordance with the agreement of Seller and Purchaser reached within the earlier of 30 days after the determination of the final Purchase Price pursuant to Section 2.2.3 of this Agreement or 100 days following the Closing (the "AGREEMENT PERIOD"); provided, however, that if Seller and Purchaser do not reach such an agreement within such Agreement Period, such allocation shall be determined by either of the following methods selected by Seller in its sole discretion within 3 business days following the expiration of the Agreement Period: (1) such allocation shall be in accordance with the appraisal of Bond & Pecaro, the fees and expenses of which shall be paid by Purchaser, or (2) such allocation shall be in accordance with the appraisal obtained through the following process: (i) Seller shall select an appraiser (the fees and expenses of which shall be paid by Seller), (ii) Purchaser shall select an appraiser (the fees and expenses of which shall be paid by Purchaser), (iii) the two aforesaid appraisers shall select a third appraiser experienced in appraising auto auctions, (iv) such allocation shall be in accordance with the appraisal of such third appraiser, and (v) the fees and expenses of such third appraiser shall be paid one-half by Purchaser and one-half by Seller. If Seller fails to timely select either method (1) or (2), then such allocation shall be determined by method (1). Seller and Purchaser shall reflect such allocation in all applicable Tax Returns filed by any of them. Neither Seller nor Purchaser shall take a position before any Taxing Authority or otherwise (including in any Tax Return) inconsistent with such allocation, unless otherwise required by a determination within the meaning of Section 1313 of the Code (or similar provision of state or local law). 2.8.7 Cooperation On Tax Matters. -------------------------- 2.8.7.1 Seller and Purchaser shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns pursuant to this Section 2.8 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party's request) the provision of records and information which are reasonably relevant to any such Tax Return, audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Seller and Purchaser agree (i) to retain all books and records with respect to Tax matters pertinent to the Company Entities relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Seller or Purchaser, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other party reasonable written notice prior to 9 transferring, destroying or discarding any such books and records and, if the other party so requests, Seller or Purchaser, as the case may be, shall allow the other party to take possession of such books and records to the extent they would otherwise be destroyed or discarded. 2.8.7.2 Seller and Purchaser further agree, upon request, to use commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including Taxes with respect to the transactions contemplated hereby). 2.8.7.3 Each of Purchaser and Seller shall promptly deliver to the other any notice from any Tax authority received by it relating to Taxes for which the other is or may be liable pursuant to this Agreement. 2.8.8 Tax Indemnities. The provisions set forth in this Section 2.8, including, without limitation, the indemnification provisions, shall be separate and distinct from the provisions of Article 8 and shall not be subject to the limitations on indemnification obligations set forth therein. 2.8.8.1 All representations, warranties, agreements, covenants and obligations made or undertaken by Seller in this Section 2.8 or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Purchaser and shall survive the Closing hereunder, and shall not merge in the performance of any obligation by any party hereto. Seller agrees, from and after Closing, to indemnify and hold Purchaser or any of Purchaser's Affiliates, including the Company Entities, and their respective successors and assigns, harmless from and against all liability, loss, damages or injury and all reasonable costs and expenses (including reasonable counsel fees and costs of any suit related thereto) (collectively, "TAX DAMAGES") suffered or incurred by Purchaser or any of Purchaser's Affiliates, including any of the Company Entities, and their respective successors or assigns arising from, resulting from or relating to any misrepresentation by, or breach of any covenant, agreement or warranty of, Seller contained in this Section 2.8 or any certificate, schedule, document or instrument furnished by Seller pursuant thereto. It is understood and agreed by Seller that since the Acquired Company will be owned by Purchaser following the Closing, any recovery by Purchaser hereunder after Closing will be against Seller, who will have no right of reimbursement or contribution against the Acquired Company or any of the other Company Entities. Any examination, inspection or audit of the assets or business of the Company Entities conducted pursuant to this Section 2.8 shall in no way limit, affect or impair the ability of Purchaser, its successors or assigns to rely upon the representations, warranties, covenants and obligations of Seller set forth herein. 2.8.8.2 All representations, warranties, agreements, covenants and obligations made or undertaken by Purchaser in this Section 2.8 or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Seller 10 and shall survive the Closing hereunder and shall not merge in the performance of any obligation by any party hereto. Purchaser agrees from and after Closing to indemnify and hold Seller harmless from and against all Tax Damages suffered or incurred by Seller or any of Seller's Affiliates, and their respective successors or assigns arising from any misrepresentation by, or breach of any covenant or warranty of, Purchaser contained in this Section 2.8 or any certificate, document or instrument furnished by Purchaser pursuant thereto. 2.8.8.3 Any Person entitled to indemnification is hereinafter referred to as the "TAX INDEMNIFIED PARTY," and any Person obligated to provide such indemnification thereunder is hereinafter referred to as the "TAX INDEMNIFYING PARTY." The Tax Indemnified Party shall promptly notify the Tax Indemnifying Party in writing of any notice, letter, correspondence, claim, determination, decision or decree (a "TAX CLAIM") received by the Tax Indemnified Party that might raise a claim for indemnification hereunder. The failure of the Tax Indemnified Party to notify the Tax Indemnifying Party promptly shall not relieve the Tax Indemnifying Party of any obligations under this Agreement except to the extent such failure materially prejudices the ability of the Tax Indemnifying Party to defend the claim. The Tax Indemnifying Party, at its cost and expense, shall have the sole and exclusive right to (and shall promptly notify the Tax Indemnified Party as to whether or not it will) handle, answer, defend, compromise or settle such Tax Claim and any tax examination, audit, contest or litigation in connection therewith. If the Tax Indemnifying Party fails within a reasonable time after notice to defend or handle any Tax Claim or any examination, audit, contest or litigation as provided herein, the Tax Indemnified Party shall be bound by the results obtained by the Tax Indemnifying Party or its successors or assigns in connection with such Tax Claim and such examination, audit, contest or litigation. The Tax Indemnified Party promptly shall provide, or shall cause to be provided, to the Tax Indemnifying Party any relevant information relating to such Tax Claim which may be particularly within the knowledge of the Tax Indemnified Party or its Affiliates and otherwise to cooperate fully with the Tax Indemnifying Party in good faith with respect to such Tax Claim; provided that the Tax Indemnifying Party shall be responsible for the payment of any interest and penalties resulting from any delay by the Tax Indemnifying Party in payment of the Tax Claim. Notwithstanding the foregoing, the Tax Indemnifying Party shall not agree, without the consent of the Tax Indemnified Party (which consent shall not be unreasonably withheld or delayed), to any adjustment which will legally bind the Tax Indemnified Party. 2.8.8.4 Except as otherwise provided in this Section 2.8, any amounts owed by the Tax Indemnifying Party to the Tax Indemnified Party under this Section 2.8 shall be paid within ten business days of notice from the Tax Indemnified Party; provided that if such party has not paid such amounts and such amounts are being contested before the appropriate Governmental Authorities in good faith, the Tax Indemnifying Party shall not be required to make payment until it is determined finally by an appropriate Governmental Authority that payment is due, provided that the Tax Indemnifying Party posts appropriate security as necessary to protect such party from (i) the immediate imposition of a lien that arises or attaches from nonpayment after assessment and demand of such amounts, or (ii) seizures of assets. 11 2.9 Employee Plans and Compensation Arrangements. -------------------------------------------- 2.9.1 With respect to all of its group health plans, Seller shall retain full responsibility and liability for compliance with the continuation health care coverage requirements of Code Section 4980B and ERISA Sections 601 through 608 (the "CONTINUATION COVERAGE REQUIREMENTS") for all Qualifying Events within the meaning of Section 4980B(f)(3) of the Code and Section 603 of ERISA. On or after the Closing Date, Seller shall continue to comply with the Continuation Coverage Requirements with respect to all Qualifying Events affecting any current or former employees of the Company Entities and any qualifying beneficiary of such employees or former employees that occurred on or prior to the Closing Date. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code) harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to continuation coverage and arise as a result of any action or omission by Seller. 2.9.2 Seller shall cause the employment of any employees listed on SCHEDULE 3.18 who currently are receiving long-term disability benefit coverage under a long-term disability program previously sponsored by the Company Entities to be transferred to Seller or to one of its Affiliates prior to the Closing Date. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to such long-term disability benefit coverage or to any transfers of employment pursuant to this Section 2.9.2. 2.9.3 Prior to the Closing Date, Seller shall cause the Acquired Company and each of the other Company Entities to terminate any Employee Plans described on SCHEDULE 3.18 that provide medical or death benefit coverage to former employees of the Company Entities (the "RETIREE MEDICAL PLANS"), except to the extent required by Section 4980B of the Code, in a manner that precludes the imposition of any future liability on the Company Entities under such Retiree Medical Plans. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to the Retiree Medical Plans. Notwithstanding the foregoing, Seller shall assume the responsibility and liability for providing benefits under the Retiree Medical Plans with respect to employees of the Company Entities that terminated their employment on or prior to the Closing Date. 2.9.4 Prior to the Closing Date, Seller shall cause the Acquired Company to terminate the ADT Automotive Holdings, Inc. Executive Pension Plan (the "PENSION PLAN") in a 12 manner that precludes the imposition of any future liability on the Company Entities under such Pension Plan and to make full and final settlement with the Company Entities' employees and former employees with respect to all liabilities and obligations relating to their participation in the Pension Plan. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to the Pension Plan. 2.9.5 Prior to the Closing Date, Seller shall cause the Company Entities to terminate the employment of any employees of the Company Entities for whom Purchaser has provided notice that it does not intend to retain after the Closing Date, provided such notice shall be delivered to Seller in writing not less than 15 days prior to the Closing Date. With respect to such terminated employees, Seller shall make full and final settlement with any terminated employees listed on SCHEDULE 2.9.5 with respect to any severance and/or other benefits (the "SELLER SEVERANCE BENEFITS") owed under any Employee Plans or Compensation Arrangements sponsored by the Acquired Company, or any of the other Company Entities. Without regard to whether they are terminated prior to the Closing Date, Seller shall make full and final settlement with the employees listed on SCHEDULE 2.9.5 with respect to Seller Severance Benefits upon their termination of employment to the extent such employees are terminated within 12 months after the Closing Date. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to the Seller Severance Benefits. With respect to employees terminated under this Section 2.9.5 who are not listed on SCHEDULE 2.9.5, Purchaser shall cause the Company Entities to make full and final settlement with respect to any severance and/or other benefits (the "PURCHASER SEVERANCE BENEFITS") owed thereto under any Employee Plans or Compensation Arrangements sponsored by the Acquired Company, or any of the other Company Entities. Purchaser shall hold Seller and any entity required to be combined with Seller (within the meaning of Sections 414(b), (c), (m) or (o) of the Code) harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees, back pay, expenses and punitive, compensatory, liquidated and/or exemplary damages in connection with Seller's termination of such employees as requested by Purchaser, which relate to the Purchaser Severance Benefits, including but not limited to any liability that arises under the Workers Adjustment and Retraining Notification Act and any applicable state or local plant closing law. Purchaser's obligations and liabilities under this Section 2.9.5 shall not relate to any employees listed on SCHEDULE 3.18 who currently are receiving long-term disability coverage and who are covered by the provisions of Section 2.9.2, and shall not be applicable to any liability to provide benefits under the Retiree Medical Plans and the Pension Plan or to any liability under the bonus and incentive plans and programs referenced in Section 2.9.6. 13 2.9.6 Prior to the Closing Date, Seller shall cause the Company Entities to terminate any existing bonus and other incentive plans or programs, including deferred bonus plans or programs, that provide benefits to employees or former employees of the Company Entities, and to make full and final settlement with the Company Entities' employees and former employees with respect to all liabilities and obligations relating to their participation in such plans or programs. Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to such bonus and other incentive plans or programs. 2.9.7 After the Closing Date, Purchaser shall waive, or cause the Company Entities to waive, limitations on benefits relating to any pre-existing conditions under any welfare benefit plan in which the employees of the Company Entities participate immediately following the Closing Date. After the Closing Date, Purchaser shall recognize, or cause the Company Entities to recognize, expenses paid by employees of the Company Entities in the calendar year in which the Closing occurs under the medical and dental plans of the Company Entities for purposes of the annual deductible and out-of-pocket limitations applied in medical and dental plans that provide coverage to such employees immediately following the Closing Date to the extent such recognition is permissible under the medical and dental plans that provide coverage to such employees; provided that the obligation to recognize such expenses is contingent upon Seller providing to Purchaser documentation that indicates the amount of such expenses paid in the calendar year by the employees of the Company Entities prior to the Closing. 2.9.8 Purchaser shall grant and shall continue to grant, or shall cause the Company Entities to grant and continue to grant, to all employees of the Company Entities employed as of the Closing Date credit for all employment service with the Company Entities, to the extent that such service was credited under similar employee benefit plans, programs and arrangements that cover the employees as of the Closing Date, under the employee plans, programs and arrangements that cover such employees immediately following the Closing Date unless such credit is not permitted by applicable law or would result in the duplication of benefits; provided, that no such service credit shall be granted for purposes of benefit accruals or for determining eligibility for retiree medical benefits. 2.9.9 Purchaser shall cause the Company Entities to provide benefit coverage under the Employee Plans and Compensation Arrangements listed in SCHEDULE 3.18 for a period of three months after the Closing Date; provided that the obligation to provide such coverage shall not extend beyond December 31, 2000. Notwithstanding the foregoing, the obligation to provide coverage under such Employee Plans and Compensation Arrangements shall not apply to any plans or programs that provide equity-based compensation, including, but not limited to, 14 stock option or stock purchase plans, deferred compensation, bonus or incentive plans, severance plans or retirement welfare benefit plans. 2.9.10 Seller shall hold Purchaser and any entity required to be combined with Purchaser (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), including the Company Entities, harmless from and fully indemnify them against any costs, expenses, losses, damages and liabilities incurred or suffered by them directly or indirectly, including, but not limited to, reasonable attorneys' fees and expenses, which relate to the imposition of withdrawal liability, as defined under Section 4201 ET SEQ. of ERISA, under any Multiemployer Plan in existence as the Closing Date; provided, that Seller's liabilities and obligations hereunder shall be limited to that portion of any such withdrawal liability that is based on the employer contributions to any such Multiemployer Plan that are attributable to the aggregate number of employees for which the Company Entities or any one of them has an obligation to contribute to the Multiemployer Plan as of the Closing Date. 2.9.11 All representations, warranties, agreements, covenants and obligations made or undertaken by Seller in this Section 2.9 or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Purchaser and shall survive the Closing hereunder, and shall not merge in the performance of any obligation by any party hereto. Seller agrees, from and after Closing, to indemnify and hold Purchaser or any of Purchaser's Affiliates, including the Company Entities, and their respective successors and assigns, harmless from and against all Damages suffered or incurred by Purchaser or any of Purchaser's Affiliates, including any of the Company Entities, and their respective successors or assigns arising from, resulting from or relating to any misrepresentation by, or breach of any covenant, agreement or warranty, of Seller contained in this Section 2.9 or any certificate, schedule, document or instrument furnished by Seller pursuant thereto. It is understood and agreed by Seller that since the Acquired Company will be owned by Purchaser following the Closing, any recovery by Purchaser hereunder after Closing will be against Seller, who will have no right of reimbursement or contribution against the Acquired Company or any of the other Company Entities. Any examination, inspection or audit of the assets or business of the Company Entities conducted pursuant to this Section 2.9 shall in no way limit, affect or impair the ability of Purchaser, its successors or assigns to rely upon the representations, warranties, covenants and obligations of Seller set forth herein. 2.9.12 All representations, warranties, agreements, covenants and obligations made or undertaken by Purchaser in this Section 2.9 or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Seller and shall survive the Closing hereunder and shall not merge in the performance of any obligation by any party hereto. Purchaser agrees from and after Closing to indemnify and hold Seller harmless from and against all Damages suffered or incurred by Seller or any of Seller's Affiliates, and their respective successors or assigns arising from any misrepresentation by, or breach of any covenant or warranty of, Purchaser contained in this Section 2.9 or any certificate, document or instrument furnished by Purchaser pursuant thereto. 15 2.9.13 The indemnification provisions set forth in this Section 2.9 shall be separate and distinct from the provisions of Article 8 and shall not be subject to the limitations on indemnification obligations set forth therein; provided, however, that all claims for indemnification under this Section 2.9 shall be asserted and resolved in accordance with the procedures set forth in Section 8.3. 2.10 Conduct of Parties Prior to the Closing. Except as expressly contemplated by this Agreement or with the prior written consent of Purchaser, during the period from the date hereof to the Closing Date, Seller shall cause the Company Entities to maintain their business, properties and assets in good operating condition and repair and conduct the Business consistent with prior practice and in the ordinary and usual course of business and abide by the following affirmative and negative covenants. 2.10.1 Affirmative Covenants. Seller shall cause each of the Company Entities to: 2.10.1.1 continue its current efforts to preserve its business relationships with its employees, suppliers, distributors, advertisers, customers and others having business relationships with it; 2.10.1.2 maintain all existing insurance coverage with respect to the Company Entities and use the proceeds of any claims for loss payable under such insurance policies, plus such additional funds as may be required, to replace or restore any of the assets of the Company Entities destroyed by fire or other casualties to their former condition as soon as possible after the loss and prior to the Closing Date; 2.10.1.3 promptly notify Purchaser in writing of any unusual or material developments with respect to the business or operations of the Company Entities and of any material change in any of the information contained in the representations and warranties set forth in Article 3 or in the Schedules hereto; provided that such notification shall not relieve Seller of any obligations hereunder; and 2.10.1.4 furnish to Purchaser within 30 days after the end of each month ending between the date hereof and the Closing Date a statement of income and expense of the Acquired Company for the month just ended and such financial information (including information on payables and receivables) as Purchaser may reasonably request and which is prepared in the ordinary course of business. 2.10.2 Negative Covenants. Seller shall not permit the Company Entities to: 2.10.2.1 permit any material increase in the rate or terms of compensation payable or to become payable to employees of the Company Entities, including, without limitation, any Employee Plan or Compensation Arrangement, except increases occurring in accordance with customary practices which have been disclosed to Purchaser; 16 2.10.2.2 enter into, modify, amend, renew, extend, terminate or waive any right under any Contract or commitment involving total payments or expenditures to any single Person of more than $50,000 on any single Contract or commitment or $500,000 in the aggregate for all such Contracts or commitments; 2.10.2.3 release, cancel or assign any material indebtedness owed to them or waive any rights or claims having value, except rights or claims not in excess of $100,000 and waived in the ordinary course of business; 2.10.2.4 violate in any material respect any laws, ordinances, orders, injunctions or decrees applicable to the Business or the Company Entities; 2.10.2.5 do any act or fail to do any act which might result in the expiration, revocation, suspension or modification of any of the Material Licenses of the Company Entities, or fail to prosecute with due diligence any material applications to any Governmental Authority in connection with the operation of the Business of the Company Entities; 2.10.2.6 fail to collect the accounts receivable or to pay the accounts payable and other current liabilities of the Company Entities in any manner other than consistent with past practices; 2.10.2.7 suffer, create or assume any monetary Encumbrance or any material non-monetary Encumbrance with respect to the Business or the assets of the Company Entities, whether now owned or hereafter acquired; 2.10.2.8 sell, assign, lease, transfer or otherwise dispose of, or enter into any agreement for the sale, assignment, lease, transfer or disposition of, any material part of the Business or material assets of the Company Entities, except in the ordinary course of business and consistent with past practices and (i) in connection with the acquisition of equivalent replacement property or (ii) pursuant to transactions not exceeding $50,000 in the aggregate; 2.10.2.9 declare, set aside or pay any dividend or other distribution or payment (whether in cash, stock or property) in respect of shares of its capital stock owned by any Person, or purchase, redeem or otherwise acquire any of its capital stock or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; 2.10.2.10 permit or effect any change by any Company Entity in accounting or bookkeeping methods, principles or practices, except as required by GAAP, or elect to discontinue the filing of consolidated federal income tax returns pursuant to Code Section 1501; 2.10.2.11 permit or effect any borrowing of money, including, without limitation, any increase or extension of purchase money credit, swaps, collars, caps, hedges or 17 other agreements relating to the fixing of interest rates on indebtedness, by any Company Entity, or permit any increase in the liabilities of any Company Entity, other than current liabilities incurred in the ordinary course of business and consistent with past practices; 2.10.2.12 Subject to Section 2.3, enter into any inter-company transactions with Seller or any Affiliates or other operating units of Seller, other than in the ordinary course of business and consistent with past practices; 2.10.2.13 make, approve or permit any change in the Articles or Certificate of Incorporation or Bylaws or applicable governing instruments of each of the Company Entities, or in their authorized, issued or outstanding securities; 2.10.2.14 issue, sell or grant shares of capital stock, options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of any of the capital stock of the Company Entities or rights or obligations convertible into or exchangeable for any shares of capital stock of the Company Entities and not make any changes (by split-up, stock dividend, combination, reorganization or otherwise) in the capital structure of the Company Entities; 2.10.2.15 make any material increase in the size of the workforce employed by Seller or any of the Company Entities; 2.10.2.16 enter into, modify, amend, renew, extend, terminate or waive any rights under any collective bargaining agreement; or 2.10.2.17 voluntarily recognize any union or other collective bargaining agent as the representative of any of the employees of Seller or any of the Company Entities for purposes of collective bargaining, except as may be required by law. 2.11 Brokers. Purchaser shall pay Chase Securities Inc. and agrees to indemnify and hold harmless the Acquired Company and Seller against any fee, loss or expense arising out of any claim by any other broker or finder employed or alleged to have been employed by it, and Seller shall pay Donaldson, Lufkin & Jenrette Securities Corporation and agree to indemnify and hold harmless Purchaser against any fee, loss or expense arising out of any claim by any other broker or finder employed or alleged to have been employed by Seller or any of its Affiliates, including the Acquired Company. The indemnification provisions of this Section 2.11 shall be separate and distinct from the provisions of Article 8 and shall not be subject to the limitations on indemnification obligations set forth therein. 2.12 Publicity. Except as otherwise required by law or regulation, none of the parties hereto shall issue any press release or make any other public statement, in each case relating to or connected with or arising out of this Agreement or the matters contained herein, without obtaining the prior written approval of Purchaser and Seller to the contents and the manner of 18 presentation and publication thereof. The parties agree to cooperate and seek the other party's comment with respect to any disclosures required by law. 2.13 No Shop. None of Seller, the Company Entities, their Affiliates or any agent or representative of any of them will, during the period commencing on the date of this Agreement and ending with the earlier to occur of the Closing or the termination of this Agreement in accordance with Article 9 below, directly or indirectly, (i) solicit or initiate the submission of proposals or offers from any Person for; (ii) participate in any discussions pertaining to or (iii) furnish any information to any Person other than Purchaser relating to any direct or indirect acquisition or purchase of all or any portion of the capital stock or assets of any of the Company Entities. Seller and the Acquired Company shall promptly notify Purchaser if either receives an unsolicited offer from any Person relating to any direct or indirect acquisition or purchase of all or any portion of the capital stock or assets of any of the Company Entities. 2.14 Redemption or Repurchase of Preferred Stock. Anything in this Agreement to the contrary notwithstanding, prior to Closing, Seller shall (i) cause the Acquired Company to redeem or repurchase for cash paid in full all of the shares of 7.25% cumulative preferred stock, par value $10,000 per share (the "PREFERRED STOCK"), of the Acquired Company owned by Tyco Holding II, ApS, a Danish corporation (the "PREFERRED STOCKHOLDER") in accordance with the Certificate of Incorporation of the Acquired Company, (ii) cause the Acquired Company to declare and pay all dividends and interest payable with respect to the Preferred Stock, and (iii) make all capital contributions necessary in order to fund the payments contemplated by clauses (i) and (ii) of this Section 2.14, in each case with respect to the actions contemplated by clauses (i), (ii) and (iii) of this Section 2.14, (A) without any residual or continuing obligation or liability on the part of any of the Company Entities, (B) no Company Entity shall issue equity to an entity that is not in the Selling Group as a result of such action, and (C) so that immediately prior to Closing, all of the issued and outstanding capital stock of the Acquired Company shall be held by Seller. The redemption or repurchase of the Preferred Stock, including, without limitation, any amounts paid or payable with respect to the redemption or repurchase of the Preferred Stock or the payment of dividends and interest with respect thereto pursuant to this Section 2.14, shall not be taken into account in Working Capital. 2.15 Access to Books and Records. --------------------------- 2.15.1 Between the date of this Agreement and the Closing Date, Seller will cause the Company Entities to allow Purchaser, its counsel and other representatives and agents access to the books, records, files, documents, assets, properties, contracts and agreements, including, without limitation, any personnel records or any environmental studies, title policies or surveys relating to the Real Property, of the Company Entities as Purchaser may reasonably request. In the event that Purchaser desires to obtain title commitments or environmental audits of the Real Property owned by the Company Entities, Seller shall also, and shall cause the Company Entities to, assist Purchaser in obtaining such commitments or audits, including by delivering a "non-imputation" endorsement to the effect that the title defects known to the 19 officers, directors and shareholders of the Company Entities shall not be deemed "facts known to the insured" for purposes of the title insurance policy. Purchaser will conduct any investigation in a manner that will not unreasonably interfere with the business of the Company Entities. Purchaser will treat as confidential all confidential information disclosed to it or its representatives in connection with Purchaser's investigation of the Company Entities, except as otherwise required by law. 2.15.2 After the Closing Date, Purchaser shall, upon request of Seller, and with reasonable notice to Purchaser, in connection with the preparation by Seller of financial statements and tax returns and for such other purposes as Seller shall reasonably request (but only with respect to operations of the Company Entities prior to Closing), (i) provide to Seller reasonable access, during normal business hours, to files, books, records, documents and other information of the Company Entities (and, at Seller's expense, copies thereof), (ii) cause its officers and personnel and the Acquired Company to furnish to Seller any and all financial and operating data and other information pertaining to the Company Entities, and (iii) make available, for consultation with Seller, personnel of Purchaser and of the Acquired Company having access to such information and documents. In exercising its rights under this Section 2.15, Seller and its representatives shall not interfere with the Company Entities' normal operations. Purchaser shall retain the files, books, records and documents of the Acquired Company, and comply with the aforesaid provisions, for at least three years after the Closing Date. Seller acknowledges and agrees that any and all information to which it is granted access pursuant hereto shall be the subject of the confidentiality provisions set forth and contained in the Non-Competition Agreement. 2.16 Confidentiality. Cox Enterprises, Inc. and U.S. Parent are parties to a letter agreement, dated December 20, 1999 (the "CONFIDENTIALITY AGREEMENT"). Notwithstanding the execution, delivery and performance of this Agreement, or the termination of this Agreement prior to Closing, the Confidentiality Agreement shall remain in full force and effect in accordance with its terms, but shall expire concurrently with the Closing hereunder. 2.17 Certain Post-closing Environmental Procedures. --------------------------------------------- 2.17.1 From and after Closing, with respect to environmental liabilities or breaches of representations set forth in Section 3.14, Purchaser shall provide written notice to Seller, specifying the nature of and basis for such environmental liability or breach, and Seller shall have the option to control the resolution of any remedial action relating thereto, including, without limitation, the performance of any tests, reports, investigations or any other activities relating to such remedial action and contacting Governmental Authorities, making any reports to such Governmental Authorities, submitting any remedial action plans to such Governmental Authorities and negotiating with such Governmental Authorities; provided that, in addition to the provisions set forth in Section 2.17.4 below, Seller agrees (i) to provide Purchaser, in advance, with a reasonably detailed description of any such proposed remedial action and a reasonable period of time, given the specific circumstances, to permit Purchaser to comment on such 20 proposed activity, and Seller agrees to consider in good faith any such comments, (ii) to perform any such remedial action in a reasonably prudent manner to avoid any harm to the environment or to human health and safety, to comply with all laws, including Environmental Laws, to obtain and maintain all necessary permits, financial assurances and insurance and to obtain their own EPA Identification Number (if practicable), arrange for disposal and be identified on manifests as the "generator" (if practicable), of all Hazardous Materials generated from or otherwise arising out of any such remedial action, (iii) to perform all actions reasonably necessary to remove or remediate the Hazardous Materials, contamination or environmental degradation arising out of or relating to the indemnification claim and to bring the facility or property into compliance with all Environmental Laws with respect to such Hazardous Materials, contamination or degradation and agree to obtain written governmental approval confirming that no further actions are required with respect to such Hazardous Materials, contamination or degradation, and (iv) not to perform any remedial action in a manner which is reasonably likely to reduce the value of or materially alter the use of the Real Property. Purchaser and Seller agree that the use of the Real Property as of the Closing Date shall be the appropriate property classification to be used in determining which actions are reasonably necessary pursuant to clause (iii) above with respect to such Real Property. Notwithstanding the foregoing, Seller must provide Purchaser with written notice within ten days of their receipt of Purchaser's notice pursuant to this Section 2.17.1 whether or not they desire to control the resolution of such remedial action, and, if no such written notice is received by Purchaser within such ten-day period, Purchaser shall have the option to control the resolution of such remedial action. 2.17.2 From and after Closing, Purchaser agrees that, without Seller's prior consent, it shall not, and it shall not permit any of its directors, officers, employees and agents to, voluntarily perform any environmental testing of the soil or groundwater at any Real Property that may reasonably be expected to lead to the identification of any contamination thereof, unless and to the extent (i) required by any law (including any Environmental Law), any applicable Governmental Authority or in connection with any third party claim, (ii) the performance of such testing would reasonably be expected to decrease the risk or scope of injury to human health or the environment in the event of an emergency or (iii) subject to providing Seller with advance written notice and a reasonably detailed description of the planned environmental testing, as reasonably necessary to permit a financing, sale, closure, lease, sublease, lease or sublease termination or assignment or other disposal of a facility or Real Property or a business including any facility or Real Property. 2.17.3 Except as contemplated by Section 2.17.2 above, Purchaser and Seller each agree to maintain in strict confidence all information concerning any environmental matters of any Company Entity. If any Environmental Law requires Seller to disclose any such information, Seller agrees to promptly notify Purchaser of such requirement and to give Purchaser the opportunity to review and comment in advance upon the content and timing of any disclosures that Seller propose to make. 21 2.17.4 Purchaser and Seller agree that each shall, in connection with any activities they each undertake in connection with this Section 2.17 or otherwise, (i) provide or be provided with reasonable access to employees with relevant facts about such activities, (ii) provide copies of any material documents to the other parties and a reasonable opportunity to comment on such documents, (iii) keep the other parties reasonably informed relating to the progress of such activities, (iv) where applicable, select counsel, contractors and consultants of recognized standing and competence after consultation with the other parties, (v) take all steps necessary in the defense of any claims which are the subject of such activities, (vi) at all times diligently and promptly pursue the resolution of any claims which are the subject of such activities, (vii) allow the other parties to participate in any communications or proceedings involving any Governmental Authority or any other Person and consult with the other parties hereto as to the manner of managing or resolving such communications or proceedings, in each case, except to the extent necessary to protect attorney-client privilege or attorney work product and (viii) use reasonable efforts to avoid unreasonable interference with the other parties' normal business operations. 2.18 Certain Intellectual Property Matters. ------------------------------------- 2.18.1 At Closing, Seller shall cause ADT Service AG, a Swiss corporation ("LICENSOR"), to enter into a license agreement with Purchaser (the "ADT LICENSE AGREEMENT"), substantially in the form of EXHIBIT F attached hereto, pursuant to which Licensor will license to Purchaser and/or one or more Company Entities the trademark and trade name "ADT," on a non-exclusive, fully-paid basis, for a period of ten years. 2.18.2 Seller represents that U.S. Patent No. 5,774,873 granted to Berent et al. on June 30, 1998 (the "PATENT") has been assigned to and is currently owned by ADT Automotive, Inc., one of the Company Entities. Purchaser agrees that if at any time during the grant period of the Patent, Purchaser intends to initiate an infringement action against any third party to enforce the Patent (an "ENFORCEMENT ACTION"), Purchaser shall, at least 30 days prior to the institution of an Enforcement Action, provide written notice to Seller of such determination (the "NOTICE"), and Seller shall have the right, exercisable by written notice of such election (the "ELECTION NOTICE") delivered to Purchaser within 30 days of Seller's receipt of the Notice, to elect to participate in such Enforcement Action. Purchaser agrees to provide Seller such information as it has in its possession relating to such proposed Enforcement Action as Seller may reasonably request. If Seller delivers the Election Notice to Purchaser within such 30-day period, Seller shall be entitled to 50% of any lump-sum settlement payments or royalty payments resulting from the Enforcement Action; provided, however, that Seller shall also bear 50% of all costs and expenses incurred with respect to such Enforcement Action, including, without limitation, attorneys' fees, expert witness fees and court costs, such payments to be made on an ongoing basis by Seller promptly upon receipt of written notice from Purchaser of the amount of such costs and expenses (together with appropriate supporting documentation). Purchaser shall periodically keep Seller apprised of the status of any Enforcement Action in which Seller has elected to participate. The parties acknowledge and agree (i) that the decision to initiate an 22 Enforcement Action shall be entirely at Purchaser's discretion, (ii) that Purchaser shall be under no obligation to enforce the Patent against any third party or restricted, in any way whatsoever, from granting exclusive or nonexclusive licenses of the inventions subject of the Patent, whether to affiliated or unaffiliated parties, and (iii) Purchaser shall control the Enforcement Action, including, without limitation, the selection of counsel and venue and the determination of any settlement with respect to any such Enforcement Action. If Seller fails to deliver the Election Notice to Purchaser within the required 30-day period, Seller shall have no rights or responsibilities with respect to such Enforcement Action. 2.19 Insurance Claims. After Closing, Seller shall maintain responsibilityfor and administrative control of all insurance claims resulting from occurrences or losses prior to the Closing Date. 3. Representations and Warranties of Seller. ---------------------------------------- Seller represents and warrants to Purchaser, as of the date hereof and as of the Closing Date, as follows (any representation made "to the knowledge of Seller" shall be deemed a representation made to the knowledge of Seller and the Company Entities): 3.1 Organization, Standing and Foreign Qualification. Seller and each of the Company Entities is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as set forth in SCHEDULE 3.1. SCHEDULE 3.1 sets forth a list of all Subsidiaries of the Acquired Company and their respective jurisdictions of organization and identifies the Acquired Company's direct or indirect percentage ownership interest therein. Each of the Company Entities has all corporate, partnership or other similar powers required to carry on its business as now conducted, except for such matters as would not have a Material Adverse Effect. Seller and each of the Company Entities is duly qualified and licensed to do business as a foreign corporation or other foreign legal entity and are in good standing in each jurisdiction where such qualification and/or licensing is necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect. Complete and correct copies of each Company Entity's articles or certificate of incorporation and bylaws or other applicable governing instruments, all as amended to date, and of the stock ledgers of each Company Entity have been delivered to Purchaser. 3.2 Authority and Status. Seller has the full corporate power and authority to execute and deliver this Agreement and all other agreements, instruments and certificates contemplated hereby and thereby (collectively, the "RELATED AGREEMENTS") to be executed and delivered by it, to carry out and perform its obligations under the terms of this Agreement and the Related Agreements to be executed and delivered by it and to consummate the transactions contemplated hereby and thereby, without the necessity of any act, approval or consent of any other Person whomsoever. All corporate action on the part of Seller and its directors and shareholders necessary for the authorization, execution, delivery and performance by Seller of this Agreement and the Related Agreements to be executed and delivered by Seller has been taken. This 23 Agreement and the Related Agreements to be executed and delivered by Seller constitute or will, when executed and delivered by Seller, constitute the valid and legally binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws from time to time in effect affecting the enforcement of creditors' rights generally and except as enforcement of remedies may be limited by general equitable principles. 3.3 Capitalization. -------------- 3.3.1 SCHEDULE 3.3.1 sets forth the authorized, issued and outstanding capital stock of the Acquired Company and each of the other Company Entities, and no shares are held in the treasury of any of the Company Entities. All of the issued and outstanding shares of capital stock of the Acquired Company are owned by Seller, free and clear of all Encumbrances and preemptive or other rights or options of any nature whatsoever, and the authorization of no other Person is required in order to consummate the transactions contemplated by this Agreement by virtue of any such Person having an equitable or beneficial interest in the Acquired Company. All of the outstanding shares of capital stock of, or other equity or voting interest in, the Company Entities (other than the Acquired Company) are owned by the Acquired Company or another Company Entity free and clear of all Encumbrances and preemptive or other rights or options of any nature whatsoever, and the authorization of no other Person is required in order to consummate the transactions contemplated by this Agreement by virtue of any such Person having an equitable or beneficial interest in any Company Entity. All of the Shares and the issued and outstanding capital stock of the Company Entities are duly authorized, validly issued, fully paid and nonassessable. Except for this Agreement, there are no (i) outstanding subscriptions, options, warrants, calls, demands, commitments, plans or agreements to issue any additional shares of any of the Company Entities' capital stock or to pay any dividends on such shares, or to purchase, redeem or retire any outstanding shares of its capital stock, (ii) outstanding stock appreciation rights, phantom stock rights or other instruments or obligations of any Company Entity which depend, in whole or in part, on the value of any of the capital stock of any Company Entity or the business or financial performance or asset value of any Company Entity, or (iii) outstanding securities or obligations which are convertible into or exchangeable for any shares of capital stock of any of the Company Entities. 3.3.2 All issuances, transfers or purchases of the capital stock of each of the Company Entities have been effected in compliance with all applicable agreements and all applicable laws, including federal and state securities laws, and all Taxes thereon, if any, have been paid. No former or present holder of any of the Shares or any other capital stock of any of the Company Entities has any legally cognizable claim against Seller or any of the Company Entities based on any issuance, sale, purchase, redemption or involvement in any transfer of any Shares or any such other capital stock by any of the Company Entities. 3.4 Absence of Equity Investments. Except as described in SCHEDULE 3.4 hereto (the "INVESTMENT INTERESTS"), none of the Company Entities owns or has the right or obligation to 24 acquire voting securities or other ownership interests in any other Person, other than the Company Entities. The Investment Interests are owned free and clear of any and all Encumbrances, other than Encumbrances described in SCHEDULE 3.4 or arising pursuant to the governing instruments of such Persons in which the Company Entities own such Investment Interests. 3.5 Liabilities and Obligations of the Company Entities. --------------------------------------------------- 3.5.1 Attached hereto as SCHEDULE 3.5.1 are true, correct and complete copies of the consolidated balance sheets of the Company Entities as of September 30, 1997, 1998 and 1999, and the related statements of income for the years then ended, and the consolidated balance sheet of the Company Entities as of December 24, 1999, and the related statement of income for the three months then ended (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements are correct and complete, are in accordance with the books and records of the Company Entities, have been prepared in accordance with GAAP, consistently applied, and fairly present the financial position and results of operations of the Company Entities as of the respective dates and for the respective periods presented therein (subject to normal recurring year-end adjustments which are not, and are not expected to be, material in amount and except for the absence of footnotes). 3.5.2 None of the Company Entities has any actual or potential liability or obligation related to its assets, business, operations or financial condition (whether accrued, absolute, contingent or otherwise) which is of a nature required to be reflected in financial statements prepared in accordance with GAAP, consistently applied, including, without limitation, any liability that might result from an audit of its Tax Returns by any appropriate Governmental Authority, except for (i) the liabilities and obligations of the Company Entities which are disclosed or reserved against in the Financial Statements or disclosed on SCHEDULE 3.5.2 hereto, to the extent and in the amounts so disclosed or reserved against, and (ii) liabilities incurred or accrued in the ordinary course of business since the date of the most recent Financial Statements, and which do not, either individually or in the aggregate, have (and would not reasonably be expected to have) a Material Adverse Effect. 3.5.3 Except as set forth in SCHEDULE 3.5.3, none of the Company Entities is in default in any material respect with respect to any liabilities or obligations which are related to the assets, business or operations of the Company Entities. 3.6 Tax Matters. ----------- 3.6.1 Seller has filed or has caused to be filed in a timely manner all required Tax Returns of the Company Entities with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed by the Company Entities (except Tax Returns for which the filing date has not expired or has been extended and such extension period has not expired), and all Taxes shown on such Tax Returns have been properly accrued or 25 paid to the extent such Taxes have become due and payable. SCHEDULE 3.6 lists all jurisdictions where Tax Returns are required to be filed with respect to the Company Entities. Except as set forth in SCHEDULE 3.6, the Financial Statements reflect an adequate reserve in accordance with GAAP (without regard to any amounts reserved for deferred taxes) for all unpaid Taxes payable by the Company Entities for all Tax periods and portions thereof through the date of such Financial Statements. Except as disclosed in SCHEDULE 3.6, Seller has not, and none of the Company Entities has, executed any waiver or extension of any statute of limitations on the assessment or collection of any Tax or with respect to any liability arising therefrom. Except as disclosed in SCHEDULE 3.6, none of the federal, state or local income Tax Returns filed by or on behalf of the Company Entities are currently being audited by any taxing authority, and there are no other examinations, requests for information or other administrative or judicial proceedings pending with respect to Taxes of the Company Entities. Except as disclosed in SCHEDULE 3.6, (i) neither the Internal Revenue Service nor any other taxing authority has asserted any deficiency or claim for additional Taxes against, or any adjustment of Taxes relating to, any of the Company Entities, and (ii) there are no proposed reassessments of any property owned by any of the Company Entities that would affect the Taxes of any of the Company Entities. None of the Company Entities has any liability for the Taxes of any Person (other than the members of the Selling Group) pursuant to Section 1.1502-6 of the Treasury Regulations promulgated under the Code or comparable provisions of any taxing authority in respect of a consolidated, combined or unitary Tax Return. There are no Tax liens on any assets of the Company Entities, other than liens for current Taxes not yet due and payable without penalty and liens for Taxes that are being contested in good faith by appropriate proceedings. 3.6.2 Except as disclosed in SCHEDULE 3.6, none of the Company Entities has been at any time a member of any partnership, joint venture or other arrangement or contract which is treated as a partnership for federal, state, local or foreign tax purposes or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Tax has not expired. 3.6.3 As of the Closing, there will be no tax sharing agreements or similar arrangements with respect to or involving any of the Company Entities. 3.7 Personal Property. All of the tangible assets material to the operations of the Company Entities are in good operating condition and repair (ordinary wear and tear excepted), are performing satisfactorily and are available for immediate use in the conduct of the Business of the Company Entities as presently conducted. 3.8 Bank Accounts. Set forth and described on SCHEDULE 3.8 hereto is a complete list of all bank accounts and safe deposit boxes of the Company Entities, all powers of attorney in connection with such accounts and the names of all persons authorized to draw thereon or to have access thereto. 26 3.9 Consents and Approvals; Noncontravention. ---------------------------------------- 3.9.1 Except as set forth on SCHEDULE 3.9 and except for compliance with any applicable requirements of the HSR Act, there is no requirement applicable to Seller or any Company Entity to make any filing with, or to obtain any permit, authorization, consent or approval of, any Governmental Authority as a condition to the lawful consummation by Seller of the sale of the Shares and to enable Purchaser to hold the Shares and conduct the full operation of the Business as presently conducted by the Company Entities pursuant to this Agreement. 3.9.2 Except as set forth on SCHEDULE 3.9, the execution, delivery and performance of this Agreement by Seller do not, and the consummation of the transactions contemplated hereby will not (with or without the giving of notice, the lapse of time or both), (i) conflict with or result in any breach of any provision of the Articles or Certificate of Incorporation, Bylaws or other applicable governing instruments, each as amended to date, of Seller or any of the Company Entities; (ii) violate, result in a breach of or constitute an occurrence of default under any provision of, or conflict with, or result in acceleration of any obligation under, or give rise to a right by any party to terminate its obligations under, or result in the creation or imposition of any Encumbrance upon the property of any Company Entity pursuant to any provision of, any Material Contract; or (iii) violate any Material License or any applicable law, rule, regulation, order, writ, judgment, ordinance, injunction or decree of any Governmental Authority to which any Company Entity or Seller is a party or is bound or by which the assets or business of the Company Entities are affected. 3.10 Absence of Changes. Since September 30, 1999, none of the Company Entities has, except as otherwise expressly provided in this Agreement or disclosed on SCHEDULE 3.10: 3.10.1 transferred, assigned, conveyed or liquidated any of the assets of the Company Entities or entered into any transaction or incurred any liability or obligation that materially affects the business, operations or financial condition of the Company Entities other than in the ordinary course of its business; 3.10.2 suffered any material adverse change in the business, operations or financial condition of any of the Company Entities or become aware of any event or state of facts that may reasonably be expected to result in any such material adverse change; 3.10.3 suffered any physical destruction, damage or loss, materially and adversely affecting the assets of any Company Entity, whether or not covered by insurance; 3.10.4 incurred the imposition of any Encumbrance or claim upon any of the material assets of any Company Entity, except for any current year lien with respect to personal or real property Taxes not yet due and payable and except for liens of suppliers, lessors and others reflected by Working Capital; 27 3.10.5 committed or permitted any default in any liability or obligation which has had or will have a Material Adverse Effect; 3.10.6 declared, promised or made any distribution or other payment from the assets of any Company Entity to Seller (except for cash distributed to Seller in accordance with Seller's cash-consolidation practices which are reflected as inter-company receivables to Company Entities) or issued any additional shares or rights, options or calls with respect to any Company Entity's capital stock, or redeemed, purchased or otherwise acquired any of any Company Entity's capital stock, or made any change whatsoever in any Company Entity's capital structure; 3.10.7 except in the ordinary course of business and consistent with past practices, paid, agreed to pay or incurred any obligation for any payment for, any contribution or other amount to, or with respect to, any Employee Plan or Compensation Arrangement, or paid any bonus to, or granted any increase in the compensation of, any Company Entity's directors, officers, agents or employees, or made any increase in the pension, retirement or other benefits of its directors, officers, agents or other employees; 3.10.8 changed its accounting methods, practices or principles; or 3.10.9 incurred any other material liability or obligation or entered into any transaction, in each case other than in the ordinary course of business. 3.11 Litigation. Except as otherwise set forth in SCHEDULE 3.11 hereto, there is no suit, action, proceeding, claim or investigation pending or, to the best knowledge of Seller, threatened against or affecting any Company Entity. None of the items described in SCHEDULE 3.11, singly or in the aggregate, would (if determined adversely to any Company Entity) have a material adverse effect on the assets, Business, operations or financial condition of the Company Entities, or the right of Seller to consummate the transactions contemplated hereby. 3.12 Licenses and Permits; Compliance With Law. Each of the Company Entities holds all material licenses, certificates, permits, franchises and rights (the "MATERIAL LICENSES") from all appropriate federal, state or other Governmental Authorities required for the conduct of the Business as currently conducted by the Company Entities, and none of the Material Licenses is subject to any restriction or condition which would limit the full operation of the Business of the Company Entities as presently operated. All of the Material Licenses are listed on SCHEDULE 3.12. Except as noted in SCHEDULE 3.12, each of the Company Entities is presently conducting the Business so as to comply in all material respects with all applicable statutes, ordinances, rules, regulations, laws and orders of any Governmental Authority. Further, none of the Company Entities is presently charged with, nor to the best knowledge of Seller, is under governmental investigation with respect to, any actual or alleged violation of any statute, ordinance, rule or regulation, nor is presently the subject of any pending or threatened adverse proceeding by any Governmental Authority having jurisdiction over the assets or Business of the 28 Company Entities. Neither the execution nor delivery of this Agreement, nor the consummation of the transactions contemplated hereby will result in the termination of any Material License held by the Company Entities. 3.13 Real Property. ------------- 3.13.1 SCHEDULE 3.13 lists all Real Property owned or leased by any of the Company Entities and used or held for use in the Business, indicating in each case whether the property is owned or leased. The Real Property disclosed on SCHEDULE 3.13 includes all real property or interests therein necessary to conduct lawfully the Business as presently conducted. Except as otherwise set forth on SCHEDULE 3.13, all of the Real Property (including the improvements thereon) has full legal and practical access to public roads or streets and is supplied in all material respects with all utilities and other services, including gas, electricity, water, telephone, sanitary sewer and storm sewer, necessary for the conduct and operation of the Business of the Company Entities as now conducted, all of which services are adequate in accordance in all material respects with all applicable laws, ordinances, rules and regulations and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting the Real Property. Except as otherwise set forth on SCHEDULE 3.13, all improvements, installations, equipment and facilities made by or constructed for any of the Company Entities or utilized in connection with the Company Entities were constructed and are maintained, placed and located in compliance in all material respects with all applicable federal, state or other statutes, laws, ordinances, regulations, rules, codes, orders, deeds, easements, restrictions, leases, licenses, permits or other arrangements or requirements (including, but not limited to, any building, zoning or Environmental Laws or codes) affecting such premises and are located entirely on the Real Property, and none of the Real Property is located within any flood plain. 3.13.2 Except as otherwise set forth on SCHEDULE 3.13, with respect to each leasehold interest included in the Real Property, neither the Company Entity holding such interest nor the landlord is in default under any agreement relating thereto (nor, to the knowledge of Seller, is any other party thereto), and such leasehold interest (i) is valid, subsisting and in full force and effect; (ii) is free and clear of all Encumbrances of any nature whatsoever, and without reservation or exclusion of any mineral, timber or other rights or interests, except for (a) liens for real estate Taxes not yet due and payable, (b) easements, rights-of-way and restrictions of record, all of which, to the knowledge of Seller, are described in SCHEDULE 3.13, and (c) statutory liens in favor of landlords with respect to rent not yet due and payable, (d) any other claims or Encumbrances which are described in SCHEDULE 3.13 and annotated to indicate whether such claims or Encumbrances will be removed prior to or at Closing, and (e) those non-monetary Encumbrances which do not, individually or in the aggregate, materially interfere with the use of such Real Property or materially detract from its value; and (iii) will at Closing include enforceable rights to nondisturbance with respect to all prior Encumbrances and peaceful and quiet enjoyment, so long as the Company Entity party thereto fulfills its obligations under the lease and/or mortgage therefor. 29 3.13.3 Except as otherwise set forth on SCHEDULE 3.13, all Real Property (including the improvements thereon) (i) is in good condition and repair in accordance with normal and customary industry practices (excepting ordinary wear and tear), (ii) is available for immediate use in the conduct of the business or operations of the Company Entities and (iii) complies in all material respects with all applicable building, safety and zoning codes and the regulations of any Governmental Authority having jurisdiction. Except as otherwise set forth on SCHEDULE 3.13, none of the Real Property or buildings or improvements thereon are subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications. There are no condemnation proceedings or eminent domain proceedings, lawsuits or legal proceedings of any kind pending or, to the knowledge of Seller, threatened in connection with any of the Real Property. The Real Property and the present use and condition thereof do not violate in any material respect any applicable deed restrictions or other covenants, restrictions, agreements, existing site plan approvals, or in any material respect, any zoning or subdivision regulations or urban redevelopment plans applicable to the Real Property as modified by any duly issued variances, and no permits, licenses or certificates pertaining to the ownership or operation of the Real Property, other than those which are transferable with the Real Property and the Material Licenses, are required by any Governmental Authority having jurisdiction over the Real Property or their operation. Except as otherwise set forth on SCHEDULE 3.13, the Company Entities have paid, or shall have paid prior to Closing, all amounts owing by any of the Company Entities to any architect, contractor, subcontractor or materialman for labor or materials performed, rendered or supplied to or in connection with any Real Property. SCHEDULE 3.13 sets forth a true and complete list of all construction, architect, engineering and other agreements, if any, relating to uncompleted construction projects entered into by any of the Company Entities in connection with any Real Property involving amounts in excess of $250,000. 3.14 Environmental Matters. --------------------- 3.14.1 Except as disclosed on SCHEDULE 3.14 hereto, (i) each Company Entity's operations with respect to the Business and all Real Property has complied and currently complies in all material respects with all applicable Environmental Laws; (ii) none of the Company Entities' operations thereon are subject to any judicial or administrative proceeding alleging the violation of any Environmental Law; (iii) to the knowledge of Seller, none of the Real Property is the subject of any federal or state investigation concerning any use or release of any Hazardous Material; (iv) neither Seller or any Company Entity nor, to the knowledge of Seller, any predecessor-in-title to the Real Property has filed any notice under any federal or state law indicating past or present treatment, storage or disposal of a hazardous waste or reporting a spill or release of a Hazardous Material into the environment; (v) none of the Company Entities has any material contingent liability in connection with any release of any Hazardous Material into the environment, and no release which could require material remediation has occurred; (vi) none of the operations of the Company Entities on the Real Property involves the generation, transportation, treatment, storage or disposal of Hazardous Materials of "Reportable Quantity" (as defined by CERCLA); and (vii) except in accordance in all material respects with all legal requirements, none of the Company Entities has disposed of any Hazardous Material of 30 Reportable Quantity in, on or about the Real Property and, to the knowledge of Seller, neither has any lessee, prior owner or other Person. 3.14.2 Except as disclosed in SCHEDULE 3.14, there are no surface impoundments or above ground or underground storage tanks located in, on or about the Real Property. 3.15 Contracts, Etc. All Material Contracts are listed in SCHEDULE 3.15 hereto, and the Company Entities and Seller have delivered to Purchaser a true and complete copy of each such Material Contract. All of the Material Contracts are valid and binding upon the Company Entity that is party thereto, and, to the best knowledge of Seller, the other parties thereto and are in full force and effect. Except as set forth on SCHEDULE 3.15 hereto, there is no existing material default, event of default or other event with respect to the Material Contracts to which any of the Company Entities is a party or by which any Company Entity or its properties is bound which, with or without due notice or lapse of time or both, would constitute a material default or event of default on the part of any of the Company Entities. 3.16 Patents, Trademarks, Trade Names, Etc. SCHEDULE 3.16 hereto sets forth a complete and correct list of all trademarks, trade names, service marks, service names, brand names, copyrights, patents, privileges, domain names, url's and other similar intangible property rights and interests, registrations thereof and applications therefor used or useful in the conduct of the business of the Company Entities (collectively, the "PATENT AND TRADEMARK RIGHTS"), together with a complete list of all licenses granted by or to the Company Entities with respect to any of the above other than the ADT License Agreement. The Patent and Trademark Rights are sufficient to conduct the business of each of the Company Entities as it is now being conducted. The Company Entities' right, title and interest in and to the Patent and Trademark Rights are valid and enforceable and uncontested and will be owned or available for continued use by the Company Entities after the Closing. No claims, notices, oppositions or demands have been asserted by any third party with respect to any of the items listed in SCHEDULE 3.16, and no Person has interfered with, infringed upon, misappropriated, acted adversely to or otherwise come into conflict with the rights of any of the Company Entities in any of such items. To the best knowledge and belief of Seller, none of the Company Entities has interfered with, infringed upon, misappropriated, acted adversely to or otherwise come into conflict with any trademarks, trade names, copyrights, patents, patent applications, know-how, methods or processes owned by any other Person or Persons, and there is no claim or action pending or, to the knowledge of Seller, threatened with respect thereto. 3.17 Labor Matters and Employee Relations. Attached hereto as SCHEDULE 3.17 is a list of all current employees of the Company Entities with an annual base salary in excess of $50,000, including their titles and annual wages, salary and bonus information. Except as otherwise set forth on SCHEDULE 3.17 hereto: 3.17.1 Neither Seller nor any of the Company Entities has received notice (or has knowledge) that any present or former employee, or union or other collective bargaining agents 31 claiming to represent any employee, of the Company Entities has advanced a claim in writing or orally against any Company Entity (whether under any foreign, federal, state or common law, through any Governmental Authority, under an employment agreement, collective bargaining agreement, personal service or independent contractor agreement or otherwise) that is currently pending or threatened, including without limitation, any claim for (i) overtime pay, other than overtime pay for the current period; (ii) wages, salaries or profit sharing (excluding wages, salaries or profit sharing for the current payroll period); (iii) vacations, time off (including, without limitation, potential sick leave) or pay in lieu of vacation or time off, other than vacation or time off (or pay in lieu thereof) earned in respect of any Company Entity's current fiscal year; (iv) any violation of any statute, ordinance or regulation relating to minimum wages or maximum hours of work; (v) discrimination against employees on any basis; (vi) unlawful employment or termination practices; (vii) unfair labor practices or alleged violations of collective bargaining agreements; (viii) any violation of occupational safety and/or health standards; (ix) benefits under any Employee Plan or Compensation Agreement; (x) breach of any employment, personal service or independent contractor agreement; or (xi) the misclassification of employees as independent contractors. 3.17.2 Except as set forth in SCHEDULE 3.17, within the past five years, none of the Company Entities has been the subject of any union organizing activity or labor dispute, nor has there been any strike, slowdown, picketing or work stoppage of any kind called, or, to the knowledge of Seller, threatened to be called, against any Company Entity. None of the Company Entities has violated in any material respect any applicable federal or state law or regulation relating to labor or labor practices, including, without limitation, those related to wages, hours, collective bargaining, occupational safety, discrimination and the payment of social security and other payroll-related Taxes. Except as set forth in SCHEDULE 3.17, none of the Company Entities is a party to any collective bargaining agreement, no such agreement determines the terms and conditions of employment of any employee of any of the Company Entities, no union or other collective bargaining agent has been recognized or certified, or claims to be, or has requested recognition as, a representative of any of the employees of any of the Company Entities and, to the knowledge of Seller, no representation campaign or election is now in progress or threatened with respect to any of the employees of any of the Company Entities. 3.17.3 There is not pending or threatened by written notice to any of the Company Entities or Seller any charge or complaint against any of the Company Entities by or before the National Labor Relations Board, any representative thereof or any comparable foreign or state agency or authority. 3.17.4 Except as set forth on SCHEDULE 3.17, neither Seller nor any of the Company Entities has any written or oral contracts of employment with any current employee of the Company Entities, except for oral employment contracts terminable at will without penalty. 32 3.18 Benefit Plans. ------------- 3.18.1 All of the Employee Plans and Compensation Arrangements that provide benefit coverage to employees or former employees of the Company Entities are listed and described in SCHEDULE 3.18, and complete and accurate copies of (including any amendments to) any such written Employee Plans and Compensation Arrangements (or related insurance policies) have been furnished to Purchaser, along with copies of any employee handbooks or similar documents describing such Employee Plans and Compensation Arrangements. Any unwritten Employee Plans or Compensation Arrangements also are listed in SCHEDULE 3.18, and complete descriptions have been furnished to Purchaser. Except as disclosed in SCHEDULE 3.18, neither Seller nor any of the Company Entities is a party to and/or has in effect or to become effective after the date of this Agreement any plan arrangement or other scheme which will become an Employee Plan or Compensation Arrangement (including, but not limited to, any bonus, cash or deferred compensation, severance, medical, pension, profit sharing or thrift, stock option, employee stock ownership, life or group insurance, death benefit, vacation, sick leave, disability or trust agreement or arrangement) or any amendment to an Employee Plan or Compensation Arrangement. 3.18.2 Seller has furnished to Purchaser the Forms 5500 filed for each of the Employee Plans listed in SCHEDULE 3.18 (including all attachments and schedules) and all actuarial reports, summaries of material modifications, summary annual reports and any other employer notices (including governmental filings and descriptions of material changes to Employee Plans) relating to the such Employee Plans, all of which shall be provided for the last three plan years. Seller also have furnished to Purchaser the current summary plan descriptions for such Employee Plans. 3.18.3 Each Employee Plan and Compensation Arrangement has been administered in compliance with its own terms and in material compliance with the provisions of ERISA, the Code, the Age Discrimination in Employment Act and any other applicable federal or state laws. 3.18.4 Except as set forth in SCHEDULE 3.18, none of the Company Entities nor any ERISA Affiliate thereof is contributing to, is required to contribute to, or has contributed within the last six years to, any Multiemployer Plan, and none of the Company Entities nor any ERISA Affiliate thereof has incurred within the last six years, or reasonably expects to incur, any "withdrawal liability," as defined under Section 4201 ET SEQ. of ERISA. 3.18.5 At all times on or prior to the Closing, each Employee Plan, to the extent such Employee Plan is intended to be tax-qualified, satisfies all minimum coverage and minimum participation requirements, if any, imposed on such Employee Plan by the applicable terms of the Code and ERISA. 33 3.18.6 Neither Seller nor any of the Company Entities is aware of the existence of any governmental inspection, investigation, audit or examination of any Employee Plan or Compensation Arrangement or of any facts which would lead them to believe that any such governmental inspection, investigation, audit or examination is pending or threatened. There exists no action, suit or claim (other than routine claims for benefits) with respect to any Employee Plan or Compensation Arrangement pending or, to the knowledge of Seller and any of the Company Entities, threatened against any of such plans or arrangements, and neither Seller nor any of the Company Entities possesses any knowledge of any facts which could give rise to any such action, suit or claim. 3.18.7 Except as described in SCHEDULE 3.18, neither Seller nor any ERISA Affiliate thereof sponsors, maintains or contributes to any Employee Plan or Compensation Arrangement that provides medical or death benefit coverage to former employees of the Company Entities, except to the extent required by Section 4980B of the Code. SCHEDULE 3.18 lists all active and former employees of the Company Entities eligible for a benefit, if any, described in the preceding sentence. 3.18.8 Except as described in SCHEDULE 3.18, with respect to each Employee Plan and, to the extent applicable, each Compensation Arrangement: (i) each Employee Plan that is intended to be tax-qualified, and each amendment thereto, is the subject of a favorable determination letter, and no plan amendment that is not the subject of a favorable determination letter would affect the validity of an Employee Plan's letter; (ii) no condition or event exists or is expected to occur that could subject, directly or indirectly, Seller or any ERISA Affiliate thereof to any material liability, contingent or otherwise, or the imposition of any lien on the assets of the Company Entities or any ERISA Affiliate thereof under the Code or Title IV of ERISA whether to the Pension Benefit Guaranty Corporation, the Internal Revenue Service or any other Person; (iii) no Employee Plan ever has incurred an "accumulated funding deficiency," as such term is defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and otherwise always has fully met the funding standards required under Title I of ERISA and Section 412 of the Code; (iv) no "reportable event," as that term is defined in Section 4043(b)(1) through (8) of ERISA and, to the knowledge of Seller and the Company Entities, Section 4043(b)(9) of ERISA, ever has occurred with respect to any Employee Plan and no reportable event requires prior notice; (v) there are no unfunded liabilities with respect to any Employee Plan, i.e., the actuarial present value of all "benefit liabilities" (determined within the meaning of Section 401(a)(2) of the Code) under such Employee Plan, whether or not vested, does not exceed the current value of the assets of such Employee Plan; (vi) no prohibited transaction, within the definition of Section 4975 of the Code or Title 1, Part 4 of ERISA, has occurred which would subject Seller or any ERISA Affiliate thereof to any liability; and (vii) all contributions, premiums or payments accrued, in whole or in part, under each Employee Plan or Compensation Arrangement or with respect thereto as of the Closing will be paid by Seller, on or prior to Closing or, if later, within the time period permitted by ERISA and the Code. 34 3.18.9 With respect to the Company Entities, SCHEDULE 3.18 contains a complete and accurate list of all qualified beneficiaries, as defined under Section 4980B(g)(1) of the Code, as of the effective date of this Agreement (including qualified beneficiaries who are in the election period for continuation coverage but who have not yet elected continuation coverage), the date of the applicable qualifying event and the nature of the qualifying event relating to the duration of such coverage. There have been no failures to provide continuation coverage as required by Section 4980B(f) of the Code. Seller agrees to provide to Purchaser at Closing an updated list of such qualified beneficiaries, as described above, effective as of the Closing Date. 3.18.10 Except as disclosed on SCHEDULE 3.18, neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any material payment (including, without limitation, severance or unemployment compensation) becoming due to any director or employee of the Company Entities; (ii) result in the acceleration of vesting under any Employee Plan or Compensation Arrangement; or (iii) materially increase any benefits otherwise payable under any Employee Plan; and any such payment or increase in benefits is fully deductible under the Code, including, but not limited to, Sections 162, 280G and 404. 3.18.11 Except as set forth on SCHEDULE 3.18, all Employee Plans that provide health and welfare benefits coverage to current and/or former employees, directors or independent contractors of the Company Entities are fully insured. 3.18.12 The assets in the ADT Automotive Holdings, Inc. Executive Retirement Trust out of which the benefits accrued under the Pension Plan are paid consist of an amount sufficient to provide for lump sum payments to those employees and/or former employees of Seller and/or the Company Entities entitled to benefits under the Pension Plan either upon termination of the Pension Plan or in the event of a "change of control," as such term is defined in the Pension Plan. 3.18.13 No current or former employee of the Company Entities is entitled to make a claim for long-term disability benefit coverage under any Employee Plan, except for those employees or former employees of the Company Entities set forth in SCHEDULE 3.18 who currently are receiving long-term disability benefit coverage under a long-term disability program previously sponsored by the Company Entities that is fully insured. The Company Entities retain no liability of any nature, including, but not limited to, the payment of insurance premiums, with respect to the provision of long-term disability coverage to the employees or former employees set forth in SCHEDULE 3.18. 3.18.14 For purposes of this Agreement, the following terms shall have the meanings indicated: (i) "EMPLOYEE PLAN" shall mean any retirement or welfare plan or arrangement or any other employee benefit plan as defined in Section 3(3) of ERISA to which the Company Entities or any ERISA Affiliate thereof contribute or to which the Company Entities or any ERISA Affiliate thereof sponsor, maintain or otherwise are bound; (ii) 35 "COMPENSATION ARRANGEMENT" shall mean any plan or compensation arrangement other than an Employee Plan, whether written or unwritten, which provides to employees, former employees, officers, directors and shareholders of the Company Entities or any ERISA Affiliate thereof any compensation or other benefits, whether deferred or not, in excess of base salary or wages, including, but not limited to, any bonus or incentive plan, stock rights plan, deferred compensation arrangement, life insurance, stock purchase plan, severance pay plan and any other employee fringe benefit plan; (iii) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, any successor thereto and any regulations promulgated thereunder; (iv) "MULTIEMPLOYER PLAN" means a plan, as defined in ERISA Section 3(37), to which the Company Entities or any ERISA Affiliate thereof has contributed, is contributing or is required to contribute; and (v) "ERISA AFFILIATE" shall mean any trade or business related to the Company Entities under the terms of Sections 414(b), (c), (m) or (o) of the Code. 3.19 Title to Assets. Except for leased assets described in SCHEDULE 3.19 or as otherwise set forth in SCHEDULE 3.19, the Company Entities have sole, good, valid and, in the case of Real Property, marketable title to, all Real Property, and all tangible and intangible personal properties and assets used in the conduct of the Business of the Company Entities, including, without limitation, the Patent and Trademark Rights (and no Affiliate of the Company Entities (other than a Company Entity) has any right, title or interest therein); except for (i) such as are no longer used or useful in the conduct of the Business or as have been disposed of in the ordinary course of business consistent with past practices, (ii) with respect to owned Real Property, other than those which do not materially interfere with the use or materially detract from the value of the Real Property, as currently used and as reasonably anticipated to be used, all of which, to the knowledge of Seller, are described in SCHEDULE 3.19, (iii) liens arising from current Taxes not yet due and payable and (iv) any other Encumbrances which are described in SCHEDULE 3.19 and annotated to indicate whether such Encumbrances will be removed prior to or at Closing. Except pursuant to this Agreement, neither Seller nor any of the Company Entities is a party to any contract or obligation whereby there has been granted to anyone an absolute or contingent right to purchase, obtain or acquire any rights in any of the assets, properties or operations of any of the Company Entities. 3.20 Accounts Receivable. All of the accounts receivable of the Acquired Company shown on the Financial Statements or thereafter acquired reflect actual transactions, arose in the ordinary course of business and are not subject to offset or deduction. 3.21 Insurance. SCHEDULE 3.21 contains a complete list and brief description of all insurance policies maintained by the Company Entities. All policies of insurance listed in SCHEDULE 3.21 are in full force and effect and will remain in effect until the Closing Date. 3.22 Guaranties. Except as set forth in SCHEDULE 3.22, none of the Company Entities is, directly or indirectly, (i) liable, by guaranty or otherwise, upon or with respect to, (ii) obligated by discount or repurchase agreement or in any other way to provide funds in respect of or (iii) obligated to guarantee or assume any debt, dividend or other obligation of any Person, 36 2 except endorsements made in the ordinary course of business in connection with the deposit of items for collection. 3.23 Full Disclosure. To the knowledge of Seller, no statement contained herein or in any certificate, Schedule, Exhibit, list or other instrument furnished to Purchaser pursuant to the provisions hereof contains, or will contain, any untrue statement of any material fact or omits, or will omit, to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. ------------------------------------------- Purchaser represents and warrants to Seller, as of the date hereof and as of the Closing Date, as follows: 4.1 Organization and Standing. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Purchaser is duly qualified and licensed to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification and/or licensing is necessary. 4.2 Authority and Status. Purchaser has the full corporate power and authority to execute and deliver this Agreement and the Related Agreements to be executed and delivered by Purchaser, to carry out and perform its obligations under the terms of this Agreement and the Related Agreements to be executed and delivered by it and to consummate the transactions contemplated hereby, without the necessity of any act, approval or consent of any other Person whomsoever. All corporate action on the part of Purchaser and its directors and shareholders necessary for the authorization, execution, delivery and performance by Purchaser of this Agreement and the Related Agreements to be executed and delivered by Purchaser has been taken or will have been taken on or prior to the Closing Date. This Agreement and the Related Agreements to be executed and delivered by Purchaser constitute or will, when executed and delivered, constitute the valid and binding obligations of Purchaser, enforceable against it in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws from time to time in effect affecting the enforcement of creditors' rights generally, and except as enforcement of remedies may be limited by general equitable principles. 4.3 Consents and Approvals; Noncontravention. ---------------------------------------- 4.3.1 Except as set forth on SCHEDULE 4.3 and except for compliance with any applicable requirements of the HSR Act, there is no requirement applicable to Purchaser to make any filing with, or to obtain any permit, authorization, consent or approval of, any Governmental Authority as a condition to the lawful consummation by Purchaser of the purchase of the Shares or to enable Purchaser to hold the Shares and conduct the full Business and operations of the Company Entities as presently conducted pursuant to this Agreement. 37 4.3.2 Except as set forth on SCHEDULE 4.3, the execution, delivery and performance of this Agreement by Purchaser do not, and the consummation of the transactions contemplated hereby will not (with or without the giving of notice, the lapse of time or both), (i) conflict with or result in any breach of any provision of the Articles of Incorporation or Bylaws of Purchaser or (ii) violate any applicable law, rule, regulation, order, writ, judgment, ordinance, injunction or decree of any Governmental Authority to which Purchaser is a party or is bound. 4.4 Purchase for Investment. Purchaser is purchasing the Shares for investment for its own account and not with a view to, or for sale in connection with, any distribution thereof. Purchaser (either alone or together with its advisors) has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Shares and is capable of bearing the economic risks of such investment. 4.5 Inspections; No Other Representations. Purchaser agrees to accept the Shares and the Company Entities on the condition they are in on the Closing Date based upon its own inspection, examination and determination with respect thereto as to all matters, and without reliance upon any express or implied representations or warranties of any nature made by or on behalf of or imputed to Seller, except as expressly set forth in this Agreement. Without limiting the generality of the foregoing, Purchaser acknowledges that Seller make no representation or warranty with respect to (i) any projections, estimates or budgets delivered or made available to Purchaser of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of any of the Company Entities or the future business and operations of any of the Company Entities or (ii) operations or any other information or documents made available to Purchaser or its counsel, accountants or advisors with respect to any of the Company Entities or their respective businesses or operations, except as expressly set forth in this Agreement. Notwithstanding the foregoing, nothing in this Section 4.5 shall limit, affect or impair the ability of Purchaser, its successors or assigns to rely upon the representations, warranties, covenants and obligations of Seller set forth herein. 4.6 Availability of Funds. Purchaser has, and will have, as of the Closing Date, available sufficient cash, available or committed lines of credit or other immediately available funds to enable it to consummate the transactions contemplated hereby. 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. ------------------------------------------------ The obligations of Purchaser to consummate the transactions contemplated by this Agreement to occur at Closing shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by Purchaser, but without prejudice to any other right or remedy which Purchaser may have hereunder as a result of any misrepresentation by, or breach of any covenant or warranty of, Seller contained in this Agreement or any other certificate or instrument furnished by Seller hereunder. 38 5.1 Representations True At Closing. The representations and warranties of Seller set forth in Sections 3.2, 3.3, 3.4 and 3.19 shall be true and correct in all material respects as of the Closing Date, as though made on the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). All other representations and warranties of Seller set forth in this Agreement shall be true and correct as of the Closing Date, as though made on the Closing Date, except (i) to the extent any such representation or warranty expressly relates to an earlier date (in which case such representation and warranty shall be true and correct as of such earlier date, subject to clause (iii) below); (ii) for changes in the accuracy of such representations or warranties that result from actions which are expressly permitted by this Agreement; or (iii) any inaccuracy in the representations and warranties that, individually or in the aggregate (and without regard to any materiality qualifiers contained therein) are not reasonably likely to have a Material Adverse Effect. 5.2 Covenants. Seller shall have duly performed in all material respects all of the covenants, acts and undertakings to be performed by it on or prior to the Closing Date. 5.3 No Material Adverse Change. Since the date of this Agreement, there shall not have been any Material Adverse Effect or any damage, destruction or loss materially adversely affecting the assets or the business of the Company Entities. 5.4 Officer's Certificate. A duly authorized officer of Seller shall deliver to Purchaser a certificate dated as of the Closing Date certifying, without personal liability, to the compliance with the conditions set forth in Sections 5.1, 5.2 and 5.3 above. 5.5 Consents and Waivers. Purchaser shall have received a true and correct copy of each consent and waiver that has been marked with an asterisk on SCHEDULE 3.9 in form and substance consistent with the requirements of Section 2.5 and otherwise reasonably satisfactory to Purchaser, without any conditions (on any Company Entity, Purchaser or any of their Affiliates), changes, modifications or additions to the underlying contract, agreement, license, permit or other authorizations for which consent or approval was sought, other than those of an immaterial or ministerial nature. 5.6 Regulatory Approvals. The waiting period specified under the HSR Act shall have lapsed or been terminated, and no action, suit or other proceeding shall have been instituted, threatened or proposed by any Governmental Authority, and no order issued by any Governmental Authority shall be outstanding which would (i) enjoin, restrain, prohibit or obtain substantial damages against Purchaser or any of its Affiliates in respect of, or which is related to, or arising out of, this Agreement or the consummation of the transactions contemplated hereby, (ii) prohibit or limit the ownership or operation by Purchaser or any of its Affiliates of all or any portion of the business, operations or assets of Purchaser or any of its Affiliates, (iii) compel Purchaser or any Affiliate of Purchaser to dispose of or hold separate all or any portion of the business, operations or assets of Purchaser or any of its Affiliates, (iv) impose limitations (other 39 than routine reporting requirements) on the ability of Purchaser to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of any of the Company Entities, including the right to vote such capital stock on all matters properly presented to the applicable shareholders, or (v) prohibit Purchaser or any of its Affiliates from effectively controlling in any respect the business or operations of Purchaser or its Affiliates. The execution and the delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been approved by all regulatory authorities whose approvals are required by law, including state governmental approvals with respect to auction and dealer licenses held by any of the Company Entities listed on SCHEDULE 5.6 attached hereto. 5.7 Judgment. There shall not be in effect on the date on which the Closing is to occur any judgment, decree, order or other prohibition of a court of competent jurisdiction having the force of law that would prevent the Closing; provided that Purchaser shall have used commercially reasonable efforts to prevent the entry of any such judgment, decree, order or other prohibition and to appeal as expeditiously as possible any such judgment, decree, order or other prohibition that may be entered. 5.8 Redemption or Repurchase of Preferred Stock. Seller shall have caused the Acquired Company to redeem or repurchase the Preferred Stock held by the Preferred Stockholder pursuant to Section 2.14. 5.9 Deliveries. Seller shall have made or stand willing to make all the deliveries to Purchaser described in Section 7.2.1. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. --------------------------------------------- The obligations of Seller to consummate the transactions contemplated by this Agreement to occur at Closing shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by Seller, but without prejudice to any other right or remedy which Seller may have hereunder as a result of any misrepresentation by, or breach of any covenant or warranty of, Purchaser contained in this Agreement or any other certificate or instrument furnished by Purchaser hereunder. 6.1 Representations True at Closing. The representations and warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects at and as of the Closing Date (except to the extent such representations and warranties expressly relate to an earlier date in which case such representations shall be true and correct in all material respects as of such earlier date) as though made at and as of the Closing Date. 6.2 Covenants. Purchaser shall have duly performed in all material respects all of the covenants, acts and undertakings to be performed by it on or prior to the Closing Date. 40 6.3 Officers' Certificate. A duly authorized officer of Purchaser shall deliver a certificate dated as of the Closing Date certifying, without personal liability, to the compliance with the conditions set forth in Sections 6.1 and 6.2 above. 6.4 Regulatory Approvals. The waiting period specified under the HSR Act shall have lapsed or been terminated, and no action, suit or other proceeding shall have been instituted, threatened or proposed by any Governmental Authority, and no order issued by any Governmental Authority shall be outstanding which would (i) enjoin, restrain, prohibit or obtain substantial damages against Seller or any of its Affiliates in respect of, or which is related to, or arising out of, this Agreement or the consummation of the transactions contemplated hereby, (ii) prohibit or limit the ownership or operation by Seller or any of its Affiliates of all or any portion of the business, operations or assets of Seller or any of its Affiliates, (iii) compel Seller or any Affiliate of Seller to dispose of or hold separate all or any portion of the business, operations or assets of Seller or any of its Affiliates, or (iv) prohibit Seller or any of its Affiliates from effectively controlling in any respect the business or operations of Seller or its Affiliates. For purposes of this Section 6.4, Affiliates of Seller shall not include the Company Entities. 6.5 Judgment. There shall not be in effect on the date on which the Closing is to occur any judgment, decree, order or other prohibition of a court of competent jurisdiction having the force of law that would prevent the Closing; provided that the Company Entities and Seller shall have used commercially reasonable efforts to prevent the entry of any such judgment, decree, order or other prohibition and to appeal as expeditiously as possible any such judgment, decree, order or other prohibition that may be entered. 6.6 Deliveries. Purchaser shall have made or stand willing to make all the deliveries to Seller described in Section 7.2.2. 7. CLOSING. ------- 7.1 Time and Place of Closing. ------------------------- 7.1.1 Subject to the satisfaction or, to the extent permitted by law, waiver, of the closing conditions set forth in Articles 5 and 6, and subject to Sections 7.1.2 and 7.1.3, the Closing shall be held at the offices of Dow, Lohnes & Albertson, PLLC, located at One Ravinia Drive, Suite 1600, Atlanta, Georgia 30346, on the date and time specified by Purchaser by notice to Seller, which specified date shall be on the first Friday which is at least three business days after (i) the consents described in Section 5.5 shall have been obtained or waived, and (ii) the applicable waiting periods required under the HSR Act have expired or otherwise terminated (or at such other place and/or on such other date as Purchaser and Seller may mutually agree), but, subject to Section 7.1.3, in no event will the Closing be held later than ten months from the date hereof (the "UPSET DATE"). The Closing contemplated hereunder shall, for all purposes hereunder, be final, effective and deemed to have occurred at and as of 11:59 p.m. Eastern Time on the Closing Date, with any reference to Closing Date hereunder for the purpose of closing 41 adjustments being deemed to mean such time (the "ADJUSTMENT TIME"). Seller shall have been deemed to have retained all of the Shares with all attendant benefits, rights, obligations and liabilities, in the Company Entities until 11:59 p.m. Eastern Time on the Closing Date. 7.1.2 If on the date on which the Closing would otherwise be required to take place pursuant to Section 7.1.1 above there shall be in effect (i) any judgment, decree, order or other prohibition of a court of competent jurisdiction having the force of law that would prevent or make unlawful the Closing, or (ii) any other circumstance beyond the reasonable control of the Company Entities, Seller or Purchaser shall exist that would prevent the Closing or the satisfaction of any of the conditions precedent to any party set forth in Article 5 or 6, then either Seller or Purchaser may, at its option, postpone the date on which the Closing is required to take place until such date, to be set by the party that elects to postpone the date for Closing pursuant to this Section 7.1.2 on at least ten business days' written notice to the other party, as soon as practicable after such judgment, decree, order or other prohibition ceases to be in effect, or such other circumstance ceases to exist; provided, however, that any postponement of the date on which the Closing is required to take place to a date beyond the Upset Date shall require the consent of Seller and Purchaser. 7.1.3 Notwithstanding anything in this Agreement to the contrary, if on the date scheduled for Closing, the Closing has not occurred because any notice period required by Section 7.1.1 or 7.1.2 has not lapsed, the Upset Date shall be extended until one business day after the lapse of such period. 7.2 Transactions At Closing. At the Closing, each of the following transactions shall occur: 7.2.1 At the Closing, Seller shall deliver to Purchaser the following: (i) all certificates representing the Shares, including the Preferred Stock, duly endorsed for transfer or accompanied by instruments of transfer reasonably satisfactory in form and substance to Purchaser and its counsel; (ii) copies of the consents and waivers described in Section 5.5 which have been obtained; (iii) certificates of compliance or a certificate of good standing of each of the Company Entities, as of the most recent practicable date, from the appropriate Governmental Authority of the jurisdiction of its incorporation and any other jurisdiction which is set forth in SCHEDULE 3.1 hereto; (iv) certified copies of resolutions of the Board of Directors of Seller approving the transactions set forth in this Agreement; (v) certificate of incumbency for the officers of Seller; 42 (vi) the Non-Competition Agreement, executed by Seller and U.S. Parent; (vii) the certificate of a duly authorized officer of Seller described in Section 5.4; (viii) an opinion of internal counsel for Seller, Parent and U.S. Parent substantially in the form of EXHIBIT G; (ix) the ADT License Agreement, executed by Licensor; (x) all minute books, corporate seals and corporate records of the Company Entities; (xi) copies of the Certificate of Incorporation or other applicable governing instruments, and all amendments thereof, of each of the Company Entities, certified by the Secretary of State of the state in which such entity is incorporated; (xii) copies of the bylaws or other applicable governing instruments of each of the Company Entities certified by the respective Secretary of each such Company Entity as being correct, complete and in full force and effect on the Closing Date; (xiii) the resignation of each of the directors and officers of the Company Entities described in Section 2.7; (xiv) instruments and documents reasonably satisfactory to Purchaser evidencing the redemption or repurchase by the Acquired Company of all of the Preferred Stock held by the Preferred Stockholder; and (xv) a properly completed original I.R.S. Form W-8BEN (or other appropriate form), duly executed by Licensor, certifying that the royalty paid to Licensor under the ADT License Agreement is subject to U.S. federal withholding tax at a rate other than 30%. 7.2.2 At the Closing, Purchaser shall deliver to Seller the following: (i) cash, in immediately available funds, by wire transfer, in the amount of the Purchase Price, as adjusted pursuant to Section 2.2 hereof; (ii) the Non-Competition Agreement, executed by Purchaser; (iii) certified copies of the resolutions of the Board of Directors of Purchaser approving the transactions set forth in this Agreement; (iv) certificates of incumbency for the officers of Purchaser; 43 (v) the certificate of a duly authorized officer of Purchaser described in Section 6.3; (vi) an opinion of counsel for Purchaser substantially in the form of EXHIBIT H; and (vii) the ADT License Agreement, executed by Purchaser. 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. -------------------------------------------------------------- 8.1 Survival of Representations and Warranties of Seller. All representations, warranties, agreements, covenants and obligations made or undertaken by Seller in this Agreement or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Purchaser and shall survive the Closing hereunder, subject to the limitations set forth in Section 8.4 to the extent applicable, and shall not merge in the performance of any obligation by any party hereto. Subject to the limitations set forth in this Article 8, Seller agrees from and after Closing to indemnify and hold Purchaser or any of Purchaser's Affiliates, including the Company Entities, and their respective successors and assigns, harmless from and against all liability, loss, damages or injury and all reasonable costs and expenses (including reasonable counsel fees and costs of any suit related thereto) (collectively, "DAMAGES") suffered or incurred by Purchaser or any of Purchaser's Affiliates, including any of the Company Entities, and their respective successors or assigns arising from, resulting from or relating to: 8.1.1 any misrepresentation by, or breach of any covenant, agreement or warranty, of Seller contained in this Agreement or the Related Agreements or any certificate, schedule, document or instrument furnished by Seller pursuant thereto; or 8.1.2 (i) the business or operations of the Company Entities on or prior to the Closing Date whether or not disclosed on the Schedules hereto, except as and to the extent taken into account in calculating Working Capital as of the Adjustment Time; or (ii) liabilities or obligations of the Company Entities attributable to acts or omissions, or the business or operations, of Seller or any of its Affiliates (other than the Company Entities); and in the case of either clause (i) or (ii) irrespective of when any claim, suit, action, proceeding or investigation in respect of such matters is asserted or made. It is understood and agreed by Seller that since the Acquired Company will be owned by Purchaser following the Closing, any recovery by Purchaser hereunder after Closing will be against Seller, who will have no right of reimbursement or contribution against the Acquired Company or any of the other Company Entities. Any examination, inspection or audit of the assets or business of the Company Entities conducted pursuant to this Agreement shall in no way 44 limit, affect or impair the ability of Purchaser, its successors or assigns to rely upon the representations, warranties, covenants and obligations of Seller set forth herein. 8.2 Survival of Representations and Warranties of Purchaser. All representations, warranties, agreements, covenants and obligations made or undertaken by Purchaser in this Agreement or in any document or instrument executed and delivered pursuant hereto are material, have been relied upon by Seller and shall survive the Closing hereunder and shall not merge in the performance of any obligation by any party hereto. Subject to the limitations set forth in this Article 8, Purchaser agrees from and after Closing to indemnify and hold Seller harmless from and against all Damages, suffered or incurred by Seller, its Affiliates and its successors or assigns arising from any misrepresentation by, or breach of any covenant or warranty of, Purchaser contained in this Agreement, the Related Agreements or any certificate, document or instrument furnished by Purchaser pursuant thereto. 8.3 Assertion of Indemnification Claims. All claims for indemnification under Section 8.1 or 8.2 shall be asserted and resolved as follows: 8.3.1 Any Person entitled to indemnification is hereinafter referred to as the "INDEMNIFIED PARTY," and any Person obligated to provide such indemnification thereunder is hereinafter referred to as the "INDEMNIFYING PARTY." If any claim or demand is asserted against or sought to be collected from an Indemnified Party by a third party, said Indemnified Party shall within 15 days after the receipt of such claim or demand notify the Indemnifying Party of the claim or demand in writing, specifying the nature of and specific basis for such claim or demand and the amount or the estimated amount thereof to the extent then feasible (the "CLAIM NOTICE"); provided, however, that the failure of the Indemnified Party to give timely notice hereunder shall not relieve the Indemnifying Party of its obligations under this Section 8.3.1 unless, and only to the extent that, the Indemnifying Party has been materially prejudiced thereby. The Indemnifying Party shall have 30 days from the personal delivery or receipt of the Claim Notice (the "NOTICE PERIOD") to notify the Indemnified Party whether or not it desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such claim or demand; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party but only to the extent such motion, answer or other pleading is not prejudicial to the Indemnifying Party. If the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand then, except as hereinafter provided, the Indemnifying Party shall have the right to fully control, defend and take remedial action with respect to such matters. If the Indemnified Party desires to participate in, but not control, any such defense, settlement or remedial activity, it may do so at its sole cost and expense. Notwithstanding the foregoing, the Indemnified Party shall have the right to employ separate counsel at the expense of the Indemnifying Party and to control its own defense with respect to any such claim or demand if (i) there are legal defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party, and (ii) a material 45 potential conflict of interest exists between the Indemnified Party and the Indemnifying Party that would require such separate representation. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and its counsel in contesting any claim or demand that the Indemnifying Party elects to contest, or, if appropriate and related to the claim in question, in making any counterclaim against the Person asserting the third party claim or demand, or any cross-complaint against any Person. No claim may be settled or otherwise compromised without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld if the Indemnifying Party shall be released in full from any and all liabilities or obligations relating to such claim. 8.3.2 If an Indemnified Party should have a claim against an Indemnifying Party hereunder which does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Party shall send a Claim Notice with respect to such claim to the Indemnifying Party, and the Indemnifying Party shall have the right to fully control, defend and take remedial action with respect to such matters. 8.4 Certain Limitations On Obligation to Indemnify. Notwithstanding anything contained in this Article 8 to the contrary, no party shall have any obligation to indemnify any other party or hold it harmless pursuant to this Article 8: 8.4.1 with regard to any claim for breach or alleged breach of any representation or warranty of such party, unless such claim is asserted by notice to Seller or Purchaser, as the case may be, on or prior to the first anniversary of the Closing Date; provided, however that (i) any claim for violation of the representations and warranties regarding title to the Shares and the assets of the Company Entities contained in this Agreement or in any documents or instruments delivered pursuant hereto shall survive indefinitely, (ii) any claim for violation of the representations and warranties set forth in Section 3.14 shall survive until the third anniversary of the Closing Date; (iii) any claim for violation of the representations and warranties set forth in Sections 3.3, 3.6, 3.17 and 3.18, shall survive until the expiration of the applicable statute of limitations applicable to any claim or right of action related thereto, (iv) the covenants and agreements contained in this Agreement to be performed at Closing or during the period following Closing will survive until fully performed in accordance with their terms, (v) any claim for indemnity asserted pursuant to Section 8.1.2 shall survive indefinitely and (vi) the covenants and agreements contained in Sections 2.3 and 2.14 shall survive indefinitely; 8.4.2 until the aggregate amount of such other party's Damages exceeds Two Million Dollars ($2,000,000) (the "THRESHOLD AMOUNT"), in which case Seller or Purchaser, as the case may be, shall then be liable for such Threshold Amount and any amounts in excess of the Threshold Amount; provided, however, that the limitations on Seller's indemnification obligations set forth in this Section 8.4.2 (i.e. the Threshold Amount) shall not apply (i) to any claim under Section 2.2, (ii) to any claim for a violation of the representations and warranties regarding title to the Shares and the assets of the Company Entities contained in this Agreement or in any documents or instruments delivered pursuant hereto, (iii) with respect to those matters 46 which are the subject of Section 8.1.2, (iv) to any covenants and agreements contained in this Agreement to be performed at Closing or during the period following Closing or (v) to the covenants and agreements contained in Sections 2.3 and 2.14; and 8.4.3 to the extent that the aggregate amount of such other party's damages exceeds Seventy-Five Million ($75,000,000) (the "CAP"); provided, however, that the limitations on Seller's indemnification obligations set forth in this Section 8.4.3 (i.e. the Cap) shall not apply (i) to any claim under Section 2.2, (ii) to any claim for a violation of the representations and warranties regarding title to the Shares and the assets of the Company Entities contained in this Agreement or in any documents or instruments delivered pursuant hereto, (iii) with respect to those matters which are the subject of Section 8.1.2, (iv) to any covenants and agreements contained in this Agreement to be performed at Closing or during the period following Closing or (v) to the covenants and agreements contained in Sections 2.3 and 2.14. 9. TERMINATION. ----------- 9.1 Agreement Between Seller and Purchaser. This Agreement may be terminated at any time prior to the Closing, and the purchase and sale of the Shares abandoned, by written agreement among Seller and Purchaser. 9.2 Termination by Seller. This Agreement may be terminated at any time prior to the Closing by Seller, and the purchase and sale of the Shares abandoned, upon written notice to Purchaser, upon the occurrence of any of the following: 9.2.1 Conditions. If on any date determined for the Closing in accordance with Section 7.1 if each condition set forth in Article 5 has been satisfied (or will be satisfied by the delivery of documents at the Closing) or waived in writing by Purchaser on such date and either (i) a condition set forth in Article 6 has not been satisfied (or will not be satisfied by the delivery of documents at the Closing) or waived in writing by Seller on such date or (ii) Purchaser has nonetheless refused to consummate the Closing. Notwithstanding the foregoing, Seller may not rely on the failure of any condition set forth in Article 6 to be satisfied if such failure was caused by Seller's failure to act, or to cause the Company Entities to act, in good faith or a breach of or failure to perform, or to cause the Company Entities to perform, any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement. 9.2.2 Upset Date. If the Closing shall not have occurred on or prior to the Upset Date, as extended as provided in Section 7.1.3, unless the failure of the Closing to occur was caused by Seller's failure to act, or to cause the Company Entities to act, in good faith or a breach of or failure to perform, or to cause the Company Entities to perform, any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement. 47 9.3 Termination by Purchaser. This Agreement may be terminated at any time prior to the Closing by Purchaser, and the purchase and sale of the Shares abandoned, upon written notice to Seller, upon the occurrence of any of the following: 9.3.1 Conditions. If on any date determined for the Closing in accordance with Section 7.1 if each condition set forth in Article 6 has been satisfied (or will be satisfied by the delivery of documents at the Closing) or waived in writing by Seller on such date and either (i) a condition set forth in Article 5 has not been satisfied (or will not be satisfied by the delivery of documents at the Closing) or waived in writing by Purchaser on such date or (ii) Seller has nonetheless refused to consummate the Closing. Notwithstanding the foregoing, Purchaser may not rely on the failure of any condition set forth in Article 5 to be satisfied if such failure was caused by Purchaser's failure to act in good faith or a breach of or failure to perform any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement. 9.3.2 Upset Date. If the Closing shall not have occurred on or prior to the Upset Date, as extended as provided in Section 7.1.3, unless the failure of the Closing to occur was caused by Purchaser's failure to act in good faith or a breach of or failure to perform any of its representations, warranties, covenants or other obligations in accordance with the terms of this Agreement. 9.4 Effect of Termination. If this Agreement is terminated as provided in this Article 9, then, subject to Purchaser's right to specific performance provided below, which may be asserted without termination of this Agreement, this Agreement will forthwith become null and void, and there will be no liability on the part of any party to any other party or any other Person in respect thereof; provided that: 9.4.1 Surviving Obligations. The obligations of the parties described in Sections 2.12, 9.4, 9.5 and 10.4 (and all other provisions of this Agreement relating to expenses) will survive any such termination. 9.4.2 Withdrawal of Applications. All filings, applications and other submissions relating to the consummation of the transaction contemplated hereby shall, to the extent practicable, be withdrawn from the Governmental Authority or other Person to whom made. 9.4.3 Breach by Purchaser. No such termination will relieve Purchaser from liability for a breach by Purchaser of this Agreement, and, in such event, Seller shall have the right to monetary damages. 9.4.4 Breach by Seller. No such termination will relieve Seller from liability for a breach of this Agreement. Purchaser may elect to specifically enforce rather than terminate this Agreement in the event of Seller's breach, and, in such event, the parties recognize that 48 monetary damages alone will not be adequate. Purchaser, therefore, shall be entitled, in addition to any other remedies which may be available, including monetary damages, to obtain specific performance of the terms of this Agreement. In the event of any action to enforce this Agreement, Seller hereby waives the defense that there is an adequate remedy at law. 9.5 Attorneys' Fees. Notwithstanding any provision in this Agreement that may limit or qualify a party's remedies, in the event of a default by any party that results in a lawsuit or other proceeding for any remedy available under this Agreement, the prevailing party shall be entitled to reimbursement from the defaulting party of its reasonable legal fees and expenses (whether incurred at trial or on appeal). 9.6 Exclusivity. In the absence of fraud and other than any action to enforce Sections 10.14 and 10.16 hereof, after the Closing Date, Sections 2.8, 2.9, 2.11 and 10.4 and the provisions of Article 8 shall provide the sole and exclusive remedy of any party for any misrepresentation or any breach of a warranty or covenant set forth in or made pursuant to this Agreement; provided, however, that this provision shall not be construed to apply to the enforcement of the Non-Competition Agreement, the ADT License Agreement or the Guaranty. 10. GENERAL PROVISIONS. ------------------ 10.1 Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be delivered by courier or personal delivery, telecopier (to be followed promptly by written confirmation mailed by certified mail as provided below) or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: 10.1.1 If to Seller: ADT General Holdings, Inc. One Tyco Park Exeter, New Hampshire 03833 Telecopier: (603) 778-7330 Attn: President with a copy to: ADT General Holdings, Inc. One Tyco Park Exeter, New Hampshire 03833 Telecopier: (603) 778-2823 Attn: General Counsel 49 10.1.2 If to Purchaser: Manheim Auctions, Inc. 1400 Lake Hearn Drive, N.E. Atlanta, Georgia 30319 Telecopier: (404) 843-5755 Attn: Mr. G. Dennis Berry with a copy to: Cox Enterprises, Inc. 1400 Lake Hearn Drive, N.E. Atlanta, Georgia 30319 Telecopier: (404) 843-5450 Attn: Andrew A. Merdek, Esq. and: Dow, Lohnes & Albertson, PLLC 1200 New Hampshire Ave., N.W. Washington, D.C. 20036-6802 Telecopier: (202) 776-2222 Attn: John T. Byrnes, Esq. 10.1.3 If delivered personally by courier or facsimile transmission (confirmed as aforesaid and provided written confirmation and receipt is obtained by the sender), the date on which the delivery of a notice, request, instruction or document is effective shall be the date on which such delivery is actually received. Notices given by mail as aforesaid shall be effective and deemed received upon the date of actual receipt. 10.1.4 Any party hereto may change its address specified for notices herein by designating a new address by notice given to the other party in accordance with this Section 10.1. 10.2 Further Assurances. Each party hereto covenants that at any time, and from time to time, after the Closing Date, it will execute such additional instruments and take such actions as may be reasonably requested by the other parties to confirm or perfect or otherwise to carry out the intent and purposes of this Agreement. 10.3 Waiver. Any failure on the part of any party hereto to comply with any of its obligations, agreements or conditions hereunder may be waived by any other party to whom such compliance is owed. No waiver of any provision of this Agreement shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a waiver of any failure other than that waived. 50 10.4 Expenses. Except as otherwise set forth herein, all expenses incurred by the parties hereto in connection with or related to the authorization, preparation and execution of this Agreement and the Closing of the transactions contemplated hereby, including, without limitation of the generality of the foregoing, all fees and expenses of agents, representatives, counsel and accountants employed by any such party, shall be borne solely and entirely by the party which has incurred the same. In no event shall any of the assets of any of the Company Entities be utilized for or reduced by the payment of any such fees or expenses (except, in each case, for time devoted to this transaction by management, administrative and clerical personnel of any of the Company Entities), and Seller shall indemnify Purchaser from any and all such fees or expenses (including broker fees) that have been paid from or may at any time become payable from any of the assets of any of the Company Entities. The indemnification provisions of this Section 10.4 shall be separate and distinct from the provisions of Article 8 and shall not be subject to the limitations on indemnification obligations set forth therein. 10.5 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any attempt to make any such assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective permitted successors and assigns. 10.6 Headings. The section and other headings in this Agreement are inserted solely as a matter of convenience and for reference and are not a part of this Agreement. 10.7 Entire Agreement; Amendment. This Agreement constitutes the entire agreement among the parties hereto and supersedes and cancels any prior agreements, representations, warranties or communications, whether oral or written, among the parties hereto relating to the transactions contemplated hereby or the subject matter herein. Neither this Agreement nor any provision hereof may be modified, changed, waived, discharged or terminated orally, other than by an agreement in writing signed by the party against whom or which the enforcement of such modification, change, waiver, discharge or termination is sought. 10.8 Counterparts. This Agreement may be executed in multiple counterpart copies, each of which will be considered an original and all of which constitute one and the same instrument, binding on all parties hereto, even though all the parties are not signatory to the same counterpart. Any counterpart of this Agreement which has attached to it separate signature pages, which taken together contain the signature of all parties hereto, shall for all purposes be deemed a fully executed original and a facsimile transmission shall be deemed to be an original signature. 10.9 Pronouns and Number. All pronouns used herein shall be deemed to refer to the masculine, feminine or neuter gender as the context requires. 51 10.10 Schedules and Exhibits Incorporated. All Schedules and Exhibits attached hereto are incorporated herein by reference, and all blanks in such Schedules and Exhibits, if any, will be filled in as required in order to consummate the transactions contemplated herein and in accordance with this Agreement. 10.11 Disclosure Schedules. The parties acknowledge and agree that (i) the Schedules to this Agreement may include certain items and information solely for informational purposes for the convenience of Purchaser and (ii) the disclosure by Seller of any matter in the Schedules shall not be deemed to constitute an acknowledgment by Seller that the matter is required to be disclosed by the terms of this Agreement or that the matter is required to be disclosed by the terms of this Agreement or that the matter is material. If any Schedule discloses an item or information in such a way as to make its relevance to the disclosure required by another Schedule readily apparent, the matter shall be deemed to have disclosed in such other Schedule, notwithstanding the omission of an appropriate cross-reference to such other Schedule. 10.12 Severability. In the event that any provision of this Agreement or any word, phrase, clause, sentence or other portion thereof should be held to be unenforceable or invalid for any reason, such provision or portion thereof shall be modified or deleted in such a manner so as to make this Agreement, as modified, legal and enforceable to the fullest extent permitted under applicable laws. 10.13 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law principles of such State. 10.14 Jurisdiction. Except as otherwise expressly provided in this Agreement, the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or related to, this Agreement, or the transactions contemplated hereby, may be brought in either the United States District Court for the District of Delaware or any Delaware state court, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objections which it may now or hereafter have that the venue of any such suit, action or proceeding which is brought in any such court is improper or that the suit, action or proceeding has been brought in an inconvenient forum; provided, however, that if such court for any reason determines that it does not have subject matter or personal jurisdiction over one or more necessary parties or one or more claims in such suit, action or proceeding, or if the consent to jurisdiction and venue or the waiver of forum conveniens contained in this Section 10.14 is deemed not to be enforceable by such court, or if such court determines for any reason that venue is not proper or that forum non conveniens applies, a party may bring such suit, action or proceeding in any court having jurisdiction with respect thereto, and, provided further, that any judgment obtained in any court pursuant to this Section 10.14 may be domesticated and enforced anywhere in the world. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or 52 without the jurisdiction of any such court. Without limiting the generality of the foregoing, each party hereto agrees that service upon such party as provided in Section 10.1 shall be deemed effective service of process on such party. 10.15 Third-party Beneficiaries. No person other than the parties hereto and their respective successors and permitted assigns (and in the case of Article 8, the parties specified therein) is intended to be a beneficiary of this Agreement. In executing this Agreement, the parties do not intend to create third-party beneficiary rights in anyone not a party to this Agreement. 10.16 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives any and all right to trial by jury in any suit, action, proceeding, counterclaim or crossclaim seeking to enforce any provision of, or based on any matter arising out of or related to, this Agreement or the transactions contemplated hereby. 53 IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement to be executed under seal on its behalf, all on the day and year first above written. MANHEIM AUCTIONS, INC. By: ------------------------------- Name: Andrew A. Merdek Title: Secretary ADT GENERAL HOLDINGS, INC. By: ------------------------------- Name: Irving Gutin Title: Vice President 54 EXHIBIT B CERTAIN DEFINITIONS 1.1 "AFFILIATES" means any Person directly or indirectly controlling, controlled by, or under common control with, the Person with respect to whom the term "Affiliate" is used. Notwithstanding the foregoing a Person shall be deemed an "Affiliate" of a Person with respect to whom the term "Affiliate" is used if 10% or more of the voting securities of such Person is owned, directly or indirectly, by the Person with respect to whom the term "Affiliate" is used. 1.2 "AUCTIONS" means those auctions listed on EXHIBIT A attached hereto. 1.3 "BUSINESS" shall mean the operation of a wholesale automobile auction and any related businesses, including, without limitation, transport, reconditioning and repairs, title services and internet, software and other technology efforts conducted by the Company Entities or otherwise conducted ancillary to the Business, as such operations are currently conducted by the Company Entities. 1.4 "CAPITALIZED LEASE OBLIGATIONS" means (without duplication) that portion of any obligation of a Company Entity as lessee under a lease which at the time would be required to be capitalized on the balance sheet of such lessee in accordance with GAAP. 1.5 "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. 1.6 "CLOSING" shall mean the consummation of the transactions provided for in this Agreement. 1.7 "CLOSING DATE" shall mean the date on which the Closing occurs pursuant to Section 7.1 hereof. 1.8 "CODE" shall mean the Internal Revenue Code of 1986, as amended, and the regulations thereunder, or any subsequent legislative enactment thereof, as in effect from time to time. 1.9 "CONTRACTS" means all contracts, agreements, options, leases, commitments, undertakings, written and oral, and other similar rights and interests of the Company Entities relating to the conduct of the business and operations of the Company Entities, plus such contracts entered into between the date hereof and the Closing Date (including amendments or other modifications of existing contracts). 1.10 "ENCUMBRANCE" means any claim, mortgage, lien, security interest, security agreement, conditional sale or other title retention agreement, limitation, pledge, option, B-1 charge, assessment, restrictive agreement, restriction, encumbrance, adverse interest, restriction on transfer or any exception to or defect in title or other ownership interest (including reservations, rights of way, possibilities of reverter, encroachments, easements, rights of entry, restrictive covenants, leases and licenses) of any nature whatsoever. 1.11 "ENVIRONMENTAL LAW" means any Legal Requirement pertaining to land use, air, soil, surface water, groundwater (including protection, cleanup, removal, remediation or damage thereof), public or employee health or safety or any other environmental matter, including, without limitation, the following laws as the same may be amended from time to time: (i) Clean Air Act (42 U.S.C.ss. 7401, ET SEQ.), (ii) Clean Water Act (33 U.S.C.ss. 1251 et SEQ.), (iii) Resource Conservation and Recovery Act (42 U.S.C.ss. 6901, ET SEQ.) ("RCRA"), (iv) Comprehensive Environmental Response Compensation Liability Act, as amended (42 U.S.C.ss. 9601, ET SEQ.) ("CERCLA"), (v) Safe Drinking Water Act (42 U.S.C.ss. 300f ET SEQ.), (vi) Toxic Substance Control Act (15 U.S.C. ss. 2601, ET SEQ.), (vii) Rivers and Harbors Act (33 U.S.C.ss. 401, ET SEQ.), (viii) Endangered Species Act (16 U.S.C.ss. 1531, ET SEQ.), and (ix) Occupational Safety and Health Act (29 U.S.C.ss. 651, ET seq.), together with any other applicable federal, state or local laws relating to emissions, discharges, releases or threatened releases of any Hazardous Substance into ambient air, land, surface water, ground water, personal property or structures, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, discharge or handling of any Hazardous Substance. 1.12 "GAAP" means generally accepted accounting principles as in effect from time to time in the United States. 1.13 "GOVERNMENTAL AUTHORITY" means (i) the United States of America, (ii) any state, commonwealth, territory or possession of the United States of America and any political subdivision thereof (including counties, municipalities and the like) or (iii) any agency, authority or instrumentality of any of the foregoing, including any court, tribunal, department, bureau, commission or board. 1.14 "HAZARDOUS MATERIALS" shall mean (i) hazardous materials, contaminants, constituents, hazardous wastes and hazardous substances as those terms are defined in the following statutes and their implementing regulations, as amended: the Hazardous Materials Transportation Act, 49 U.S.C.ss. 1801 ET SEQ., RCRA, 42 U.S.C.ss. 6901 ET SEQ., CERCLA, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.ss. 9601 ET SEQ., the Clean Water Act, 33 U.S.C.ss. 1251 ET SEQ., and the Toxic Substance Control Act, 15 U.S.C.ss. 2601 ET SEQ., (ii) petroleum, including crude oil and any fractions thereof, (iii) natural gas, synthetic gas and any mixtures thereof, (iv) asbestos and/or asbestos-containing materials, (v) polychlorinated biphenyls (PCBs), or PCB-containing materials or fluids, (vi) any other substances with respect to which any federal, state or local agency or other Governmental Authority may require either an environmental investigation or environmental remediation, and (vii) any other hazardous or noxious substance, material, pollutant or solid or liquid waste that is regulated by any Environmental Laws. B-2 1.15 "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time. 1.16 "HSR RULES" means the rules and regulations promulgated under the HSR Act. 1.17 "INDEBTEDNESS" means, at any particular time, with respect to any Company Entity (without duplication), all indebtedness of such Company Entity for borrowed money or on account of advances to such Company Entity or obligations under acquisition agreements, in respect of which such Company Entity is liable or evidenced by any bond, debenture, note or similar instrument issued by such Company Entity, including all principal, accrued and unpaid interest, prepayment premiums, penalties and other fees or charges related thereto, any Capitalized Lease Obligations, swaps, collars, caps, hedges or other agreements relating to the fixing of interest rates of indebtedness, but excluding in any event, inter-company indebtedness owing from a Company Entity to one or more other Company Entities. 1.18 "MATERIAL ADVERSE EFFECT" shall mean any change, effect or circumstance (other than any change, effect or circumstance resulting from the public announcement of the transactions contemplated by this Agreement) that, individually or when taken together with all other changes, effects or circumstances that have occurred prior to the date of determination of the occurrence of the Material Adverse Effect, is, or is reasonably likely to be, materially adverse to the business, assets (including intangible assets), financial condition or results of operation of the Company Entities, as the case may be, in each case taken as a whole. 1.19 "MATERIAL CONTRACTS" means, with respect to each Company Entity, (i) all Contracts currently in effect which involve either (a) payments or receipts in excess of $250,000 on an annual basis or (b) material nonmonetary obligations or commitments; (ii) all leases of Real Property; (iii) all collective bargaining agreements and (iv) all Employee Plans and Compensation Arrangements. 1.20 "NON-COMPETITION AGREEMENT" shall mean the Non-Competition Agreement of Seller, U.S. Parent and Purchaser substantially in the form attached hereto as EXHIBIT E. 1.21 "PERSON" means an individual, corporation, partnership, limited liability company, trust or unincorporated organization, or a government or any agency or political subdivision thereof. 1.22 "RCRA" shall mean the Resource Conservation and Recovery Act, and the rules and regulations promulgated thereunder. 1.23 "REAL PROPERTY" means all of the fee estates and buildings and other improvements thereon, leasehold interests, easements, licenses, rights to access, rights-of-way, and other real property interest which are used by any Company Entity, or owned by any B-3 Company Entity, as of the date hereof, in the business or operations of the Company Entities, plus such additions thereto and deletions therefrom arising in the ordinary course of business and permitted by this Agreement between the date hereof and the Closing Date. 1.24 "SUBSIDIARY" shall mean, as to any Person, any other Person of which at least 50% of the equity and voting interests are owned, directly or indirectly, by such first Person. 1.25 "TAX" (and, with correlative meaning, "TAXES" and "Taxable") means all federal, state, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, license, excise, franchise, capital, transfer, employment, withholding and other taxes and assessments, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, and any interest, additions and penalties with respect to a failure to file a Tax Return or a failure to file a complete and correct Tax Return and any interest in respect of such additions or penalties. 1.26 "TAX RETURNS" means all federal, state, local and foreign income and franchise Tax returns and Tax reports (including any attached schedules) and other Tax statements and other similar filings required to be filed, including any information return (including, without limitation, any information return required to be filed under Section 60501 of the Code), claim for refund, amended return or declaration of estimated Tax. 2.2 List of Additional Definitions. The following is a list of additional terms used in this Agreement and a reference to the Section hereof in which such term is defined: Term Section ---- ------- Acquired Company Preamble Adjustment Time 7.1.1 ADT License Agreement 2.18.1 Agreement Preamble Agreement Period 2.8.6.3 Booked Taxes 2.8.1 Cap 8.4.3 Claim Notice 8.3.1 Company Entities Preamble Compensation Arrangement 3.18.14 Confidentiality Agreement 2.16 Continuation Coverage Requirements 2.9.1 Damages 8.1 DOJ 2.5.2 Employee Plan 3.18.14 Election Notice 2.18.2 B-4 Enforcement Action 2.18.2 ERISA 3.18.14 ERISA Affiliate 3.18.14 Final Report 2.2.3.2 Financial Statements 3.5.1 FTC 2.5.2 Guaranty Preamble HSR Reports 2.5.2 Indemnifiable Tax Damages 2.8.2.1 Indemnified Party 8.3.1 Indemnifying Party 8.3.1 Investment Interests 3.4 Material Licenses 3.12 Multiemployer Plan 3.18.14 Licensor 2.18 Notice 2.18.2 Notice Period 8.3.1 Parent Preamble Patent 2.18.2 Patent and Trademark Rights 3.16 Pension Plan 2.9.4 Preferred Stock 2.14 Preferred Stockholder 2.14 Preliminary Report 2.2.3.1 Purchase Price 2.2.1 Purchaser Preamble Purchaser Severance Benefits 2.9.5 Related Agreements 3.2 Reporting Period 2.8.2.1 Retiree Medical Plans 2.9.3 Section 338(h)(10) Elections 2.8.6.2 Seller Preamble Seller Consolidated Group 2.8.2.1 Seller Severance Benefits 1.1.5 Selling Group 2.8.6.1 Shares Preamble Straddle Period 2.8.2.1 Target Working Capital 2.2.2 Tax Claim 2.8.8.3 Tax Damages 2.8.8.1 Tax Indemnified Party 2.8.8.3 Tax Indemnifying Party 2.8.8.3 B-5 Threshold Amount 8.4.2 Upset Date 7.1.1 U.S. Parent Preamble Working Capital 2.2.2 B-6 EX-4.19 4 a2030822zex-4_19.txt EXHIBIT 4.19 EXHIBIT 4.19 COMPOSITE CONFORMED COPY AS AMENDED BY AMENDMENT NO. 1 $4,500,000,000 364-DAY CREDIT AGREEMENT dated as of February 11, 2000 Tyco International Group S.A., Borrower Tyco International Ltd., Guarantor Morgan Guaranty Trust Company of New York, Administrative Agent Bank of America, N.A. The Chase Manhattan Bank Commerzbank AG, Co-Syndication Agents J.P. Morgan Securities Inc., Arranger Banc of America Securities LLC Chase Securities Inc. Commerzbank AG Salomon Smith Barney, Co-Arrangers TABLE OF CONTENTS ARTICLE 1 DEFINITIONS Section 1.01. Definitions......................................................................1 Section 1.02. Accounting Terms and Determinations.............................................19 Section 1.03. Classes and Types of Loans and Borrowings.......................................19 ARTICLE 2 THE CREDITS Section 2.01. Commitments to Lend.............................................................19 Section 2.02. Notice of Committed Borrowing...................................................21 Section 2.03. The Money Market Borrowings.....................................................22 Section 2.04. Notice To Banks; Funds Of Loans.................................................26 Section 2.05. Promissory Notes................................................................27 Section 2.06. Maturity of Loans...............................................................28 Section 2.07. Interest Rates..................................................................28 Section 2.08. Facility Fee....................................................................30 Section 2.09. Optional Termination or Reduction of Commitments................................30 Section 2.10. Mandatory Termination of Commitments............................................30 Section 2.11. Optional Prepayments............................................................30 Section 2.12. General Provisions as to Payments...............................................31 Section 2.13. Funding Losses..................................................................32 Section 2.14. Computation of Interest and Fees................................................32 Section 2.15. Regulation D Compensation.......................................................32 Section 2.16. Method of Electing Interest Rates...............................................33 Section 2.17. Optional Increase in Commitments................................................35 Section 2.18. Determining Dollar Amounts of Alternative Currency Loans; Related Mandatory Prepayments ................................35 Section 2.19. Additional Reserve Costs........................................................36 Section 2.20. Changes in Market Practice Following EMU........................................36 ARTICLE 3 CONDITIONS Section 3.01. Effectiveness...................................................................37 Section 3.02. Existing 364-Day Agreement......................................................38 Section 3.03. Borrowings......................................................................38 ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.01. Corporate Existence and Power...................................................39 i Section 4.02. Corporate and Governmental Authorization; No Contravention......................39 Section 4.03. Binding Effect..................................................................39 Section 4.04. Financial Information...........................................................40 Section 4.05. Litigation......................................................................40 Section 4.06. Compliance with ERISA...........................................................40 Section 4.07. Environmental Matters...........................................................41 Section 4.08. Taxes...........................................................................41 Section 4.09. Subsidiaries....................................................................41 Section 4.10. Not an Investment Company.......................................................41 Section 4.11. Full Disclosure.................................................................41 Section 4.12. Obligations to Be Pari Passu....................................................42 ARTICLE 5 COVENANT Section 5.01. Information.....................................................................42 Section 5.02. Payment of Obligations..........................................................44 Section 5.03. Maintenance of Property; Insurance..............................................44 Section 5.04. Conduct of Business and Maintenance of Existence................................44 Section 5.05. Compliance with Laws............................................................45 Section 5.06. Inspection of Property, Books and Records; Confidentiality......................45 Section 5.07. Limitation on Restrictions on Subsidiary Dividends and Other Distributions......47 Section 5.08. Debt............................................................................49 Section 5.09. Fixed Charge Coverage...........................................................49 Section 5.10. Negative Pledge.................................................................49 Section 5.11. Consolidations, Mergers And Sales Of Assets.....................................51 Section 5.12. Transactions With Affiliates....................................................52 Section 5.13. Restricted Payments.............................................................53 Section 5.14. Subsidiary Guarantors...........................................................53 Section 5.15. Use of Proceeds.................................................................53 ARTICLE 6 DEFAULTS Section 6.01. Events of Defaults..............................................................53 Section 6.02. Notice of Default...............................................................56 ARTICLE 7 THE AGENT Section 7.01. Appointment and Authorization...................................................57 Section 7.02. Agent and Affiliates............................................................57 Section 7.03. Action by Agent.................................................................57 Section 7.04. Consultation With Experts.......................................................57 Section 7.05. Limits of Liability.............................................................57 Section 7.06. Indemnification.................................................................58 ii Section 7.07. Credit Decision.................................................................58 Section 7.08. Successor Agent.................................................................58 Section 7.09. Agent's Fee.....................................................................58 ARTICLE 8 CHANGE IN CIRCUMSTANCES Section 8.01. Basis for Determining Interest Rate Inadequate or Unfair........................59 Section 8.02. Illegality......................................................................59 Section 8.03. Increased Cost and Reduced Return...............................................60 Section 8.04. Taxes...........................................................................61 Section 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans.......................63 Section 8.06. Substitution of Bank............................................................64 ARTICLE 9 MISCELLANEOUS Section 9.01. Notices.........................................................................64 Section 9.02. No Waivers......................................................................65 Section 9.03. Expenses; Indemnification.......................................................65 Section 9.04. Sharing of Set-Offs.............................................................66 Section 9.05. Amendments and Waivers..........................................................66 Section 9.06. Successors And Assigns..........................................................66 Section 9.07. Collateral......................................................................69 Section 9.08. Governing Law...................................................................69 Section 9.09. Counterparts; Integration.......................................................69 Section 9.10. Waiver of Jury Trial............................................................69 Section 9.11. Judgment Currency...............................................................69 Section 9.12. Judicial Proceedings............................................................70 Section 9.13. Conforming Amendments to Five-year Facility.....................................71 ARTICLE 10 GUARANTEE Section 10.01. The Guarantee..................................................................71 Section 10.02. Guarantee Unconditional........................................................72 Section 10.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances....72 Section 10.04. Waiver By The Guarantor........................................................73 Section 10.05. Subrogation....................................................................73 Section 10.06. Stay Of Acceleration...........................................................73
Commitment Schedule Pricing Schedule Exhibit A - Promissory Note Exhibit B - Money Market Quote Request iii Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote Exhibit E - Opinion of Chief Corporate Counsel of the Guarantor Exhibit F - Opinion of Special Counsel for the Borrower Exhibit G - Opinion of Special Counsel for the Guarantor Exhibit H - Opinion of Special Counsel for the Agent Exhibit I - Assignment and Assumption Agreement Exhibit J - Form of Subsidiary Guarantee Exhibit K - Form of Subsidiary Counsel Opinion Exhibit L - Mandatory Costs Rate iv 364-DAY CREDIT AGREEMENT AGREEMENT dated as of February 11, 2000 among TYCO INTERNATIONAL GROUP S.A., TYCO INTERNATIONAL LTD., the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. The following terms, as used herein, have the following meanings: "ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "ACQUIRED DEBT" means Debt of a Person (a) existing at the time such Person becomes a Subsidiary or merges into a Subsidiary and (b) not created in contemplation of such event. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Guarantor (a "Controlling Person") or (ii) any Person (other than the Guarantor or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. The fact that an Affiliate of a Person is a member of a law firm that renders services to such Person or its Affiliates does not mean that the law firm is an Affiliate of such Person. "AGENT" means Morgan Guaranty Trust Company of New York in its capacity as administrative agent for the Banks under the Financing Documents, any successor agent that becomes the Agent pursuant to Section 7.08, and the respective corporate successors of the foregoing acting in such capacity. "ALTERNATIVE CURRENCY" means Euro; PROVIDED that any other currency (except Dollars) shall also be an Alternative Currency if (i) the Borrower requests, by notice to the Agent, that such currency be included as an additional Alternative Currency for purposes of this Agreement, (ii) such currency is freely transferable and is freely convertible into Dollars in the London foreign exchange market, (iii) deposits in such currency are customarily offered to banks in the London interbank market and (iv) every Bank, by notice to the Agent, approves the inclusion of such currency as an additional Alternative Currency for purposes hereof. The Banks' approval of any such additional Alternative Currency may be limited to a specified maximum Dollar Amount or a specified period of time or both. "ALTERNATIVE CURRENCY LOAN" means a Committed Loan that is made in an Alternative Currency pursuant to the applicable Notice of Committed Borrowing. Any Loan in the currency of a Participating Member State shall be denominated in Euro Units. Any Loan made in the currency of a Participating Member State before the date on which such Participating Member State adopts the Euro as its currency (the "ENTRY DATE") and still outstanding on the Entry Date shall be prepaid on the last day of the Interest Period applicable thereto on the Entry Date. A Swingline Loan is an Alternative Currency Loan. "ALTERNATIVE CURRENCY SUBLIMIT" means a Dollar Amount equal to $1,500,000,000. "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its Euro-Currency Loans, its Euro-Currency Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each bank listed on the signature pages hereof, each financial institution which becomes a Bank pursuant to Section 2.17, each Assignee which becomes a Bank pursuant to Section 9.06(c), and the respective corporate successors of the foregoing. "BANK AFFILIATE" means, with respect to the Agent or any Bank, any Person controlling, controlled by or under common control with the Agent or such Bank, as the case may be. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Section 2.07(a) or Article 8. "BERMUDA COMPANIES LAW" means every Bermuda statute from time to time in force concerning companies insofar as the same applies to the Guarantor. 2 "BORROWER" means Tyco International Group S.A., a Luxembourg company, and its successors. "BORROWING" has the meaning set forth in Section 1.03. "CLASS" has the meaning specified in Section 1.03. "COMMITMENT" means (i) with respect to each Bank listed on the Commitment Schedule, the amount set forth opposite the name of such Bank on the Commitment Schedule and (ii) with respect to any financial institution which becomes a Bank pursuant to Section 2.17 or any Assignee, the amount of the Commitment assumed by it pursuant to Section 2.17 or 9.06(c), as the case may be, in each case as such amount may be changed from time to time pursuant to Section 2.09, 2.17 or 9.06(c). "COMMITMENT PERCENTAGE" means, with respect to each Bank, the percentage equivalent of a fraction the numerator of which is the amount of its Commitment and the denominator of which is the aggregate amount of the Commitments of all Banks. "COMMITMENT SCHEDULE" means the Commitment Schedule attached hereto. "COMMITTED BORROWING" has the meaning set forth in Section 1.03. "COMMITTED LOAN" means a Syndicated Loan or a Swingline Loan. "CONDUIT" means a special purpose corporation which is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business. "CONDUIT DESIGNATION" has the meaning set forth in Section 9.06(f). "CONSENTS" has the meaning set forth in Section 4.01. "CONSOLIDATED ASSETS" means, at any time, the total assets of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such time. "CONSOLIDATED DEBT" means, at any date, the aggregate amount of Debt of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such date; PROVIDED that (i) if a Permitted Receivables Transaction is outstanding at such date and is accounted for as a sale of accounts receivable under generally accepted accounting principles, Consolidated Debt determined as aforesaid shall be adjusted to include the additional Debt, determined on a consolidated basis as of such date, which would have been outstanding at such date had such Permitted Receivables Transaction been accounted for as a borrowing at such date and (ii) Consolidated Debt shall in any event include all 3 Debt of any Person other than the Guarantor or a Consolidated Subsidiary which is Guaranteed by the Guarantor or a Consolidated Subsidiary, except that Consolidated Debt shall not include Debt of a joint venture, partnership or similar entity which is Guaranteed by the Guarantor or a Consolidated Subsidiary by virtue of the joint venture, partnership or similar arrangement with respect to such entity or by operation of applicable law (and not otherwise) so long as the aggregate outstanding principal amount of such excluded Debt at any date does not exceed $50,000,000. "CONSOLIDATED EBIT" means, for any fiscal period, Consolidated Net Income for such period plus, to the extent deducted in determining Consolidated Net Income for such period, the aggregate amount of (i) Consolidated Interest Expense and (ii) federal, state and local income tax expense. "CONSOLIDATED INTEREST EXPENSE" means, for any fiscal period, (without duplication) (i) the consolidated interest expense of the Guarantor and its Consolidated Subsidiaries for such period MINUS (ii) the consolidated interest income of the Guarantor and its Consolidated Subsidiaries for such period, if, and only if, such consolidated interest income is equal to or less than $5,000,000, PLUS (iii) if a Permitted Receivables Transaction outstanding during such period is accounted for as a sale of accounts receivable under generally accepted accounting principles, the additional consolidated interest expense that would have accrued during such period had such Permitted Receivables Transaction been accounted for as a borrowing during such period, in each case determined on a consolidated basis. "CONSOLIDATED NET INCOME" means, for any fiscal period, the consolidated net income of the Guarantor and its Consolidated Subsidiaries for such period, determined on a consolidated basis after eliminating therefrom all Extraordinary Gains and Losses. "EXTRAORDINARY GAINS AND LOSSES" means and includes, for any fiscal period, all extraordinary gains and losses and all other material non-recurring non-cash items of the Guarantor and its Consolidated Subsidiaries for such period, determined on a consolidated basis and, in addition, includes, without limitation, gains or losses from the discontinuance of operations and gains or losses of the Guarantor and its Consolidated Subsidiaries for such period resulting from the sale, conversion or other disposition of material assets of the Guarantor or any Consolidated Subsidiary other than in the ordinary course of business. "CONSOLIDATED NET WORTH" means, at any date, the consolidated stockholders' equity of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of such date and adjusted so as to exclude the effect of the currency translation adjustment as of such date. "CONSOLIDATED SUBSIDIARY" means, at any date, with respect to any Person, any Subsidiary or other entity the accounts of which would be consolidated with those of such Person in its consolidated financial statements if 4 such statements were prepared as of such date; unless otherwise specified, Consolidated Subsidiary means a Consolidated Subsidiary of the Guarantor. "CONSOLIDATED TANGIBLE ASSETS" means, at any time, the total assets less all Intangible Assets appearing on the most recently prepared balance sheet of the Guarantor and its Consolidated Subsidiaries as of the end of a fiscal quarter of the Guarantor, prepared on a consolidated basis in accordance with United States generally accepted accounting principles as in effect on the date of calculation. "CONSOLIDATED TANGIBLE NET WORTH" means, at any date, (i) Consolidated Net Worth as of such date MINUS (ii) Intangible Assets as of such date. "CONSOLIDATED TOTAL CAPITALIZATION" means, at any date, the sum of Consolidated Debt and Consolidated Net Worth, each determined as of such date. "DEBT" of any Person means, at any date, without duplication, (i) the principal amount of all obligations of such Person for borrowed money, (ii) the principal amount of all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments (it being understood that, subject to the proviso to this definition of "Debt," performance bonds, performance guaranties, letters of credit, bank guaranties and similar instruments shall not constitute Debt of such Person to the extent that the outstanding reimbursement obligations of such Person in respect thereof are collateralized by cash or cash equivalents, which cash or cash equivalents would not be reflected as assets on a balance sheet of such Person prepared in accordance with generally accepted accounting principles), (iii) all obligations of such Person to pay the deferred purchase price of property or services recorded on the books of such Person, except for (a) trade and similar accounts payable and accrued expenses arising in the ordinary course of business, and (b) employee compensation and pension obligations, and other obligations arising from employee benefit programs and agreements or other similar employment arrangements, (iv) all obligations of such Person as lessee which are capitalized on the books of such Person in accordance with generally accepted accounting principles, (v) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person, and (vi) all Debt of others Guaranteed by such Person; PROVIDED, HOWEVER, that Debt shall not include: (A) contingent reimbursement obligations in respect of performance bonds, performance guaranties, bank guaranties or letters of credit issued in lieu of performance bonds or performance guaranties or similar instruments, in each case, incurred by such Person in the ordinary course of business; (B) contingent reimbursement obligations in respect of trade letters of credit, or similar instruments, in each case, incurred by such Person in the ordinary course of business; or 5 (C) contingent reimbursement obligations in respect of standby letters of credit or similar instruments securing self-insurance obligations of such Person; in each case, so long as the underlying obligation supported thereby does not itself constitute Debt. "DEBT RATING" means a rating of the Borrower's long-term debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. If a Debt Rating by a Rating Agency is required to be at or above a specified level and such Rating Agency shall have changed its system of classifications after the date hereof, the requirement will be met if the Debt Rating by such Rating Agency is at or above the new rating which most closely corresponds to the specified level under the old rating system. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DELAWARE OFFICE" means the office of the Agent identified on the signature pages hereof as its Delaware office, or such other office of the Agent as it may specify for such purpose by notice to the other parties hereto. "DOLLAR AMOUNT" means, at any time: (i) with respect to any Dollar-Denominated Loan, the principal amount thereof then outstanding; and (ii) with respect to any Alternative Currency Loan, the principal amount thereof then outstanding in the relevant Alternative Currency, converted to Dollars at the Spot Rate most recently used by the Agent to determine or redetermine the Dollar Amount of such Loan pursuant to Section 2.18(a). "DOLLAR-DENOMINATED LOAN" means a Loan that is made in Dollars pursuant to the applicable Notice of Borrowing. "DOLLARS" and the sign "$" mean lawful currency of the United States. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent. 6 "EFFECTIVE DATE" means the date this Agreement becomes effective in accordance with Section 3.01. "EMU LEGISLATION" means legislative measures of the Council of the European Union for the introduction of, changeover to or operation of the Euro. "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO" means the single currency of the Participating Member States in the Third Stage. "EURO-CURRENCY BUSINESS DAY" means a Euro-Dollar Business Day, unless such term is used in connection with an Alternative Currency Borrowing or Alternative Currency Loan, in which case such day shall only be a Euro-Currency Business Day if commercial banks are open for international business (including dealings in deposits in such Alternative Currency) in both London and the place designated by the Agent for funds to be paid or made available in such Alternative Currency. "EURO-CURRENCY LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Currency Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Currency Lending Office by notice to the Company and the Agent; PROVIDED that any Bank may from time to time by notice to the Borrower and the Agent designate separate Euro-Currency Lending Offices for its Loans in different currencies, in which case all references herein to the Euro-Currency Lending Office of such Bank shall be deemed to refer to any or all of such offices, as the context may require. 7 "EURO-CURRENCY LOAN" means either a Euro-Dollar Loan or an Alternative Currency Loan. "EURO-CURRENCY MARGIN" has the meaning specified in the Pricing Schedule. "EURO-CURRENCY RATE" means a rate of interest determined pursuant to Section 2.07(b) on the basis of a London Interbank Offered Rate. "EURO-CURRENCY RESERVE PERCENTAGE" means, for any day, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "EUROCURRENCY LIABILITIES" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Currency Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Lender to United States residents). "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London. "EURO-DOLLAR LOAN" means a Dollar-Denominated Committed Loan that bears interest at a Euro-Currency Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "EURO UNIT" means the currency unit of the Euro. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXISTING 364-DAY AGREEMENT" means the 364-Day Credit Agreement dated as of February 12, 1999, among the Borrower, the banks listed therein and Morgan Guaranty Trust Company of New York, as agent for such banks, as amended to the Effective Date. "EXISTING TYCO US DEBT" means publicly held and privately placed debt securities of Tyco US outstanding at December 22, 1997. "FACILITY FEE RATE" means a rate per annum determined daily in accordance with the Pricing Schedule. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next 8 succeeding such day, PROVIDED that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Agent. "FINAL MATURITY DATE" means the first anniversary of the Termination Date or, if such day is not a Euro-Currency Business Day, the next preceding Euro-Currency Business Day. "FINANCING DOCUMENTS" means this Agreement, the Subsidiary Guarantees and the Promissory Notes. "FIXED RATE LOANS" means Euro-Currency Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "GROUP OF LOANS" means, at any time, a group of Syndicated Loans consisting of (i) all such Loans which are Base Rate Loans at such time or (ii) all such Loans which are Euro-Currency Loans having the same Interest Period at such time, PROVIDED that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Article 8, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the holder of such Debt of the payment thereof or to protect such holder against loss in respect thereof (in whole or in part), PROVIDED that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "GUARANTOR" means Tyco International Ltd., a Bermuda company, and its successors. "GUARANTOR'S 1999 FORM 10-K" means the Guarantor's annual report on Form 10-K for the fiscal year ended September 30, 1999, as filed with the 9 Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INDENTURE" means the Indenture dated as of April 23, 1998 among the Borrower, the Guarantor and The Bank of New York, as Trustee, as amended or supplemented from time to time. "INTANGIBLE ASSETS" means, at any date, the amount (if any) which would be stated under the heading "Goodwill and Other Intangible Assets, Net" or under any other heading relating to intangible assets separately listed, in each case, on the face of a balance sheet of the Guarantor and its Consolidated Subsidiaries prepared on a consolidated basis as of such date. "INTEREST PERIOD" means: (1) with respect to each Euro-Currency Loan which is not a Swingline Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter (or such other period of time as may at the time be mutually agreed by the Borrower and the Banks), as the Borrower may elect in such notice; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Currency Business Day shall be extended to the next succeeding Euro-Currency Business Day unless such Euro-Currency Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Currency Business Day; and (b) any Interest Period which begins on the last Euro-Currency Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Currency Business Day of a calendar month; (2) with respect to each Swingline Loan, the period commencing on the date of borrowing specified in the applicable Notice of Committed Borrowing and ending on the third following Euro-Currency Business Day; (3) with respect to each Money Market LIBOR Loan, the period commencing on the date of borrowing specified in the applicable Notice of 10 Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; PROVIDED that: (a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; and (4) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not less than 30 days) as the Borrower may elect in accordance with Section 2.03; PROVIDED that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and PROVIDED FURTHER that: (x) any Interest Period applicable to any Loan which begins before the Termination Date and would otherwise end after the Termination Date shall end on the Termination Date ; and (y) any Interest Period applicable to any Loan which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "LIBOR AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, the Guarantor or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such asset. 11 "LOAN" means a Committed Loan or a Money Market Loan and "LOANS" means Committed Loans or Money Market Loans or any combination of the foregoing. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(b). "LONDON OFFICE" means the office of the Agent identified on the signature pages hereof as its London office, or such other office of the Agent as it may specify for such purpose by notice to the other parties hereto. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, consolidated financial position or consolidated results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole, (ii) the ability of the Obligors to perform their obligations under the Financing Documents, or (iii) the rights and remedies of the Agent or any Bank under the Financing Documents. "MATERIAL DEBT" means Debt (other than (i) any Guarantee by the Guarantor of Debt of a Subsidiary, (ii) any Guarantee by a Subsidiary of Debt of the Guarantor or another Subsidiary, (iii) any Debt of the Guarantor owed to a Wholly-Owned Consolidated Subsidiary or (iv) any Debt of a Subsidiary owed to the Guarantor or a Wholly-Owned Consolidated Subsidiary) of the Guarantor and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate outstanding principal amount exceeding $50,000,000. "MATERIAL PLAN" means at any time a Plan or Plans having aggregate unrefunded Liabilities in excess of $25,000,000. "MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section 2.03(d). "MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "MONEY MARKET BORROWING" has the meaning set forth in Section 1.03. "MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; PROVIDED that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. 12 "MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "MONEY MARKET MARGIN" has the meaning set forth in Section 2.03(d). "MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "MOODY'S" means Moody's Investors Service, Inc., or any successor to such corporation's business of rating debt securities. "MULTIEMPLOYER PLAN" means at any time a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA either (i) to which any member of the ERISA Group is then making or accruing an obligation to make contributions or (ii) has at any time within the preceding five plan years been maintained, or contributed to, by any Person who was at such time a member of the ERISA Group for employees of any Person who was at such time a member of the ERISA Group. "NATIONAL CURRENCY UNIT" or "NCU" means the unit of currency (other than a Euro Unit) of a Participating Member State. "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in Section 2.02 or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.16. "OBLIGOR" means, at any time, the Borrower, the Guarantor and each Subsidiary Guarantor at such time. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(b). "PARTICIPATING MEMBER STATES" means those members of the European Union from time to time which adopt a single, shared currency in the Third Stage. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED ACQUIRED DEBT" means Acquired Debt of a Person which: 13 (a) remains outstanding no more than 180 days after the date such Person becomes a Subsidiary or merges into a Subsidiary (the "ACQUISITION DATE"); OR (b) remains outstanding more than 180 days after the Acquisition Date, but only if (x) 180 days after the Acquisition Date, the senior unsecured debt of the Borrower is rated at least BBB- by S&P or Baa3 by Moody's, (y) such Acquired Debt by its terms is not callable or redeemable prior to its stated maturity within 180 days after the Acquisition Date and (z) such Person in good faith has made or caused to be made an offer to acquire all such Acquired Debt, including, without limitation, an offer to exchange such Acquired Debt for securities of the Borrower, on terms which, in the opinion of an independent investment banking firm of national reputation and standing, are consistent with market practices in existence at the time for offers of a similar nature, PROVIDED that the expiration date of any such offer shall not be later than the 180 days after the Acquisition Date, and PROVIDED FURTHER that if Acquired Debt which becomes Permitted Acquired Debt under this clause (b) thereafter becomes callable or redeemable prior to its stated maturity, such Acquired Debt shall cease to be Permitted Acquired Debt under this clause (b) 90 days after it becomes so callable or redeemable; OR (c) remains outstanding more than 180 days after the Acquisition Date and is not Permitted Acquired Debt under clause (b), but only if and to the extent that the aggregate outstanding principal amount of Permitted Acquired Debt under this clause (c) at no time exceeds 5% of the Consolidated Tangible Assets of the Guarantor. "PERMITTED RECEIVABLES TRANSACTION" means any sale or sales of, refinancing of and/or financing secured by, any accounts receivable of the Guarantor and/or any of its Subsidiaries (the "RECEIVABLES") pursuant to which the Guarantor and its Subsidiaries realize aggregate net proceeds of not more than $500,000,000 at any one time outstanding, including, without limitation, any revolving purchase(s) of Receivables where the maximum aggregate uncollected purchase price (exclusive of any deferred purchase price) for such Receivables at any time outstanding does not exceed $500,000,000. "PERSON" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (ii) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (iii) has at any time within the preceding five years been maintained, or contributed to, by any Person which 14 was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PRICING SCHEDULE" means the Pricing Schedule attached hereto. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "PRINCIPAL OBLIGOR" means the Borrower or the Guarantor. "PROMISSORY NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "PROMISSORY NOTE" means any one of such promissory notes issued hereunder. "PROPERTY" means any interest of any kind in any property or assets, whether real, mixed or personal and whether tangible or intangible. "PROSPECTS" means at any time, results of future operations which are reasonably foreseeable based upon the facts and circumstances in existence at such time. "QUARTERLY PAYMENT DATES" means each March 31, June 30, September 30 and December 31. "RATE FIXING DATE" means, with respect to any Interest Period, the day on which quotes for deposits in the relevant currency for such Interest Period are customarily taken in the London interbank market for delivery on the first day of such Interest Period. "RATING AGENCY" means S&P or Moody's. "REFERENCE BANKS" means the principal London offices of The Chase Manhattan Bank, Commerzbank AG and Morgan Guaranty Trust Company of New York. "REFINANCING" has the meaning set forth in Section 5.07 (and the term "REFINANCED" has a correlative meaning). "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having more than 60% of the aggregate amount of the Commitments or, if the Commitments shall have terminated, holding Promissory Notes evidencing more than 60% of the aggregate unpaid Dollar Amount of the Loans. 15 "RESPONSIBLE OFFICER" means any of the following: (i) the Chairman, President, Vice President and Chief Financial Officer, Treasurer and Secretary of the Guarantor or (ii) the Chairman, President, Vice President and Chief Financial Officer, Treasurer or Secretary of the Borrower or a Managing Director of the Borrower. "RESTRICTED PAYMENT" means (i) any dividend or other distribution on any shares of the Guarantor's capital stock (except to the extent such dividends and distributions are payable in shares of its capital stock or Stock Equivalents) or (ii) any payment (except to the extent payable in shares of the Guarantor's capital stock or Stock Equivalents) on account of the purchase, redemption, retirement or acquisition of (a) any shares of the Guarantor's capital stock or (b) any option, warrant or other right to acquire shares of the Guarantor's capital stock. "REVOLVING CREDIT LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(a). "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor to its business of rating debt securities. "SIGNIFICANT SUBSIDIARY" means, at any date, (A) any Consolidated Subsidiary which, including its consolidated subsidiaries, meets any of the following conditions: (i) the investments in and advances to such Consolidated Subsidiary by the Guarantor and its other Consolidated Subsidiaries exceed 15% of the total assets of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis as of the end of the most recently completed fiscal year; or (ii) the proportionate share attributable to such Consolidated Subsidiary of the total assets of the Guarantor and its Consolidated Subsidiaries (after intercompany eliminations) exceeds 15% of the total assets of the Guarantor and the Consolidated Subsidiaries, determined on a consolidated basis as of the end of the most recently completed fiscal year; or (iii) the Guarantor's and its Consolidated Subsidiaries' equity in the income of such Consolidated Subsidiary from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle exceeds 15% of such income of the Guarantor and its Consolidated Subsidiaries, determined on a consolidated basis for the most recently completed fiscal year; and 16 (B) any other Subsidiary which is an Obligor. "SPOT RATE" means, for any Alternative Currency on any day, the average of the Agent's spot buying and selling rates for the exchange of such Alternative Currency and Dollars as of approximately 11:00 A.M. (London time) on such day. "STOCK EQUIVALENTS" means, with respect to any Person, options, warrants, calls or other rights entered into or issued by such Person to acquire any capital stock or equity securities of, or other ownership interests in, or securities convertible into or exchangeable for, capital stock or equity securities of, or other ownership interests in, such Person. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, Subsidiary means a Subsidiary of the Guarantor. "SUBSIDIARY GUARANTEE" means a Guarantee entered into by a Subsidiary substantially in the form of Exhibit J hereto. "SUBSIDIARY GUARANTOR" means, at any time, a Subsidiary which at or prior to such time shall have delivered to the Agent (i) a Subsidiary Guarantee duly executed by such Subsidiary, which Subsidiary Guarantee has not terminated in accordance with its terms, (ii) an opinion of counsel for such Subsidiary (which counsel may be an employee of the Guarantor or such Subsidiary) reasonably satisfactory to the Agent with respect to such Subsidiary Guarantee, substantially in the form of Exhibit K hereto and covering such additional matters relating to such Subsidiary Guarantee as the Agent may reasonably request and (iii) all documents the Agent may reasonably request relating to the existence of such Subsidiary, the corporate authority for and the validity of such Subsidiary Guarantee, and any other matters reasonably determined by the Agent to be relevant thereto, all in form and substance reasonably satisfactory to the Agent. "SWINGLINE AVAILABILITY PERIOD" means the period from and including the Effective Date to and including the third Euro-Currency Business Day prior to the Termination Date. "SWINGLINE BANK" means (i) each Bank designated in the Commitment Schedule as being a Swingline Bank and (ii) any Assignee of all or part of the Commitment of a Bank identified in clause (i) (or identified in this clause (ii)), to the extent of such assignment. "SWINGLINE SUBLIMIT" means a Dollar Amount equal to $500,000,000. 17 "SWINGLINE LOAN" means a loan made by a Swingline Bank pursuant to Section 2.01(c). "SYNDICATED LOAN" means a Revolving Credit Loan or a Term Loan; PROVIDED that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term Syndicated Loan shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "TERMINATION DATE" means February 9, 2001, or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "TERM LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(b). "THIRD STAGE" means the third stage of European economic and monetary union pursuant to the Treaty on European Union. "TREATY ON EUROPEAN UNION" means the Treaty of Rome of March 25, 1957, as amended by the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht on February 7, 1992, and came into force on November 1, 1993), as amended from time to time. "TYCO US" means Tyco International (US) Inc., a Massachusetts corporation, and its successors. "TYCOLUX DEBT SECURITIES" means any unsecured debt securities issued by the Borrower pursuant to the Indenture. "TYPE" has the meaning specified in Section 1.03. "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or to any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. "WHOLLY-OWNED CONSOLIDATED SUBSIDIARY" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares and investments by foreign nationals 18 mandated by applicable law) are at the time beneficially owned, directly or indirectly, by the Guarantor. SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Guarantor's independent public accountants) with the then most recent audited consolidated financial statements of the Guarantor and its Consolidated Subsidiaries delivered to the Banks; PROVIDED that, if either (i) the Guarantor notifies the Agent that the Guarantor wishes to eliminate the effect of any change in generally accepted accounting principles on the operation of any covenant contained in Article 5 or (ii) the Agent notifies the Guarantor that it wishes to effect such an elimination, then the Guarantor's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective, until either (A) such notice is withdrawn by the party giving such notice or (B) such covenant is amended in a manner satisfactory to the Guarantor and the Agent to reflect such change in generally accepted accounting principles. SECTION 1.03. CLASSES AND TYPES OF LOANS AND BORROWINGS. The term "BORROWING" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on the same date, all of which Loans are of the same Class and Type (subject to Article 8) and, in the case of Euro-Currency Loans, have the same initial Interest Period. Loans hereunder are distinguished by "Class" and by "TYPE". The "CLASS" of a Loan (or of a Commitment to make such a Loan or of a Borrowing comprised of such Loans) refers to the determination whether such Loan is a Money Market Loan, a Swingline Loan or a Syndicated Loan (or a Committed Loan), each of which constitutes a Class. The "TYPE" of a Loan refers to the determination whether a Committed Loan is a Euro-Currency Loan or a Base Rate Loan, each of which constitutes a "TYPE". Identification of a Loan (or a Borrowing) by both Class and Type (E.G., a "Syndicated Euro-Currency Loan") indicates that such Loan is both a Syndicated Loan and a Euro-Currency Loan (or that such Borrowing is comprised of such Loans). ARTICLE 2 THE CREDITS SECTION 2.01. COMMITMENTS TO LEND. (a) REVOLVING CREDIT LOANS. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans (which may be denominated in Dollars or any Alternative Currency as the Borrower elects pursuant to Section 2.02) to the Borrower pursuant to this 19 Section 2.01 from time to time prior to the Termination Date in amounts such that (i) the aggregate Dollar Amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment and (ii) the aggregate Dollar Amount of Alternative Currency Loans shall not exceed the Alternative Currency Sublimit. Within the foregoing limits, the Borrower may borrow under this Section, repay or, to the extent permitted by Section 2.11, prepay Loans and reborrow at any time prior to the Termination Date under this Section 2.01. (b) TERM LOANS. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan (which may be denominated in Dollars or any Alternative Currency as the Borrower elects pursuant to Section 2.02) to the Borrower on the Termination Date in an aggregate Dollar Amount up to but not exceeding the amount of its Commitment; PROVIDED that the aggregate Dollar Amount of Alternative Currency Loans shall not exceed the Alternative Currency Sublimit. (c) SWINGLINE LOANS. If so requested by the Borrower in the Notice of Committed Borrowing for any Syndicated Borrowing of Alternative Currency Loans, each Swingline Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan in the same Alternative Currency to the Borrower pursuant to this subsection (c) on the third Euro-Currency Business Day prior to the date of such Syndicated Borrowing; PROVIDED that (i) the date of such Swingline Borrowing is during the Swingline Availability Period and (ii) immediately after such loan is made, (A) the aggregate outstanding Dollar Amount of such Swingline Bank's Committed Loans shall not exceed its Commitment, (B) the aggregate outstanding Dollar Amount of all the Loans shall not exceed the aggregate amount of the Commitments, (C) the aggregate Dollar Amount of Alternative Currency Loans shall not exceed the Alternative Currency Sublimit and (D) the aggregate Dollar Amount of Swingline Loans shall not exceed the Swingline Sublimit. (d) PURCHASE OF PARTICIPATIONS IN SWINGLINE LOANS. If, at the maturity date of any Swingline Loans, the Syndicated Borrowing contemplated by the related Notice of Committed Borrowing is not made (whether because of an event described in Section 6.01(f) or 6.01(g), because of termination of the Commitments or for any other reason), each Bank which is not a Swingline Bank shall, on the date such Syndicated Borrowing would have been made (the "REFUNDING DATE"), purchase an undivided participating interest in each such Swingline Loan in an amount equal to such Bank's Commitment Percentage of the principal amount of such Swingline Loan. On the Refunding Date, each such Bank shall transfer to the Agent for the account of the Swingline Banks, in immediately available funds, in payment of the aggregate purchase price of such participations, an amount equal to its Commitment Percentage of the aggregate outstanding principal amount of Swingline Loans maturing on the Refunding Date. 20 (e) PAYMENTS ON PARTICIPATED SWINGLINE LOANS. Whenever, at any time after the Agent has received from any Bank for the account of the Swingline Banks such Bank's payment pursuant to Section 2.01(d), any Swingline Bank receives (or the Agent receives on behalf of any Swingline Bank) any payment on account of a Swingline Loan in which such Bank has purchased a participation pursuant to Section 2.01(d), such Swingline Bank (or the Agent, as the case may be) will promptly distribute to such Bank its ratable share of such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); PROVIDED that in the event that such payment received by a Swingline Bank (or the Agent, as the case may be) is required to be returned, such Bank will return to such Swingline Bank any portion thereof previously distributed to it by such Swingline Bank. (f) OBLIGATIONS TO REFUND OR PURCHASE PARTICIPATIONS IN SWINGLINE LOANS ABSOLUTE. The obligation of each Bank which is not a Swingline Bank to purchase participating interests in Swingline Loans pursuant to Section 2.01(d) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Bank, any Obligor or any other Person may have against any Swingline Bank or any other Person, (ii) the occurrence or continuance of a Default or an Event of Default or the termination or reduction of the Commitments, (iii) any adverse change in the condition (financial or otherwise) of any Obligor or any other Person, (iv) any breach of this Agreement by any Obligor, any other Bank or any other Person or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (g) MINIMUM BORROWINGS. Each Borrowing under this Section 2.01 shall be in an aggregate Dollar Amount of not less than $10,000,000 (except that any such Borrowing may be in the aggregate Dollar Amount of the available Commitments of the relevant Class) and shall be made from the several Lenders ratably in proportion to their respective Commitments of such Class. SECTION 2.02. NOTICE OF COMMITTED BORROWING. The Borrower shall give the Agent notice (a "NOTICE OF COMMITTED BORROWING") (1) at its Delaware Office not later than 10:30 A.M. (Delaware time) on (y) the date of each Base Rate Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing and (2) at its Delaware Office and its London Office not later than 10:30 A.M. (New York City time) on the fourth Euro-Currency Business Day before each Syndicated Borrowing of Alternative Currency Loans, specifying (i) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Base Rate Borrowing or a Euro-Currency Business Day in the case of a Euro-Currency Borrowing; (ii) the currency and aggregate amount (in such currency) of such Borrowing; 21 (iii) the initial Type of Loans comprising such Borrowing; (iv) in the case of a Euro-Currency Borrowing, the duration of the initial Interest Period applicable thereto, subject to the provisions of the definition of Interest Period; and (v) if such Borrowing is a Syndicated Borrowing of Alternative Currency Loans, whether, in conjunction with such Borrowing, the Borrower wishes to make a Swingline Borrowing in the same Alternative Currency, and if so the aggregate amount of such Swingline Borrowing (which shall not exceed the aggregate amount of such Syndicated Borrowing). SECTION 2.03. THE MONEY MARKET BORROWINGS. (a) THE MONEY MARKET OPTION. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks, at any time prior to the Termination Date, to make offers to make Money Market Loans in Dollars to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) MONEY MARKET QUOTE REQUEST. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received at its Delaware Office no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $10,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. 22 The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request. (c) INVITATION FOR MONEY MARKET QUOTES. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) SUBMISSION AND CONTENTS OF MONEY MARKET QUOTES. (i) Each Bank may, in its sole discretion, submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection 2.03(d) and must be submitted to the Agent by telex or facsimile transmission at its Delaware Office not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); PROVIDED that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing and the Interest Period therefor, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money 23 Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from the applicable London Interbank Offered Rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection 2.03(d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection 2.03(d)(i). (e) NOTICE TO BORROWER. The Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection 2.03(d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market 24 Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) ACCEPTANCE AND NOTICE BY BORROWER. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent at its Delaware Office of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection 2.03(e) (and the failure of the Borrower to give such notice by such time shall constitute non-acceptance) and the Agent shall promptly notify each affected Bank. In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may, but shall not be obligated to, accept any Money Market Quote in whole or in part; PROVIDED that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $10,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending order of Money Market Margins or Money Market Absolute Rates, as the case may be, in each case beginning with the lowest rate so offered, and (iv) the Borrower may not accept any offer where the Agent has advised the Borrower that such offer is described in subsection 2.03(d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) ALLOCATION BY AGENT. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate 25 principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. NOTICE TO BANKS; FUNDS OF LOANS. (a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) On the date of each Borrowing, each Bank having a Commitment of the relevant Class shall make available its ratable share of such Borrowing: (A) if such Borrowing is to be made in Dollars, not later than 2:00 P.M. (New York City time), in Federal or other funds immediately available in New York City, to the Agent at its office specified in or pursuant to Section 9.01; or (B) if such Borrowing is to be made in an Alternative Currency, in such Alternative Currency (in such funds as may then be customary for the settlement of international transactions in such Alternative Currency) to the account of the Agent at such time and place as shall have been notified by the Agent to the Borrower and the Banks. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied or waived in accordance with Section 9.05, the Agent will make the funds so received from the Banks available to the Borrower no later than 3:00 P.M. (New York City time) on such date, in Federal or other funds immediately available in New York City, as directed by the Borrower; PROVIDED that if a Swingline Borrowing shall have been made in conjunction with such Borrowing, the Agent will apply the proceeds of such Borrowing directly to such Swingline Borrowing to the extent necessary to repay such Swingline Borrowing in full, together with accrued interest thereon. (c) If any Bank makes (i) a Term Loan hereunder on any day on which the Borrower is to repay an outstanding Revolving Credit Loan in the same currency from such Bank or (ii) a Syndicated Loan hereunder on any day on which the Borrower is to repay an outstanding Swingline Loan in the same currency from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Agent as provided in subsection 2.04(b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be. (d) Unless the Agent shall have received at its Delaware Office notice from a Bank prior to the date of any Borrowing that such Bank will not make 26 available to the Agent such Bank's share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and, if such Bank shall not have paid such amount to the Agent within two Domestic Business Days of the Agent's demand therefor, the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at the Federal Funds Rate (if such Borrowing is in Dollars) or the applicable London Interbank Offered Rate (if such Borrowing is in an Alternative Currency). If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. (e) The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of any obligation to make a Loan on such date. SECTION 2.05. PROMISSORY NOTES. (a) The Loans of each Bank shall be evidenced by a single Promissory Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Agent, request that its Loans of a particular Type, currency or Class be evidenced by a separate Promissory Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Promissory Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant Type, currency or Class. Each reference in this Agreement to the "Promissory Note" of such Bank shall be deemed to refer to and include any or all of such Promissory Notes, as the context may require. (c) Upon receipt of each Bank's Promissory Note pursuant to Section 3.01(b), the Agent shall forward such Promissory Note to such Bank. Each Bank shall record the date, amount, Class, Type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Promissory Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; PROVIDED that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Promissory Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Promissory Note and to attach to and make a part of its Promissory Note a continuation of any such schedule as and when required. 27 SECTION 2.06. MATURITY OF LOANS. (a) Each Revolving Credit Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the Termination Date. (b) Each Term Loan shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Final Maturity Date. (c) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the last day of the Interest Period applicable to such Borrowing. (d) Each Swingline Loan shall mature, and the principal amount thereof shall be due and payable (together with interest accrued thereon), on the third Euro-Currency Business Day following the date of borrowing thereof. SECTION 2.07. INTEREST RATES. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for each such day. Such interest shall be payable at maturity, quarterly in arrears on each Quarterly Payment Date prior to maturity and, with respect to the principal amount of any Base Rate Loan converted to a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for each such day. (b) Each Euro-Currency Loan (including each Swingline Loan) shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Currency Margin for each such day plus the applicable London Interbank Offered Rate for such Interest Period (which, in the case of a Swingline Loan, is three Euro-Currency Business Days). Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) (x) in the case of Syndicated Loans, two Euro-Currency Business Days before the first day of such Interest Period and (y) in the case of Swingline Loans, the first day of such Interest Period, in each case in an amount approximately equal to the principal amount of the Euro-Currency Loan of such 28 Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (c) Any overdue principal of or interest on any Euro-Currency Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Euro-Currency Margin for such day plus the London Interbank Offered Rate applicable to such Loan on the day before such payment was due and (ii) the Euro-Currency Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Currency Business Days, then for such other period of time not longer than six months as the Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Reference Banks are offered to such Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Currency Reserve Percentage (or, if the circumstances described in subsection (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (d) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(b) as if the related Money Market LIBOR Borrowing were a Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the Base Rate for each such day. (e) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (f) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank 29 does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. FACILITY FEE. (a) The Borrower shall pay to the Agent for the account of the Banks ratably a facility fee in Dollars at the Facility Fee Rate. Such facility fee shall accrue (i) from and including the date hereof to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date (or earlier date of termination of the Commitments in their entirety) to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding Dollar Amount of the Loans. (b) Accrued fees under this Section shall be payable quarterly in arrears on each Quarterly Payment Date and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans shall be repaid in their entirety). SECTION 2.09. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower may, upon at least three Domestic Business Days' notice to the Agent at its Delaware Office, (i) terminate the Commitments at any time, if no Loans are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple thereof, the aggregate amount of the Commitments in excess of the aggregate outstanding Dollar Amount of the Loans. Promptly after receiving a notice pursuant to this Section, the Agent shall notify each Bank of the contents thereof. SECTION 2.10. MANDATORY TERMINATION OF COMMITMENTS. The Commitments shall terminate on the Termination Date, and any Revolving Credit Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date. SECTION 2.11. OPTIONAL PREPAYMENTS. (a) Subject in the case of Euro-Currency Loans to Section 2.13, the Borrower may upon notice to the Agent (i) at its Delaware Office not later than 10:30 A.M. (Delaware time) on the Domestic Business Day preceding the date of prepayment of any Group of Base Rate Loans (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01) or the third Euro-Dollar Business Day before the date of prepayment of any Group of Euro-Dollar Loans, prepay any such Group (or Borrowing) or (ii) at its London Office not later than 11:00 A.M. (London time) on the third Euro-Currency Business Day before the date of prepayment, prepay any Group of Alternative Currency Loans, in each case in whole at any time, or from time to time in part in Dollar Amounts aggregating not less than $10,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to but not including the date of prepayment. Each such optional 30 prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group of Loans (or such Money Market Borrowing). (b) Except as provided in Section 2.11(a), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof. (c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and once notice is so given to the Banks, the Borrower's notice of prepayment shall not thereafter be revocable by the Borrower. SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Obligors shall make each payment of principal of, and interest on, the Dollar-Denominated Loans and of fees hereunder not later than 2:00 P.M. (New York City time) on the date when due, in Federal or other funds immediately available in New York City, to the Agent at its address in New York City specified in or pursuant to. The Obligors shall make each payment of principal of, and interest on, the Alternative Currency Loans in the relevant Alternative Currency in such funds as may then be customary for the settlement of international transactions in such Alternative Currency, to such account and at such time and at such place as shall have been notified by the Agent to the Borrower and the Banks. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the respective accounts of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Currency Loans shall be due on a day which is not a Euro-Currency Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Currency Business Day unless such Euro-Currency Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Currency Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with 31 interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at (i) the Federal Funds Rate (if such amount was distributed in Dollars) or (ii) the rate per annum at which one-day deposits in the relevant currency are offered to the Agent in the London interbank market for such day (if such amount was distributed in an Alternative Currency). (c) Each payment by the Agent in Euro will be made in Euro Units rather than National Currency Units, unless the Agent notifies the recipient otherwise. (d) The foregoing provisions do not affect the rights of any party under the EMU Legislation or other applicable law to make Euro payments in a National Currency Unit or to receive Euro payments credited to its account in a National Currency Unit. SECTION 2.13. FUNDING LOSSES. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Euro-Dollar Loan is converted to a Base Rate Loan (pursuant to Article 2, 6 or 8 (other than Section 8.02)) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.11(c) or 2.16 (other than as a result of default by such Bank), the Borrower shall reimburse each Bank within 15 days after written demand for any resulting loss or expense reasonably incurred by it (or by an existing or prospective Participant in the related Loan) in obtaining, liquidating or employing deposits or other funds from third parties, but excluding loss of margin for the period after any such payment or conversion or failure to borrow, prepay, convert or continue; PROVIDED that such Bank shall have delivered to the Borrower a certificate specifying in reasonable detail the calculation of, and the reasons for, the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.14. COMPUTATION OF INTEREST AND FEES. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day); PROVIDED that if the Agent reasonably determines that a different basis of computation is the market convention for a particular Alternative Currency, such different basis shall be used. SECTION 2.15. REGULATION D COMPENSATION. Each Bank may require the Borrower to pay, contemporaneously with each payment of interest on the Euro-Currency Loans, additional interest on the related Euro-Currency Loan of such Bank at a rate per annum determined by such Bank up to but not exceeding the 32 excess of (i) (A) the applicable London Interbank Offered Rate divided by (B) one MINUS the Euro-Currency Reserve Percentage over (ii) the applicable London Interbank Offered Rate. Any Bank wishing to require payment of such additional interest (x) shall so notify the Borrower and the Agent, in which case such additional interest on the Euro-Currency Loans of such Bank shall be payable to such Bank at the place indicated in such notice with respect to each Interest Period commencing at least three Euro-Currency Business Days after the giving of such notice, and (y) shall notify the Borrower at least five Euro-Currency Business Days prior to each date on which interest is payable on the Euro-Currency Loans of the amount then due it under this Section. SECTION 2.16. METHOD OF ELECTING INTEREST RATES. (a) The Dollar-Denominated Loans included in each Syndicated Borrowing shall initially be of the Type specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the Type of each such Group of Loans (subject to subsection 2.16(d) of this Section and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to Euro-Dollar Loans as of any Euro-Dollar Business Day; and (ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.13 if any such conversion is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "Notice of Interest Rate Election") to the Agent at its Delaware Office not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective. A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; PROVIDED that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $10,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; 33 (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection 2.16(a) above; (iii) if the Loans comprising such Group are to be converted, the new Type of Loans and, if the Loans resulting from such conversion are to be Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Syndicated Loans to, or continue any Syndicated Loans for an additional Interest Period as, Euro-Dollar Loans if (i) the aggregate Dollar Amount of any Group of Euro-Dollar Loans created or continued as a result of such election would be less than $10,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Agent. (e) The initial Interest Period for each Syndicated Borrowing of Alternative Currency Loans shall be specified by the Borrower in the applicable Notice of Committed Borrowing. The Borrower may specify the duration of each subsequent Interest Period applicable to such Group of Loans by delivering to the Agent at its London Office not later than 11:00 A.M. (London time) on the third Euro-Currency Business Day before the end of the immediately preceding Interest Period, a notice specifying the Group of Loans to which such notice applies and the duration of such subsequent Interest Period (which shall comply with the provisions of the definition of Interest Period). Such notice may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; PROVIDED that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the Dollar Amounts of the portion to which such notice applies, and the remaining portion to which it does not apply, are each at least $10,000,000. If no such notice is timely received by the Agent before the end of any applicable Interest Period, the Borrower shall be deemed to have elected that the subsequent Interest Period for such Group of Loans shall have a duration of one month (subject to the provisions of the definition of Interest Period). 34 SECTION 2.17. OPTIONAL INCREASE IN COMMITMENTS. At any time, if no Default shall have occurred and be continuing, the Borrower may, if it so elects, increase the aggregate amount of the Commitments, either by designating a financial institution not theretofore a Bank to become a Bank (such designation to be effective only with the prior written consent of the Agent, which consent will not be unreasonably withheld) or by agreeing with an existing Bank that such Bank's Commitment shall be increased. Upon execution and delivery by the Borrower and such Bank or other financial institution of an instrument in form reasonably satisfactory to the Agent, such existing Bank shall have a Commitment as therein set forth or such other financial institution shall become a Bank with a Commitment as therein set forth and all the rights and obligations of a Bank with such a Commitment hereunder; PROVIDED: (a) that the Borrower shall provide prompt notice of such increase to the Agent, who shall promptly notify the Banks; (b) that no Commitment of any Bank exceeds, as a result of such increase, 10% of the aggregate amount of the Commitments; and (c) that the amount of such increase, together with all other increases in the aggregate amount of the Commitments pursuant to this Section 2.17 since the date of this Agreement, does not exceed $500,000,000. Upon any increase in the aggregate amount of the Commitments pursuant to this Section 2.17, within five Domestic Business Days, in the case of any Group of Base Rate Loans then outstanding, and at the end of the then current Interest Period with respect thereto, in the case of any Group of Euro-Currency Loans then outstanding, the Borrower shall prepay such Group in its entirety and, to the extent the Borrower elects to do so and subject to the conditions specified in Article 3, the Borrower shall reborrow Syndicated Loans from the Banks in proportion to their respective Commitments after giving effect to such increase, until such time as all outstanding Syndicated Loans are held by the Banks in such proportion. SECTION 2.18. DETERMINING DOLLAR AMOUNTS OF ALTERNATIVE CURRENCY LOANS; RELATED MANDATORY PREPAYMENTS. (a) The Agent shall determine the Dollar Amount of each Alternative Currency Loan promptly after it receives the related Notice of Committed Borrowing based on the Spot Rate on the third Euro-Currency Business Day before the date of Syndicated Borrowing specified in such notice. Thereafter, the Agent shall redetermine the Dollar Amount of each Syndicated Alternative Currency Loan on the third Euro-Currency Business Day before the first day of each Interest Period (after the first Interest Period) applicable thereto and, if any Interest Period applicable thereto exceeds three months, the days falling at three-month intervals after the first day thereof, based in each case on the Spot Rate on such Euro-Currency Business Day. The Agent shall promptly notify the Borrower and the Banks of each Dollar Amount so 35 determined, and its determination thereof shall be conclusive in the absence of manifest error. (b) If, after giving effect to any redetermination of a Dollar Amount pursuant to Section 2.18(a), the aggregate Dollar Amount of all outstanding Loans exceeds the aggregate amount of the Commitments, or the aggregate Dollar Amount of all outstanding Alternative Currency Loans exceeds 105% of the Alternative Currency Sublimit, the Agent shall notify the Borrower and the Banks that the Borrower is required to cause one or more Loans to be prepaid pursuant to this subsection. Within five Euro-Currency Business Days after receiving such notice, the Borrower shall prepay Loans (in accordance with the procedure for prepaying Loans set forth in Section 2.11) to the extent required to eliminate any such excess. SECTION 2.19. ADDITIONAL RESERVE COSTS. (a) If and so long as any Bank is required to make special deposits with the Bank of England, to maintain reserve asset ratios or to pay fees, in each case in respect of such Bank's Euro-Currency Loans in any Alternative Currency, such Bank may require the Borrower to pay, contemporaneously with each payment of interest on each of such Loans, additional interest on such Loan at a rate per annum equal to the Mandatory Costs Rate calculated in accordance with the formula and in the manner set forth in Exhibit L hereto. (b) If and so long as any Bank is required to comply with reserve assets, liquidity, cash margin or other requirements of any monetary or other authority (including any such requirement imposed by the European Central Bank or the European System of Central Banks, but excluding requirements reflected in an applicable Euro-Currency Reserve Percentage or Mandatory Costs Rate) in respect of any of such Bank's Euro-Currency Loans in any Alternative Currency, such Bank may require the Borrower to pay, contemporaneously with each payment of interest on each of such Bank's Euro-Currency Loans subject to such requirements, additional interest on such Loan at a rate per annum specified by such Bank to be the cost to such Bank of complying with such requirements in relation to such Loan. (c) Any additional interest owed pursuant to subsection (a) or (b) above shall be determined by the relevant Bank, which determination shall be conclusive in the absence of manifest error, and notified to the Borrower (with a copy to the Agent) at least five Euro-Currency Business Days before each date on which interest is payable for the relevant Loan, and such additional interest so notified to the Borrower by such Bank shall be payable to the Agent for the account of such Bank on each date on which interest is payable for such Loan. SECTION 2.20. CHANGES IN MARKET PRACTICE FOLLOWING EMU. Market practice relating to the inter-bank deposit market, the method and timing of rate fixing and the calculation of interest may change in the Third Stage. As a result, it may differ from the method of rate fixing and the calculation of interest 36 prescribed under the terms of this Agreement and may also change in relation to borrowings in any currency substituted by the Euro after the date of this Agreement. In this event, the Agent may, with the written consent of the Borrower (which shall not be unreasonably withheld), notify the Banks of modifications to this Agreement which are required or reasonably desirable to reflect and conform to these changes. Such modifications may provide for the use of London interbank market offered rates or interbank market offered rates from a wider European market (or, in either case, screen rates reflecting these offered rates). They may also change, among other things, the rate-fixing time or date, the definition of "Euro-Currency Business Day" and the provisions of . The modifications set out in the Agent's notice will take effect on the later of the date specified in such notice, the date 10 Euro-Currency Business Days after the date of such notice and (in the case of such changes being made due to a country becoming a Participating Member State after the date of this Agreement) the date on which such participation commences. The modifications will not apply to interest which is computed for any Interest Period starting before the date the modifications take effect. This Section may, in appropriate circumstances, be invoked more than once. ARTICLE 3 CONDITIONS SECTION 3.01. EFFECTIVENESS. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05): (a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); (b) receipt by the Agent of a duly executed Promissory Note for the account of each Bank dated on or before the Effective Date complying with the provisions of Section 2.05; (c) receipt by the Agent of an opinion of each of (i) Mark A. Belnick, Executive Vice President and Chief Corporate Counsel of the Guarantor, substantially in the form of Exhibit E hereto, (ii) Beghin & Feider in association with Allen & Overy, special Luxembourg counsel for the Borrower, substantially in the form of Exhibit F hereto and (iii) Appleby, Spurling & Kempe, special Bermuda counsel for the Guarantor, substantially in the form of Exhibit G hereto; (d) receipt by the Agent of an opinion of Davis Polk & Wardwell, special counsel for the Agent, substantially in the form of Exhibit H hereto and 37 covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) receipt by the Agent of all documents the Agent may reasonably request relating to the existence of the Borrower and the Guarantor, the corporate authority for and the validity of this Agreement and the Promissory Notes, and any other matters reasonably determined by the Agent to be relevant hereto, all in form and substance reasonably satisfactory to the Agent; (f) receipt by the Agent of evidence satisfactory to it that all principal of any loans outstanding under, and all accrued interest and fees under, the Existing 364-Day Agreement shall have been paid in full; and (g) receipt by the Agent of payment of participation fees for the account of the Banks in the respective amounts heretofore mutually agreed; PROVIDED that this Agreement shall not become effective or be binding on any party hereto unless all of the foregoing conditions are satisfied not later than February 11, 2000. The Agent shall promptly notify the Borrower, each Bank and each other party to the Existing 364-Day Agreement of the Effective Date, and such notice shall be conclusive and binding on all parties to the Financing Documents. SECTION 3.02. EXISTING 364-DAY AGREEMENT. (a) On the Effective Date, the commitments under the Existing 364-Day Agreement shall terminate, without further action by any party thereto. (b) The Banks which are parties to the Existing 364-Day Agreement, comprising the "Required Banks" as defined therein, hereby waive any requirement of notice of termination of the commitments pursuant to Section 2.09 of the Existing 364-Day Agreement and of prepayment of Loans to the extent necessary to give effect to the subsections 3.01(f) and 3.02(a), PROVIDED that any such prepayment of Loans shall be subject to Section 2.13 of the Existing 364-Day Agreement. SECTION 3.03. BORROWINGS. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction (or waiver in accordance with Section 9.05) of the following conditions: (a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (b) the fact that, immediately after such Borrowing, the aggregate outstanding Dollar Amount of the Loans will not exceed the aggregate amount of the Commitments; 38 (c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and (d) the fact that the representations and warranties of each Obligor contained in the Financing Documents (except the representations and warranties set forth in Section 4.04(a), which are made only as of the date hereof) shall be true in all material respects on and as of the date of such Borrowing. PROVIDED that the foregoing clauses 3.03(c) and 3.03(d) shall not apply to a Euro-Currency Borrowing if and to the extent that the proceeds thereof are to be applied to repay an outstanding Swingline Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in subsections (b), (c) and (d) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES Each Principal Obligor represents and warrants to the Agent and the Banks that: SECTION 4.01. CORPORATE EXISTENCE AND POWER. Each Principal Obligor is a company duly organized and validly existing under the laws of its jurisdiction of organization. Each Principal Obligor has all corporate powers and all governmental licenses, authorizations, consents and approvals (collectively, the "Consents") required to carry on its business as now conducted, other than those powers and Consents, the failure of which to be possessed or obtained could not, based upon the facts and circumstances in existence at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect. SECTION 4.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by each Principal Obligor of this Agreement and the Promissory Notes: (a) are within its corporate powers; (b) have been duly authorized by all necessary corporate action on its part; (c) require no action by or in respect of, or filing with, any governmental body, agency or official, in each case, on its part; and (d) do not contravene, or constitute a default under, any provision of (i) applicable law or regulation, (ii) its organizational documents, or (iii) any agreement or instrument evidencing or governing debt of such Principal Obligor or any other material agreement, judgment, injunction, order, decree or other instrument binding upon such Principal Obligor. SECTION 4.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of such Principal Obligor and the Promissory Notes, when 39 executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower. SECTION 4.04. FINANCIAL INFORMATION. (a) The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of September 30, 1999 and the related consolidated statements of income, of shareholders' equity and of cash flows for the fiscal year then ended, reported on by PriceWaterhouseCoopers LLP and set forth in the Guarantor's 1999 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such period. (b) Since September 30, 1999 there has been no material adverse change in the business, financial position, results of operations or Prospects of the Guarantor and its Consolidated Subsidiaries, considered as a whole. SECTION 4.05. LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of the Guarantor threatened against or affecting, the Guarantor or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of an adverse decision which could, based upon the facts and circumstances in existence at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of the Financing Documents. SECTION 4.06. COMPLIANCE WITH ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance, except where the failure to so comply could not, based upon the facts and circumstances in existence at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect, with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any required contribution or payment to any Plan or Multiemployer Plan, or made any amendment to any Plan, which has resulted in or could, based upon the facts and circumstances in existence at the time this representation and warranty is made or deemed made, reasonably be expected to result in the imposition of a Lien or the posting of a bond or other security under ERISA or the Internal Revenue Code or (iii) incurred any liability under Title IV of ERISA (other than a liability to the PBGC for premiums under Section 4007 of ERISA), which could, based upon the facts and circumstances existing at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect. 40 SECTION 4.07. ENVIRONMENTAL MATTERS. In the ordinary course of its business, the Guarantor conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the Guarantor and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Guarantor has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, could not, based upon the facts and circumstances existing at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect. SECTION 4.08. TAXES. The Guarantor and its Significant Subsidiaries have filed all material tax returns which are required to be filed by them and have paid all taxes shown on such returns or pursuant to any assessment received by the Guarantor or any Subsidiary, except those assessments which are being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Guarantor and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Guarantor, adequate. SECTION 4.09. SUBSIDIARIES. Each of the Guarantor's Consolidated Subsidiaries is duly organized, validly existing and (to the extent such concept is applicable to it) in good standing under the laws of its jurisdiction of organization, except where the failure to be so organized, existing or in good standing could not, based upon the facts and circumstances existing at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has all legal powers and all Consents required to carry on its business as now conducted, other than those powers and Consents, the failure of which to be possessed or obtained could not, based upon the facts and circumstances in existence at the time this representation and warranty is made or deemed made, reasonably be expected to have a Material Adverse Effect. SECTION 4.10. NOT AN INVESTMENT COMPANY. Neither Principal Obligor is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. FULL DISCLOSURE. All information heretofore furnished by or on behalf of the Obligors to the Agent in connection with this Agreement does not 41 contain any untrue statement of material fact or omit to state any material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. SECTION 4.12. OBLIGATIONS TO BE PARI PASSU. The obligations of each Principal Obligor under this Agreement rank PARI PASSU as to priority of payment and in all other respects with all other unsecured and unsubordinated obligations of such Principal Obligor. ARTICLE 5 COVENANT The Guarantor agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Promissory Note remains unpaid: SECTION 5.01. INFORMATION. The Guarantor will deliver to each of the Banks: (a) as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, consolidated and consolidating balance sheets of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated and consolidating statements of income, of shareholders' equity and of cash flows for such fiscal year, setting forth, in each case in comparative form, the figures for the previous fiscal year, such consolidated statements to be reported on by PriceWaterhouseCoopers LLP or other independent public accountants of internationally recognized standing in a manner complying with the applicable rules and regulations promulgated by the Securities and Exchange Commission; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Guarantor, consolidated and consolidating balance sheets of the Guarantor and its Consolidated Subsidiaries as of the end of such quarter, the related consolidated statements of income for such quarter, and the related consolidated statements of income and of cash flows and consolidating statements of income for the portion of the Guarantor's fiscal year ended at the end of such quarter, setting forth in the case of such statements of income and of cash flows in comparative form the figures for the corresponding quarter (in the case of consolidated statements of income) and for the corresponding portion of the Guarantor's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency on behalf of the Guarantor by the chief financial officer, the chief accounting officer or the treasurer of the Guarantor; (c) simultaneously with the delivery of each set of financial statements referred to in subsections (a) and (b) above, a certificate on behalf of the 42 Guarantor signed by the chief financial officer, the chief accounting officer or the treasurer of the Guarantor (i) setting forth in reasonable detail the calculations required to establish whether the Guarantor was in compliance with the requirements of Sections 5.08, 5.09, 5.10 and 5.13 on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth, in reasonable detail, the nature thereof and the action which the Guarantor is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in subsection (a) above, a statement of the firm of independent public accountants which reported on such financial statements stating that, in making the audit necessary for the certification of such financial statements, such firm of accountants has obtained no knowledge of any Default, or if it has obtained knowledge of such Default, specifying the nature and period of existence thereof; PROVIDED such firm of accountants shall not be liable to any Person by reason of such firm's failure to obtain knowledge of any Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted accounting principles; (e) within five business days after any Responsible Officer obtains knowledge of any Default, if such Default is then continuing, a certificate on behalf of the Guarantor signed by the chief financial officer, the chief accounting officer or the treasurer of the Guarantor setting forth, in reasonable detail, the nature thereof and the action which the Guarantor is taking or proposes to take with respect thereto; (f) promptly following the mailing thereof to the shareholders of the Guarantor generally, copies of all financial statements, reports and proxy statements so mailed; (g) promptly upon the filing thereof, copies of all final registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and final reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Guarantor or the Borrower shall have filed with the Securities and Exchange Commission; (h) promptly upon any Responsible Officer obtaining knowledge of the commencement of any action, suit or proceeding before any court, arbitrator or other governmental body against the Guarantor or any of its Subsidiaries that, if adversely determined, could reasonably be expected to have a Material Adverse Effect, a certificate on behalf of the Guarantor specifying the nature of such action, suit or proceeding and what action the Guarantor is taking or proposes to take with respect thereto; (i) promptly following, and in any event within 10 days of, any change in a Debt Rating by any Rating Agency, notice thereof; and 43 (j) from time to time, upon reasonable notice, such additional information regarding the financial position or business of the Guarantor and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. Information required to be delivered pursuant to subsections (a), (b), (f) or (g) above shall be deemed to have been delivered on the date on which the Guarantor provides notice to the Banks that such information has been posted on the Guarantor's website on the Internet at the website address listed on the signature pages hereof, at sec.gov/edaux/searches.htm or at another website identified in such notice and accessible by the Banks without charge; PROVIDED that (i) such notice may be included in a certificate delivered pursuant to subsection 5.01(c) and (ii) the Guarantor shall deliver paper copies of the information referred to in subsections (a), (b), (f) or (g) to any Bank which requests such delivery. SECTION 5.02. PAYMENT OF OBLIGATIONS. The Guarantor will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where (i) any such failure to so pay or discharge could not, based upon the facts and circumstances in existence at the time, reasonably be expected to have a Material Adverse Effect or (ii) such liabilities or obligations may be contested in good faith by appropriate proceedings. The Guarantor will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of such liabilities or obligations. SECTION 5.03. MAINTENANCE OF PROPERTY; INSURANCE. (a) Except as permitted by Section 5.04 or 5.09, the Guarantor will keep, and will cause each Subsidiary to keep, all property necessary in its business in good working order and condition, ordinary wear and tear excepted, unless the failure to so keep could not, based upon the facts and circumstances existing at the time, reasonably be expected to have a Material Adverse Effect. (b) The Guarantor will maintain, and will cause each Subsidiary to maintain, with financially sound and reputable insurers, insurance with respect to its assets and business against such casualties and contingencies, of such types (including, without limitation, loss or damage, product liability, business interruption, larceny, embezzlement or other criminal misappropriation) and in such amounts as is customary in the case of similarly situated corporations of established reputations engaged in the same or a similar business, unless the failure to maintain such insurance could not, based upon the facts and circumstances existing at the time, reasonably be expected to have a Material Adverse Effect. SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Guarantor (a) will not engage in any business other than the holding of stock and other investments in its Subsidiaries and activities reasonably related thereto, (b) 44 will cause each Subsidiary to engage in business of the same general type as now conducted by the Guarantor's Subsidiaries and reasonably related extensions thereof, and (c) will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect (x) their respective legal existence and (y) their respective rights, privileges and franchises necessary or desirable in the normal conduct of business, unless in the case of either the failure of the Guarantor to comply with subclause (c) (y) of this Section 5.04 or the failure of a Subsidiary to comply with clause (b) or (c) of this Section 5.04, such failure could not, based upon the facts and circumstances existing at the time, reasonably be expected to have a Material Adverse Effect; PROVIDED that nothing in this Section 5.04 shall prohibit (i) the merger or consolidation of a Subsidiary (other than the Borrower) with or into the Guarantor or a Wholly-Owned Consolidated Subsidiary, (ii) the sale, lease, transfer, assignment or other disposition by a Subsidiary (other than the Borrower) of all or any part of its assets to the Guarantor or to a Wholly-Owned Consolidated Subsidiary, (iii) the merger or consolidation of a Subsidiary (other than the Borrower) with or into a Person other than the Guarantor or a Wholly-Owned Consolidated Subsidiary, if the Person surviving such consolidation or merger is a Subsidiary and immediately after giving effect thereto, no Default shall have occurred and be continuing, (iv) the sale, lease, transfer, assignment or other disposition by a Subsidiary (other than the Borrower) of all or any part of its assets to a Person other than the Guarantor or a Wholly-Owned Consolidated Subsidiary, if the Person to which such sale, lease, transfer, assignment or other disposition is made is a Subsidiary and immediately after giving effect thereto, no Guarantor Default shall have occurred and be continuing, (v) any transaction permitted pursuant to Section 5.11 or (vi) the termination of the legal existence of any Subsidiary (other than the Borrower) if the Guarantor in good faith determines that such termination is in the best interest of the Guarantor and is not materially disadvantageous to the Banks. SECTION 5.05. COMPLIANCE WITH LAWS. The Guarantor will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where (a) noncompliance therewith could not, based upon the facts and circumstances in existence at the time, reasonably be expected to have a Material Adverse Effect or (b) the necessity of compliance therewith is contested in good faith by appropriate proceedings. SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS; CONFIDENTIALITY. (a) The Guarantor will keep, and will cause each Subsidiary to keep, proper books of record and account in which true and correct entries shall be made of its business transactions and activities so that financial statements that fairly present its business transactions and activities can be properly prepared in accordance with generally accepted accounting principles. 45 (b) The Guarantor will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all upon reasonable notice to the Guarantor, at such reasonable times and as often as may reasonably be requested by any Bank. (c) Each Bank and the Agent shall, by its receipt of Confidential Information (as defined below) pursuant to or in connection with this Agreement or its exercise of any of its rights hereunder, be deemed to have agreed (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to (i) keep such information confidential, (ii) (except as permitted by clause (iii) of this Section 5.06(c)) not disclose such information to any Person other than an officer, director, employee, legal counsel, independent auditor or authorized agent or advisor of the Agent or such Bank needing to know such information (it being understood that any such officer, director, employee, legal counsel, independent auditor or authorized agent or advisor shall be informed by the Agent or such Bank of the confidential nature of such information), (iii) not disclose such information to any Assignee or Participant (or prospective Assignee or Participant), unless such Assignee or Participant (or prospective Assignee or Participant) shall agree in writing to be bound by the provisions of this Section 5.06(c) and (iv) not use any such information except for purposes relating to this Agreement or the Notes. The term "Confidential Information" shall mean non-public information furnished by or on behalf of the Guarantor or any of its Subsidiaries to the Agent, any Bank or other Person exercising rights hereunder or required to be bound hereby (collectively "Recipients"), but shall not include any such information which (1) has become or hereafter becomes available to the public other than as a result of a disclosure by a Recipient, or (2) has become or hereafter becomes available to a Recipient, on a non-confidential basis, from a source other than the Guarantor or any of its Subsidiaries (or any of their respective representatives or agents) or any Recipient, which source, to the knowledge of the Recipient, is not prohibited from disclosing such information by a confidentiality agreement with, or other legal or fiduciary obligation to, the Guarantor or its Subsidiaries. The restrictions set forth in the immediately preceding paragraph shall not prevent the disclosure by a Recipient of any such information: (A) with the prior written consent of the Guarantor, (B) at the request of a bank regulatory agency or in connection with an examination by bank examiners, or (C) upon order of any court or administrative agency of competent jurisdiction, to the extent required by such order and not effectively stayed on appeal or otherwise, or as otherwise 46 required by law; PROVIDED that in the case of any intended disclosure under this clause (C), the Recipient shall (unless otherwise required by applicable law) give the Guarantor not less than five business days prior notice (or such shorter period as may, in the good faith discretion of the Recipient, be reasonable under the circumstances or may be required by any court or agency under the circumstances), specifying the Confidential Information involved and stating such Recipient's intention to disclose such Confidential Information (including the manner and extent of such disclosure) in order to allow the Guarantor an opportunity to seek an appropriate protective order. Each Recipient shall agree that, in addition to all other remedies available, the Guarantor shall be entitled to specific performance and injunctive and other equitable relief as a remedy for any breach of this Section 5.06(c) by such Recipient. SECTION 5.07. LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND OTHER DISTRIBUTIONS. The Guarantor will not, and will not permit any Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits, owned by the Guarantor or any Subsidiary, or pay any Debt owed to the Guarantor or any Subsidiary, (b) make loans or advances to the Guarantor or any Subsidiary or (c) transfer any of its properties or assets to the Guarantor or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, agreements with foreign governments with respect to assets located in their jurisdiction, or condemnation or eminent domain proceedings, (ii) any of the Financing Documents, (iii) (A) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Guarantor or a Subsidiary, or (B) customary restrictions imposed on the transfer of copyrighted or patented materials or provisions in agreements that restrict the assignment of such agreements or any rights thereunder, (iv) provisions contained in the instruments evidencing or governing Debt or other obligations or agreements, in each case existing on February 11, 2000, (v) provisions contained in documents evidencing or governing any Permitted Receivables Transaction, 47 (vi) provisions contained in instruments evidencing or governing Debt or other obligations or agreements of any Person, in each case, at the time such Person (A) shall be merged or consolidated with or into the Guarantor or any Subsidiary, (B) shall sell, transfer, assign, lease or otherwise dispose of all or substantially all of such Person's assets to the Guarantor or a Subsidiary, or (C) otherwise becomes a Subsidiary, PROVIDED that in the case of clause (A), (B) or (C), such Debt, obligation or agreement was not incurred or entered into, or any such provisions adopted, in contemplation of such transaction, (vii) provisions contained in instruments amending, restating, supplementing, extending, renewing, refunding, refinancing, replacing or otherwise modifying, in whole or in part (collectively, "REFINANCING"), instruments referred to in clauses (ii), (iv) and (vi) of this Section 5.07, so long as such provisions are, in the good faith determination of the Guarantor's board of directors, not materially more restrictive than those contained in the respective instruments so Refinanced, (viii) provisions contained in any instrument evidencing or governing Debt or other obligations of a Subsidiary Guarantor, (ix) any encumbrances and restrictions with respect to a Subsidiary imposed in connection with an agreement which has been entered into for the sale or disposition of such Subsidiary or its assets, PROVIDED such sale or disposition otherwise complies with this Agreement, (x) the subordination (pursuant to its terms) in right and priority of payment of any Debt owed by any Subsidiary (the "Indebted Subsidiary") to the Guarantor or any other Subsidiary, to any other Debt of such Indebted Subsidiary, PROVIDED (A) such Debt is permitted under this Agreement and (B) the Guarantor's board of directors has determined, in good faith, at the time of the creation of such encumbrance or restriction, that such encumbrance or restriction could not, based upon the facts and circumstances in existence at the time, reasonably be expected to have a Material Adverse Effect, (xi) provisions governing preferred stock issued by a Subsidiary, PROVIDED that such preferred stock is permitted under Section 5.08, and (xii) provisions contained in debt instruments, obligations or other agreements of any Subsidiary which are not otherwise permitted pursuant to clauses (i) through (xi) of this Section 5.07, PROVIDED that the aggregate investment of the Guarantor in all such Subsidiaries (determined in accordance with generally accepted accounting principles) shall at no time exceed the greater of (a) $300,000,000 or (b) 10% of Consolidated Tangible Net Worth. 48 The provisions of this Section 5.07 shall not prohibit (x) Liens not prohibited by Section 5.10 or (y) restrictions on the sale or other disposition of any property securing Debt of any Subsidiary, PROVIDED such Debt is otherwise permitted by this Agreement. SECTION 5.08. DEBT. Consolidated Debt will at no time exceed 52.5% of Consolidated Total Capitalization. The total Debt of all Consolidated Subsidiaries (excluding (i) Debt of a Consolidated Subsidiary owed to the Borrower, to the Guarantor, to a Wholly-Owned Consolidated Subsidiary or to TyCom Ltd. or one of its Wholly-Owned Consolidated Subsidiaries, (ii) Debt of the Borrower or a Subsidiary Guarantor, (iii) Permitted Acquired Debt and (iv) Existing Tyco US Debt) will at no time exceed in aggregate outstanding principal amount 5% of the Consolidated Tangible Assets of the Guarantor. For purposes of this Section any preferred stock of a Consolidated Subsidiary held by a Person other than the Guarantor or a Wholly-Owned Consolidated Subsidiary shall be included, at the higher of its voluntary or involuntary liquidation value, in "Consolidated Debt" and in the "Debt" of such Consolidated Subsidiary. SECTION 5.09. FIXED CHARGE COVERAGE. The ratio of Consolidated EBIT to Consolidated Interest Expense will not, for any period of four consecutive fiscal quarters, be less than 2.5 to 1. SECTION 5.10. NEGATIVE PLEDGE. The Guarantor will not, and will not permit any Subsidiary to, create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) any Lien existing on any asset on February 11, 2000 securing Debt outstanding on such date; (b) any Lien existing on any asset of, or capital stock of, or other ownership interest in, any Person (such capital stock and other ownership interests are collectively referred to herein as "Stock") at the time such Person becomes a Subsidiary, which Lien was not created in contemplation of such event; (c) any Lien on any asset securing the payment of all or part of the purchase price of such asset upon the acquisition thereof by the Guarantor or a Subsidiary or securing Debt (including any obligation as lessee incurred under a capital lease) incurred or assumed by the Guarantor or a Subsidiary prior to, at the time of or within one year after such acquisition (or in the case of real property, the completion of construction (including any improvements on an existing property) or the commencement of full operation of such asset or property, whichever is later), which Debt is incurred or assumed for the purpose of financing all or part of the cost of acquiring such asset or, in the case of real property, construction or improvements thereon; PROVIDED, that in the case of any such acquisition, construction or improvement, the Lien shall not apply to any asset theretofore owned by the Guarantor or a Subsidiary, other than assets so acquired, constructed or improved; 49 (d) any Lien existing on any asset or Stock of any Person at the time such Person is merged or consolidated with or into the Guarantor or a Subsidiary which Lien was not created in contemplation of such event; (e) any Lien existing on any asset or Stock of any Person at the time of acquisition thereof by the Guarantor or a Subsidiary, which Lien was not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing of any Debt secured by any Lien permitted by any of the subsections (a) through (e) of this Section 5.10, PROVIDED the principal amount of Debt is not increased and is not secured by any additional assets, except as provided in the last sentence of this Section 5.10; (g) any Lien to secure Debt of a Subsidiary to the Guarantor or to a Wholly-Owned Consolidated Subsidiary; (h) any Lien created pursuant to a Permitted Receivables Transaction; (i) any Lien in favor of any country (or any department, agency, instrumentality or political subdivision of any country) securing obligations arising in connection with partial, progress, advance or other payments pursuant to any contract, statute, rule or regulation or securing obligations incurred for the purpose of financing all or any part of the purchase price (including the cost of installation thereof or, in the case of real property, the cost of construction or improvement or installation of personal property thereon) of the asset subject to such Lien (including, but not limited to, any Lien incurred in connection with pollution control, industrial revenue or similar financings); (j) Liens arising in the ordinary course of its business which (i) do not secure Debt, (ii) do not secure any single obligation in an amount exceeding $50,000,000 and (iii) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; and (k) Liens not otherwise permitted by the foregoing clauses (a) through (j) of this Section 5.10 securing Debt (without duplication) in an aggregate principal amount at any time outstanding not to exceed an amount equal to the greater of (i) $300,000,000 or (ii) 10% of Consolidated Tangible Net Worth. It is understood that any Lien permitted to exist on any asset pursuant to the foregoing provisions of this Section 5.10 may attach to the proceeds of such asset and, with respect to Liens permitted pursuant to subsections (a), (b), (d), (e), (f) (but only with respect to the refinancing of a Debt secured by a Lien permitted pursuant to subsections (a), (b), (d) or (e)) or (g) of this Section 5.10, may attach to an asset acquired in the ordinary course of business as a replacement of such former asset. 50 SECTION 5.11. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (a) Neither Principal Obligor will (i) consolidate or merge with or into any other Person or (ii) sell, lease or otherwise transfer all or substantially all of its assets to any other Person, unless (A) such Principal Obligor or one of its Subsidiaries is the surviving corporation; (B) the Person (if other than such Principal Obligor) formed by such consolidation or into which such Principal Obligor is merged, or the Person which acquires by sale or other transfer, or which leases, all or substantially all of the assets of such Principal Obligor (any such Person, the "Successor"), shall be organized and existing under the laws of (x) in the case of a Successor to the Borrower, Luxembourg or (y) in the case of a Successor to the Guarantor, Bermuda or of the United States, any state thereof or the District of Columbia and shall expressly assume, in a writing executed and delivered to the Agent for delivery to each of the Banks, in form reasonably satisfactory to the Agent, the due and punctual payment of the principal of and interest on the Promissory Notes and the performance of the other obligations under this Agreement and the Promissory Notes on the part of such Principal Obligor to be performed or observed, as fully as if such Successor were originally named as such Principal Obligor in this Agreement; (C) immediately after giving effect to such transaction, no Default shall have occurred and be continuing; and (D) such Principal Obligor has delivered to the Agent a certificate on behalf of such Principal Obligor signed by one of its Responsible Officers and an opinion of counsel, each stating that all conditions provided in this Section 5.11 relating to such transaction have been satisfied. The foregoing provisions of this Section 5.11 shall not restrict the merger or consolidation of any Subsidiary with and into a Principal Obligor. Upon the satisfaction (or waiver in accordance with Section 9.05) of the conditions set forth in this Section 5.11, a Successor to the Borrower shall succeed, and may exercise every right and power of, the Borrower under this Agreement and the Promissory Notes with the same effect as if such Successor had been originally named as the Borrower herein and in the Promissory Notes, and the Borrower shall be relieved of its obligations under this Agreement and the Promissory Notes. 51 (b) The Guarantor will not, and will not permit any Subsidiary to, sell, lease or otherwise transfer, in any transaction or series of related transactions, to any Person (other than the Guarantor or a Subsidiary) any Property (including, without limitation, the stock of any Subsidiary) having a net book value in excess of 15% of Consolidated Assets determined as of the end of the fiscal quarter of the Guarantor most recently ended at the time of such sale or other transaction, or Property (including without limitation, stock of a Subsidiary) which contributed in excess of 15% of Consolidated EBIT for the fiscal year of the Guarantor most recently ended at the time of such sale or other transaction. SECTION 5.12. TRANSACTIONS WITH AFFILIATES. The Guarantor will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate (collectively, "AFFILIATE TRANSACTIONS"); PROVIDED, HOWEVER, that the foregoing provisions of this Section 5.12 shall not prohibit the Guarantor or any of its Subsidiaries from (a) making Restricted Payments (including, for this purpose, transactions expressly excluded from the definition of a Restricted Payment) permitted by Section 5.13, (b) making sales to or purchases from any Affiliate and, in connection therewith, extending credit or making payments, or from making payments for services rendered by any Affiliate, if such sales or purchases are made or such services are rendered in the ordinary course of business and on terms and conditions at least as favorable to the Guarantor or such Subsidiary as the terms and conditions which the Guarantor would reasonably expect to be obtained in a similar transaction with a Person which is not an Affiliate at such time, (c) making payments of principal, interest and premium on any Debt of the Guarantor or such Subsidiary held by an Affiliate if the terms of such Debt are at least as favorable to the Guarantor or such Subsidiary as the terms which the Guarantor would reasonably expect to have been obtained at the time of the creation of such Debt from a lender which was not an Affiliate, (d) participating in, or effecting any transaction in connection with, any joint enterprise or other joint arrangement with any Affiliate if the Guarantor or such Subsidiary participates in the ordinary course of its business and on a basis no less advantageous than the basis on which such Affiliate participates, (e) paying or granting reasonable compensation and benefits to any director, officer, employee or agent of the Guarantor or any Subsidiary, (f) paying reasonable legal fees and expenses to a law firm of which an Affiliate is a member or (g) engaging in any Affiliate Transaction not otherwise addressed in subsections (a) - (f) of this Section 5.12, the terms of which are not less favorable to the Guarantor or such Subsidiary than those that the Guarantor would reasonably expect to be obtained in a comparable transaction at such time with a Person which is not an Affiliate. 52 SECTION 5.13. RESTRICTED PAYMENTS. The Guarantor will not, and will not permit any Subsidiary to, declare or make any Restricted Payment unless, after giving effect thereto, the aggregate of all Restricted Payments declared or made subsequent to September 30, 1999 does not exceed an amount equal to the sum of (a) $4,200,000,000 PLUS (b) 50% of Consolidated Net Income (or minus 100% of Consolidated Net Income, in the event of a net loss for such period) for the period from October 1, 1999 through the end of the then most recently ended fiscal quarter of the Guarantor (treated for this purpose as a single accounting period), PLUS (c) the aggregate cash proceeds (net of underwriting commissions) received by the Guarantor (other than from a Subsidiary) from the issuance or sale after September 30, 1999 of capital stock or Stock Equivalents of the Guarantor (other than the proceeds of any capital stock or Stock Equivalent which by its terms is subject to redemption otherwise than at the sole option of the Guarantor). Nothing in this Section 5.13 shall prohibit the payment of any dividend or distribution within 60 days after the declaration thereof if such declaration was not prohibited by this Section 5.13. SECTION 5.14. SUBSIDIARY GUARANTORS. If any Subsidiary becomes a guarantor of TycoLux Debt Securities under the Indenture, the Guarantor will cause such Person to become a Subsidiary Guarantor concurrently therewith. SECTION 5.15. USE OF PROCEEDS. The proceeds of the Loans made under this Agreement will be used by the Borrower for its general corporate purposes, including, without limitation, capital expenditures and (subject to the following sentence) acquisitions. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U. ARTICLE 6 DEFAULTS SECTION 6.01. EVENTS OF DEFAULTS. If one or more of the following events ("EVENTS OF DEFAULT") shall have occurred and be continuing and shall not have been waived in accordance with Section 9.05: (a) any principal of any Loan shall not be paid when due, or any interest on any Loan or any fees payable hereunder shall not be paid within three Domestic Business Days of the due date thereof; (b) the Guarantor shall fail to observe or perform any covenant contained in Section 5.08, 5.09, 5.13 or 5.14; (c) the Guarantor shall fail to observe or perform any covenant contained in Section 5.07 or Sections 5.10 to 5.12, inclusive, and such failure shall not be remedied within five days after any Responsible Officer obtains actual knowledge thereof; 53 (d) either Principal Obligor shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a), (b) or (c) of this Section 6.01) for 10 days after notice thereof has been given to the Guarantor by the Agent at the request of any Bank; (e) any representation, warranty, certification or statement made in writing by any Obligor in the Financing Documents or in any certificate, financial statement or other document required to be delivered to the Agent or any of the Banks pursuant to the Financing Documents shall prove to have been incorrect in any material respect when made (or deemed made); (f) the Guarantor or any Subsidiary shall fail to make any payment in respect of any Material Debt when due (after giving effect to any applicable grace period); (g) any event or condition shall occur that results in the acceleration of the maturity of any Material Debt or that entitles the holder or holders of any Material Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof; (h) (i) any corporate action is taken authorizing the winding up, liquidation, any arrangement or the taking of any other similar action of or with respect to the Guarantor or authorizing any corporate action to be taken to facilitate any such winding up, liquidation, arrangement, reorganization or amalgamation or other similar action or any members' voluntary winding up of the Guarantor as provided under the Bermuda Companies Law shall be commenced; (ii) (A) any petition shall be filed seeking the liquidation, any arrangement or the taking of any other similar action of or with respect to the Guarantor by the Registrar of Companies in Bermuda, or by any other Person or Persons, or (B) any petition shall be presented for the winding up of the Guarantor to a court of Bermuda as provided with the Bermuda Companies Law, or (C) any creditors' winding up of the Guarantor as provided under the Bermuda Companies Law shall be commenced, or (D) any receiver shall be appointed by a creditor of the Guarantor or by a court of Bermuda on the application of a creditor of the Guarantor as provided under any instrument giving rights for the appointment of a receiver thereto, and in the case of any such petition, winding up, appointment, order or other matter, such petition, winding up, appointment, order or other matter, shall remain undismissed and unstayed for a period of 60 days; (iii) the Guarantor or any Significant Subsidiary shall (A) commence a voluntary case or other proceeding seeking liquidation, winding up, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in 54 effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or (B) consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other similar proceeding commenced against it, or (C) make a general assignment for the benefit of creditors, or (D) fail generally to pay its debts as they become due, or (E) take any corporate action to authorize any of the foregoing; or (iv) (A) an involuntary case or other proceeding shall be commenced against the Guarantor or any Significant Subsidiary seeking liquidation, winding up, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, and such involuntary case or other proceeding shall remain in effect and undismissed and unstayed for a period of 60 days; or (B) an order for relief shall be entered against the Guarantor or any Significant Subsidiary under the bankruptcy laws of any jurisdiction as now or hereafter in effect; (i) a judgment or order for the payment of money in excess of $30,000,000 (after deducting amounts covered by insurance, except to the extent that the insurer providing such insurance has declined such coverage) shall be rendered against the Guarantor or any Subsidiary and, within 60 days after entry thereof, such judgment or order is not discharged or execution thereof stayed pending appeal, or within 60 days after the expiration of any such stay, such judgment or order is not discharged; (j) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 40% or more of the outstanding shares of common stock of the Guarantor; or, on the last day of any period of twelve consecutive calendar months, a majority of members of the board of directors of the Guarantor shall no longer be composed of individuals (i) who were members of said board of directors on the first day of such twelve consecutive calendar month period or (ii) whose election or nomination to said board of directors was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said board of directors; (k) the Guarantor or any Subsidiary shall fail to make any payment owing by it in respect of any performance bond, performance guaranty or bank guaranty issued in lieu of a performance bond or performance guaranty (other than a payment which is disputed by the Guarantor or such Subsidiary in good 55 faith), and the aggregate of all such defaulted payments shall exceed $50,000,000 at any one time for the Guarantor and its Subsidiaries; (l) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $5,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $25,000,000; (m) the Borrower shall cease to be a Wholly-Owned Consolidated Subsidiary of the Guarantor; or (n) any Financing Document shall cease to be valid and enforceable against any Obligor party thereto (except for the termination of a Subsidiary Guarantee in accordance with its terms); or any Obligor shall so assert in writing; then, and in every such event, the Agent shall (i) if requested by Banks having more than 60% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Promissory Notes evidencing more than 60% in aggregate principal amount of the Loans, by notice to the Borrower declare the Promissory Notes (together with accrued interest thereon) to be, and the Promissory Notes shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors; PROVIDED that in the case of any of the Events of Default specified in subsection (h) above with respect to any Obligor, without any notice to any Obligor or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the Promissory Notes (together with accrued interest thereon) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors. SECTION 6.02. NOTICE OF DEFAULT. The Agent shall give notice to the Guarantor under Section 6.01(d) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. 56 ARTICLE 7 THE AGENT SECTION 7.01. APPOINTMENT AND AUTHORIZATION. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Financing Documents as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. AGENT AND AFFILIATES. Morgan Guaranty Trust Company of New York (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers under the Financing Documents as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Morgan Guaranty Trust Company of New York (and any successor acting as Agent) and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. SECTION 7.03. ACTION BY AGENT. The obligations of the Agent under the Financing Documents are only those expressly set forth therein. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6. SECTION 7.04. CONSULTATION WITH EXPERTS. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. LIMITS OF LIABILITY. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks (or such different number of Banks as any provision hereof expressly requires for such consent or request) or (ii) in the absence of its own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower or any Guarantor; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, effectiveness or genuineness of this Agreement, the Subsidiary Guarantees, the Promissory Notes or any other instrument or writing furnished in connection herewith. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it in good faith to be genuine or to be signed by or on behalf 57 of the proper party or parties. Without limiting the generality of the foregoing, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties. SECTION 7.06. INDEMNIFICATION. Each Bank shall, ratably in accordance with its Commitment, indemnify the Agent, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with the Financing Documents or any action taken or omitted by such indemnitees thereunder. SECTION 7.07. CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its Subsidiaries and its own decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking any action under this Agreement. SECTION 7.08. SUCCESSOR AGENT. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent, subject to the consent of the Borrower. If no successor Agent shall have been so appointed by the Required Banks and consented to by the Borrower and shall have accepted such appointment within 45 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Financing Documents. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was acting as the Agent. SECTION 7.09. AGENT'S FEE. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon in writing between the Borrower and the Agent. 58 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If on or prior to the first day of any Interest Period for any Euro-Currency Loan or Money Market LIBOR Loan: (a) the Agent is advised by the Reference Banks that deposits in the relevant currency (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of Euro Currency Loans, Banks holding 50% or more of the aggregate amount of the affected Loans advise the Agent that the London Interbank Offered Rate as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their Euro-Currency Loans for such Interest Period, the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon, until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist (which the Agent agrees to do promptly upon such circumstances ceasing to exist), (i) the obligations of the Banks to make Euro-Currency Loans in the relevant currency, or to continue or convert outstanding Loans as or into Euro-Currency Loans in the relevant currency, shall be suspended and (ii) each outstanding Euro-Currency Loan in the relevant currency shall be prepaid (or, in the case of a Euro-Dollar Loan, converted into a Base Rate Loan) on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing in an equal Dollar Amount and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. SECTION 8.02. ILLEGALITY. If, on or after the date of this Agreement, any Bank has determined in its reasonable judgment that the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Currency Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall make it unlawful or impossible for such Bank (or its Euro-Currency Lending Office) to make, maintain or fund its Euro-Currency Loans in any currency and such Bank shall so notify the Agent, the Agent shall forthwith give 59 notice specifying the circumstances giving rise to such suspension to the other Banks and the Borrower, whereupon, until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist), the obligation of such Bank to make Euro-Currency Loans in such currency, or to continue or convert outstanding Loans as or into Euro-Currency Loans in such currency, shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Currency Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank in the good faith exercise of its discretion, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Currency Loan of such Bank then outstanding shall be converted to a Base Rate Loan (in the case of an Alternative Currency Loan, in a principal amount determined on the basis of the Spot Rate on the date of conversion) either (a) on the last day of the then current Interest Period applicable to such Euro-Currency Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Currency Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Currency Loan to such day. Notwithstanding the foregoing, the operation of this Section shall not relieve any Bank of its obligation to make a Euro-Currency Loan to refund Swingline Loans made while its Commitment was in effect. SECTION 8.03. INCREASED COST AND REDUCED RETURN. (a) If on or after (x) the date of this Agreement, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, any Bank has determined in its reasonable judgment that the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency, shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding with respect to any Euro-Currency Loan any such requirement with respect to which such Bank is entitled to compensation during the relevant Interest Period under Section 2.15 or 2.19), special deposit, insurance assessment or similar requirement against assets of, deposits with or for the account of, or credit extended by, such Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the London interbank market any other condition affecting its Fixed Rate Loans, its Promissory Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Promissory 60 Note with respect thereto, by an amount deemed by such Bank to be material to such Bank, then, within 15 days after written demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined that, after the date of this Agreement, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency (including any determination by any such authority, central bank or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less), has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after written demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date of this Agreement, which will entitle such Bank to compensation pursuant to this Section; PROVIDED that (i) if any Bank fails to give such notice within 90 days after it obtains actual knowledge of such an event, such Bank shall only be entitled to payment under this Section 8.03 for costs incurred from and after the date 90 days prior to the date that such Bank does give such notice and (ii) each such Bank will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank in the good faith exercise of its discretion, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder and the basis used to determine such amounts shall be conclusive in the absence of manifest error. In determining such amount, such Bank will use reasonable averaging and attribution methods and will have a reasonable basis for any assumptions it makes in connection therewith. SECTION 8.04. TAXES. (a) Any and all payments by any Obligor to or for the account of any Bank or the Agent hereunder or under any Promissory Note shall be made free and clear of and without deduction for any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Bank and the Agent, 61 taxes imposed on or measured by its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on or measured by its income, and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as its "TAXES", and all such excluded taxes being hereinafter referred to as its "DOMESTIC TAXES"). If an Obligor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Promissory Note to any Bank or the Agent, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04 such Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Obligor shall make such deductions, (iii) such Obligor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) such Obligor shall furnish to the Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes and any other excise or property taxes, or charges or similar levies which arise from any payment made hereunder or under any Promissory Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Financing Document (hereinafter referred to as "OTHER TAXES"). (c) The Borrower agrees to indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. In addition, the Borrower agrees to indemnify the Agent and each Bank for all Domestic Taxes and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, in each case to the extent that such Domestic Taxes result from any payment or indemnification pursuant to this Section for (i) Taxes or Other Taxes imposed by any jurisdiction other than the United States or (ii) Domestic Taxes of the Agent or such Bank, as the case may be. This indemnification shall be made within 15 days from the date such Bank or the Agent (as the case may be) makes demand therefor. (d) At the times indicated herein, each Bank organized under the laws of a jurisdiction outside the United States shall provide the Borrower with Internal Revenue Service form 1001 or 4224 (in each case accompanied by any statements which may be required under applicable Treasury regulations), as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to receive payments under this Agreement (i) without 62 deduction or withholding of any United States federal income taxes or (ii) subject to a reduced rate of United States federal withholding tax, unless, in each case of clause (i) and (ii) of this Section 8.04(d), an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders such forms inapplicable or which would prevent the Bank from duly completing and delivering any such form with respect to it and the Bank advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of such taxes. Such forms shall be provided (x) on or prior to the date of the Bank's execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof, and on or prior to the date on which it becomes a Bank in the case of each other Bank, and (y) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by the Bank. If the form provided by a Bank at the time such Bank first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, United States withholding tax at such rate shall be considered excluded from "TAXES" as defined in Section 8.04(a). In addition, to the extent that for reasons other than a change of treaty, law or regulation any Bank becomes subject to an increased rate of United States interest withholding tax while it is a party to this Agreement, United States withholding tax at such increased rate shall be considered excluded from "Taxes" as defined in Section 8.04(a). (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form in accordance with Section 8.04(d) (unless such failure is excused by the terms of Section 8.04(d)), such Bank shall not be entitled to indemnification under Section 8.04(a) or 8.04(c) with respect to Taxes imposed by the United States; PROVIDED, HOWEVER, that should a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Bank in the good faith exercise of its discretion, is not otherwise disadvantageous to such Bank. SECTION 8.05. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE LOANS. If (i) the obligation of any Bank to make, or to continue or convert outstanding Loans as or to, Euro-Currency Loans in any currency has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its Euro-Currency Loans in any currency and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Agent, have elected that the provisions of this Section shall 63 apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist), all Loans which would otherwise be made by such Bank as (or continued as or converted to) Euro-Currency Loans in such currency shall instead be Base Rate Loans (in the case of Alternative Currency Loans, in the same Dollar Amount as the Euro-Currency Loan that such Lender would otherwise have made in the Alternative Currency) on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks. If such Bank notifies such Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a Euro-Currency Loan on the first day of the next succeeding Interest Period applicable to the related Euro-Currency Loans of the other Banks. If such Loan is converted into an Alternative Currency Loan, such Bank, the Agent and the Borrower shall make such arrangements as shall be required (including increasing or decreasing the amount of such Alternative Currency Loan) so that such Alternative Currency Loan shall be in the same amount as it would have been if the provisions of this Section had never applied thereto. SECTION 8.06. SUBSTITUTION OF BANK. If any Bank (i) has demanded compensation for increased costs pursuant to Section 8.03 or 8.04 or is entitled to payments under Section 8.04(a) or (ii) has determined that the making or maintaining of any Euro-Currency Loan has become unlawful or impossible pursuant to Section 8.02 and similar additional interest or compensation has not been demanded by, or a similar determination has not been made by, all of the Banks, the Borrower shall have the right (with the assistance of the Agent) to designate an Assignee which is not an Affiliate of the Borrower to purchase for cash, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit I hereto, the outstanding Loans and Commitment of such Bank and to assume all of such Bank's other rights and obligations hereunder without recourse to or warranty by, or expense to, such Bank, for a purchase price equal to the principal amount of all of such Bank's outstanding Loans plus any accrued but unpaid interest thereon and the accrued but unpaid fees in respect of that Bank's Commitment hereunder plus such amount, if any, as would be payable pursuant to Section 2.13 if the outstanding Loans of such Bank were prepaid in their entirety on the date of consummation of such assignment. ARTICLE 9 MISCELLANEOUS SECTION 9.01. NOTICES. All notices, requests and other communications to any party provided for hereunder shall be in writing (including, without limitation, bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower, the Guarantor or the Agent, at 64 its address or facsimile or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address or facsimile or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, such other address or facsimile or telex number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section 9.01 and electronic, telephonic or other appropriate confirmation of receipt is received by the sender, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; PROVIDED that notices to the Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. NO WAIVERS. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation and administration of the Financing Documents, any waiver or consent hereunder or any amendment thereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify the Agent and each Bank, their respective Bank Affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee (whether or not such Indemnitee shall be designated a party thereto) arising out of any investigative, administrative or judicial proceeding (brought or threatened) relating to or arising out of the Financing Documents, the arrangement, administration, performance or enforcement thereof or any actual or proposed use of proceeds of Loans hereunder; PROVIDED that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction; PROVIDED FURTHER that no Indemnitee shall have the right to be indemnified hereunder in connection with 65 any proceedings between it and another Indemnitee which does not relate to the Borrower. (c) If any proceeding or claim shall be brought or asserted against any Indemnitee in respect of which indemnity may be sought pursuant to the preceding subsection, such Indemnitee shall promptly notify the Borrower. The Borrower shall not be liable for any costs or expenses in connection with any settlement entered into without its consent (such consent not to be unreasonably withheld). SECTION 9.04. SHARING OF SET-OFFS. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Promissory Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Promissory Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Promissory Notes held by the other Banks, and such other adjustments shall be made, as may be required, so that all such payments of principal and interest with respect to the Promissory Notes held by the Banks shall be shared by the Banks pro rata; PROVIDED that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Obligors other than indebtedness under the Financing Documents. SECTION 9.05. AMENDMENTS AND WAIVERS. Any provision of this Agreement or the Promissory Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Guarantor and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); PROVIDED that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce the principal of or rate of interest on any Loan or any fees hereunder, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Promissory Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement or (v) release the Guarantor from its obligations under Article 10. SECTION 9.06. SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. 66 (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Obligors under the Financing Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; PROVIDED that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement and subject to subsection (e), (f) and (g) below, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection 9.06(c) or 9.06(d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other institutions (each an "Assignee") all, or a proportionate part (in an amount equivalent to an original Commitment of not less than $10,000,000) of all, of its rights and obligations under this Agreement and the Promissory Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit I hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Agent, which shall not be unreasonably withheld; PROVIDED that if an Assignee is another Bank or an affiliate of such transferor Bank, no such consent shall be required; and PROVIDED FURTHER that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Promissory Note is issued to the Assignee. In connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the 67 United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Promissory Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) Notwithstanding anything to the contrary contained in this Section 9.06 but subject to the terms and conditions set forth in this subsection (f), any Bank may from time to time, elect to designate a Conduit to provide all or any part of Loans required to be made by such Bank to the Borrower pursuant to this Agreement or to acquire a participation interest in any Loans extended by such Bank hereunder (a "CONDUIT DESIGNATION"), PROVIDED the designation of a Conduit by any Bank for purposes of this Section 9.06(f) shall be subject to the approval of the Borrower, which shall not be unreasonably withheld. No additional Note shall be required with regard to a Conduit Designation; PROVIDED, HOWEVER, to the extent any Conduit shall advance funds under a Conduit Designation, the designating Bank shall be deemed to hold the Note in its possession as an agent for such Conduit to the extent of the Loan funded by such Conduit. Notwithstanding any such Conduit Designation, (x) the designating Bank shall remain solely responsible to the other parties hereto for its obligations under this Agreement and (y) the Borrower and the Agent may continue to deal solely and directly with the designating Bank as administrative agent for such designating Bank's Conduit, in connection with all of such Conduit's rights and obligations under this Agreement, unless and until the Borrower and the Agent are notified that the designating Bank has been replaced as administrative agent for its Conduit; any payments for the benefit of any designating Bank and its Conduit shall be paid to such designating Bank for itself as administrative agent for its Conduit, as applicable; PROVIDED neither the Borrower nor the Agent shall be responsible for any designating Bank's application of any such payments. In addition, any Conduit may (i) with notice to, but without the prior written consent of the Borrower and the Agent, and without paying any processing fee therefor, assign all or portions of its interest in any Loans to the Bank that designated such Conduit or to any financial institutions consented to by the Borrower and the Agent providing liquidity and/or credit facilities to or for the account of such Conduit to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating 68 agency, commercial paper dealer or provider of any guarantee, surety, credit or liquidity enhancement to such Conduit. (g) Each party to this Agreement hereby agrees that, at any time a Conduit Designation is in effect, it shall not institute against, or join any other person in instituting against, any Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding or other proceedings under any federal or state bankruptcy or similar law, for one year and a day after the latest maturing commercial paper note issued by such Conduit is paid. This Section 9.06(g) shall survive the termination of this Agreement. SECTION 9.07. COLLATERAL. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. GOVERNING LAW. THIS AGREEMENT AND EACH PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 9.09. COUNTERPARTS; INTEGRATION. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE GUARANTOR, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. JUDGMENT CURRENCY. If, under any applicable law and whether pursuant to a judgment being made or registered against any Obligor or for any other reason, any payment under or in connection with this Agreement, is made or satisfied in a currency (the "Other Currency") other than that in which the relevant payment is due (the "Required Currency") then, to the extent that the payment (when converted into the Required Currency at the rate of exchange on the date of payment or, if it is not practicable for the party entitled thereto (the "Payee") to purchase the Required Currency with the other Currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so) actually received by the Payee falls short of the amount due under the terms of this Agreement, such Obligor shall, to the extent permitted by law, as a separate and independent obligation, indemnify and hold harmless the Payee against the amount of such short-fall. For the purpose of this Section, "rate of exchange" means the rate at which the Payee is able on the relevant date to 69 purchase the Required Currency with the Other Currency and shall take into account any premium and other costs of exchange. SECTION 9.12. JUDICIAL PROCEEDINGS. (a) CONSENT TO JURISDICTION. Each Obligor irrevocably submits to the non-exclusive jurisdiction of any federal or New York State court sitting in New York City over any suit, action or proceeding arising out of or relating to the Financing Documents. Each Obligor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such court and any claim that any suit, action or proceeding brought in such court has been brought in an inconvenient forum. Each Obligor agrees that a final judgment in any such suit, action or proceeding brought in such a court shall be conclusive and binding upon it and will be given effect in Luxembourg to the fullest extent permitted by applicable law and may be enforced in any federal or New York State court sitting in New York City (or any other courts to the jurisdiction of which such Obligor is or may be subject) by a suit upon such judgment, PROVIDED that service of process is effected upon it in one of the manners specified herein or as otherwise permitted by law. (b) APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. Each Obligor hereby irrevocably designates and appoints CT Corporation System having an office on the date hereof at 111 Eighth Avenue, New York, New York 10011 as its authorized agent, to accept and acknowledge on its behalf, service of any and all process which may be served in any suit, action or proceeding of the nature referred to in subsection (a) above in any federal or New York State court sitting in New York City. Each Obligor represents and warrants that such agent has agreed in writing to accept such appointment and that a true copy of such designation and acceptance has been delivered to the Agent. Such designation and appointment shall be irrevocable until all principal and interest and all other amounts payable under the Financing Documents shall have been paid in full in accordance with the provisions hereof. If such agent shall cease so to act, each Obligor covenants and agrees to designate irrevocably and appoint without delay another such agent satisfactory to the Agent and to deliver promptly to the Agent evidence in writing of such other agent's acceptance of such appointment. (c) SERVICE OF PROCESS. Each Obligor hereby consents to process being served in any suit, action, or proceeding of the nature referred to in subsection (a) above in any federal or New York State court sitting in New York City by service of process upon the agent of such Obligor, as the case may be, for service of process in such jurisdiction appointed as provided in subsection (b) above; PROVIDED that, to the extent lawful and possible, written notice of said service upon such agent shall be mailed by registered airmail, postage prepaid, return receipt requested, to such Obligor at its address specified on the signature pages hereof or to any other address of which such Obligor shall have given written notice to the Agent. Each Obligor irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service and agrees that such service shall be deemed in every respect effective service of process upon 70 such Obligor in any such suit, action or proceeding and shall, to the fullest extent permitted by law, be taken and held to be valid and personal service upon and personal delivery to such Obligor. (d) NO LIMITATION ON SERVICE OR SUIT. Nothing in this Section shall affect the right of the Agent or any Bank to serve process in any other manner permitted by law or limit the right of the Agent or any Bank to bring proceedings against any Obligor in the courts of any jurisdiction or jurisdictions. SECTION 9.13. CONFORMING AMENDMENTS TO FIVE-YEAR FACILITY. The Guarantor and Morgan Guaranty Trust Company of New York, in its capacity as agent under the Amended and Restated Parent Guarantee Agreement dated as of February 13, 1998 and amended and restated as of February 12, 1999 (the "Existing Guarantee"), hereby agree that the Existing Guarantee is amended as follows: (i) the word "corporate" appearing in Section 4.04 is changed to "legal"; (ii) the date "February 12, 1999" appearing in clause (iv) of Section 4.07 and clause (a) of Section 4.10 is changed to "February 11, 2000"; (iii) the phrase "the date hereof" in Section 4.13 is changed to "September 30, 1999"; (iv) the figure "$3,100,000,000 in Section 4.13 is changed to "$4,200,000,000"; and (v) the references to "1998" in Section 4.13 are changed to "1999." The Banks parties to the $500,000,000 Extendible 364-Day Credit Agreement dated as of February 13, 1998 among the Borrower, the banks parties thereto and Morgan Guaranty Trust Company of New York, as agent for such banks (as amended, the "Existing Five-Year Facility"), comprising the "Required Banks" as defined in the Existing Five-Year Facility, hereby consent to the foregoing amendment to the Existing Guarantee. ARTICLE 10 GUARANTEE SECTION 10.01. THE GUARANTEE. The Guarantor hereby guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all principal of and interest on amounts loaned to the Borrower under the Financing Documents and all other amounts payable by the Borrower under the 71 Financing Documents. This is a guarantee of payment and not merely of collection. Upon failure by the Borrower to pay punctually any such amount, the Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the applicable Financing Document. SECTION 10.02. GUARANTEE UNCONDITIONAL. The obligations of the Guarantor hereunder shall be unconditional and absolute, and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected, at any time by: (i) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Borrower under any Financing Document, by operation of law or otherwise; (ii) any modification or amendment of or supplement to any Financing Document; (iii) any release, impairment, non-perfection or invalidity of any direct or indirect security for any obligation of the Borrower under any Financing Document; (iv) any change in the corporate existence, structure or ownership of the Borrower, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or its assets or any resulting release or discharge of any obligation of the Guarantor or the Borrower contained in any Financing Document; (v) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Borrower, the Agent, any Bank or any other Person, whether in connection herewith or any unrelated transactions, PROVIDED that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (vi) any invalidity or unenforceability relating to or against the Borrower for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by the Borrower of any amount payable by it under any Financing Document; or (vii) any other act or omission to act or delay of any kind by the Borrower, the Agent, any Bank or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to the Guarantor's obligations hereunder. SECTION 10.03. DISCHARGE ONLY UPON PAYMENT IN FULL; REINSTATEMENT IN CERTAIN CIRCUMSTANCES. This Agreement shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the 72 Promissory Notes and all other amounts payable by the Borrower under the Financing Documents shall have been paid in full. If at any time any payment of principal of or interest on any Promissory Note or any other amount payable by the Borrower under the Financing Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor's obligations hereunder with respect to such payment shall be reinstated at such time as though such payment had been due but not made at such time. SECTION 10.04. WAIVER BY THE GUARANTOR. The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Borrower or any other Person. SECTION 10.05. SUBROGATION. Upon making any payment hereunder with respect to the Borrower, the Guarantor shall be subrogated to the rights of the payee against the Borrower with respect to such payment; PROVIDED that the Guarantor shall not enforce any payment by way of subrogation until all amounts of principal of and interest on the Promissory Notes and all other amounts payable by the Borrower under the Financing Documents have been paid in full. SECTION 10.06. STAY OF ACCELERATION. In the event that acceleration of the time for payment of any amount payable by the Borrower under any Financing Document is stayed upon insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Guarantor hereunder forthwith on demand by the Required Banks. 73 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. TYCO INTERNATIONAL GROUP S.A. By: /s/ RICHARD W. BRANN ---------------------------------------------- Title: Managing Director Address: 2nd Floor, 6 Avenue Emile Reuter L-2420, Luxembourg Facsimile number: 011-352-464-3350 TYCO INTERNATIONAL LTD. By: /s/ BYRON S. KALOGEROU ---------------------------------------------- Title: Vice President and Assistant Secretary The Zurich Center 2nd Floor 90 Pitts Bay Road Pembroke HM08 Bermuda Facisimile No.: 441-295-9647 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ GLENDA WINTER-IRVING ------------------------------------------ Title: Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By: /s/ GLENDA WINTER-IRVING ------------------------------------------ Title: Vice President 60 Wall Street New York, New York 10260-0060 Telex number: 177615 Facsimile number: 212-648-5018 BANK OF AMERICA, N.A. By: /s/ JOHN POCALYKO ------------------------------------------ Title: Managing Director THE CHASE MANHATTAN BANK By: /s/ RANDOLPH E. CATES ------------------------------------------ Title: Vice President CITIBANK, N.A. By: /s/ DIANE L. POCKAJ ------------------------------------------ Title: Vice President COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ ROBERT DONOHUE ------------------------------------------ Title: Senior Vice President By: /s/ PETER DOYLE ------------------------------------------ Title: Assistant Vice President ABN AMRO BANK N.V. By: /s/ JAMES S. ADELSHEIM ------------------------------------------ Title: Group Vice President By: /s/ ILDIKO E. JUHASZ ------------------------------------------ Title: Assistant Vice President THE BANK OF NOVA SCOTIA By: /s/ W.J. BROWN ------------------------------------------ Title: Vice President BARCLAYS BANK PLC By: /s/ L. PETER YETMAN ------------------------------------------ Title: Director BAYERISCHE HYPO-UND VEREINSBANK AG, NEW YORK BRANCH By: /s/ MARIANNE WEINZINGER ------------------------------------------ Title: Director By: /s/ IMKE ENGELMANN ------------------------------------------ Title: Associate Director CREDIT LYONNAIS, NEW YORK BRANCH By: /s/ MARY E. COLLIER ------------------------------------------ Title: Senior Vice President and Manager DEUTSCHE BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ WOLFGANG WINTER ------------------------------------------ Title: Managing Director By: /s/ CHRISTOPHER HOWE ------------------------------------------ Title: Director DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ DEBORAH SLUSARCZYK ------------------------------------------ Title: Vice President By: /s/ JOANNA M. SOLOWSKI ------------------------------------------ Title: Vice President FIRST UNION NATIONAL BANK By: /s/ GEORGE L. WOOLSEY ------------------------------------------ Title: Vice President HSBC BANK USA By: /s/ KIM LEARY ------------------------------------------ Title: Vice President MELLON BANK, N.A. By: /s/ DANIEL J. LENCKOS ------------------------------------------ Title: Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE By: /s/ BARRY S. WALDER ------------------------------------------ Title: Associate By: /s/ CYNTHIA M. NIESEN ------------------------------------------ Title: Managing Director BANKBOSTON NA By: /s/ [ILLEGIBLE] ------------------------------------------ Title: Vice President BANKONE, NA (MAIN OFFICE: CHICAGO) By: /s/ ROBERT MCMILLAN ------------------------------------------ Title: Assistant Vice President BANQUE NATIONALE DE PARIS By: /s/ RICHARD L. STED ------------------------------------------ Title: Senior Vice President By: /s/ RICHARD PACE ------------------------------------------ Title: Vice President, Corporate Banking Division CREDIT SUISSE FIRST BOSTON By: /s/ JAMES R. MORAN ------------------------------------------ Title: Director By: /s/ DAVID W. KRATOVIL ------------------------------------------ Title: Director SAN PAOLO IMI, SPA B NEW YORK BRANCH By: /s/ LUCA SACCHI ------------------------------------------ Title: Vice President By: /s/ CARLO PERSICO ------------------------------------------ Title: D. G. M. NATIONAL AUSTRALIA BANK LIMITED, A.C.N. 004044937 By: /s/ RICHARD E. UNGER ------------------------------------------ Title: Senior Vice President TORONTO DOMINION (TEXAS), INC. By: /s/ CAROLYN R. FAETH ------------------------------------------ Title: Vice President BANCA NAZIONALE DEL LAVORO SpA - NEW YORK BRANCH By: /s/ GIULIO GIOVINE ------------------------------------------ Title: Vice President By: /s/ LEONARDO VALENTINI ------------------------------------------ Title: First Vice President THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH By: /s/ ROBER P. GALLAGHER, JR. ------------------------------------------ Title: Vice President Corporate Finance Department DEN DANSKE BANK AKTIESELSKAB By: /s/ PETER L. HARGRAVES ------------------------------------------ Title: Vice President By: /s/ JOHN A. O'NEILL ------------------------------------------ Title: Vice President THE FUJI BANK, LIMITED By: /s/ RAYMOND VENTURA ------------------------------------------ Title: Vice President and Manager SOCIETE GENERALE NEW YORK BRANCH By: /s/ ROBERT PETERSEN ------------------------------------------ Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ THOMAS FENNESSEY ------------------------------------------ Title: Vice President BAYERISCHE LANDESBANK GIROZENTRALE By: /s/ HEREWARD DRUMMOND ------------------------------------------ Title: Senior Vice President By: /s/ JAMES H. BOYLE ------------------------------------------ Title: Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ FRANK J. JANCAR ------------------------------------------ Title: Vice President MERRILL LYNCH BANK USA By: /s/ PRESTON L. JACKSON ------------------------------------------ Title: President and Chief Executive Officer MERRILL LYNCH CAPITAL CORPORATION By: /s/ JACK LUCID ------------------------------------------ Title: Vice President NATIONAL WESTMINSTER BANK PLC By: /s/ TERRY L. ATHERTON ------------------------------------------ Title: Corporate Director STANDARD CHARTERED BANK By: /s/ DAVID D. CUTTING ------------------------------------------ Title: Senior Vice President By: /s/ SHAFIQ UR RAHMAN ------------------------------------------ Title: Senior Vice President AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: /s/ ROBERT SLOAN ------------------------------------------ Title: First Vice President BANCA COMMERCIALE ITALIANA - NEW YORK BRANCH By: /s/ EDWARD BERMANT ------------------------------------------ Title: First Vice President and Deputy Manager By: /s/ JOHN MICHALISIN ------------------------------------------ Title: First Vice President BANCA POPOLARE DI MILANO, NEW YORK BRANCH By: /s/ FULVIO MONTANARI ------------------------------------------ Title: First Vice President By: /s/ PATRICK F. DILLON ------------------------------------------ Title: Vice President, Chief Credit Officer BBL INTERNATIONAL, (U.K.) LTD By: /s/ G. R. M. WALKER ------------------------------------------ Title: Authorized Signatory By: /s/ A. MICHAEL ------------------------------------------ Title: Authorized Signatory GOVERNOR AND COMPANY BANK OF IRELAND By: /s/ NICOLA CANAVAN ------------------------------------------ Title: Senior Manager By: /s/ TOM HAYES ------------------------------------------ Title: Associate Director THE BANK OF NEW YORK By: /s/ ELIZA S. ADAMS ------------------------------------------ Title: Vice President CARIPLO - CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE, SPA By: /s/ MARIA ELENA GREENE ------------------------------------------ Title: Assistant Vice President By: /s/ CHARLES W. KENNEDY ------------------------------------------ Title: First Vice President COMERICA BANK By: /s/ MARTIN G. ELLIS ------------------------------------------ Title: Vice President CREDIT AGRICOLE INDOSUEZ By: /s/ BRIAN D. KNEZEAK ------------------------------------------ Title: First Vice President By: /s/ KENNETH C. COULTER ------------------------------------------ Title: Vice President, Senior Relationship Manager CREDIT COMMERCIAL DE FRANCE By: /s/ GABE J. CSORDAS ------------------------------------------ Title: Senior Vice President By: /s/ ELIZABETH A. FALLON ------------------------------------------ Title: Vice President KBC BANK N.V. By: /s/ ROBERT M. SURDAM, JR. ------------------------------------------ Title: Vice President By: /s/ ROBERT SNAUFFER ------------------------------------------ Title: First Vice President NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: /s/ STEPHANIE FINNEN ------------------------------------------ Title: Vice President By: /s/ STEPHEN K. HUNTER ------------------------------------------ Title: Senior Vice President THE NORTHERN TRUST COMPANY By: /s/ MICHELLE D. GRIFFIN ------------------------------------------ Title: Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ DONALD V. DAVIS ------------------------------------------ Title: Vice President UNICREDITO ITALIANO S.P.A. By: /s/ GIANFRANCO BISAGNI ------------------------------------------ Title: First Vice President By: /s/ CHARLES MICHAEL ------------------------------------------ Title: Vice President THE BANK OF N.T. BUTTERFIELD & SON LTD. By: /s/ R. W. WILSON ------------------------------------------ Title: Vice President and Head, Corporate Banking By: /s/ J. W. RAYNOR ------------------------------------------ Title: Manager - Corporate Banking WESTPAC BANKING CORPORATION By: /s/ LEWIS E. LOVE, JR. ------------------------------------------ Title: Senior Vice President COMMITMENT SCHEDULE Morgan Guaranty Trust Company of New York* $145,000,000 Bank of America, N.A.* $135,000,000 The Chase Manhattan Bank* $135,000,000 Citibank, N.A.* $135,000,000 Commerzbank AG, New York and Grand Cayman Branches* $135,000,000 ABN AMRO Bank N.V. $125,000,000 The Bank of Nova Scotia $125,000,000 Barclays Bank PLC $125,000,000 Bayerische Hypo - Und Vereinsbank AG, New York Branch $125,000,000 Credit Lyonnais, New York Branch $125,000,000 Deutsche Bank AG, New York Branch and/or Cayman Islands Branch $125,000,000 Dresdner Bank AG, New York and Grand Cayman Branches $125,000,000 First Union National Bank $125,000,000 HSBC Bank USA $125,000,000 Mellon Bank, N.A. $125,000,000 Westdeutsche Landesbank Girozentrale $125,000,000 BankBoston NA $115,000,000 BankOne, NA (Main Office: Chicago) $115,000,000 Banque Nationale de Paris $115,000,000 Credit Suisse First Boston $115,000,000 San Paolo IMI, SpA - New York Branch $115,000,000 National Australia Bank Limited, A.C.N. 004044937 $115,000,000 Toronto Dominion (Texas), Inc. $115,000,000 Banca Nazionale del Lavoro SpA B New York Branch $83,000,000 The Dai-Ichi Kangyo Bank, Ltd., New York Branch $83,000,000 Den Danske Bank Aktieselskab $83,000,000 The Fuji Bank, Limited $83,000,000 Societe Generale New York Branch $83,000,000 Bank of Tokyo-Mitsubishi Trust Company $70,000,000 Bayerische Landesbank Girozentrale $70,000,000 KeyBank National Association $70,000,000 Merrill Lynch Bank USA $45,000,000 Merrill Lynch Capital Corporation $25,000,000 National Westminster Bank PLC $70,000,000 Standard Chartered Bank $70,000,000 Australia and New Zealand Banking Group Limited $50,000,000 Banca Commerciale Italiana B New York Branch $50,000,000 Banca Popolare di Milano, New York Branch $50,000,000 BBL International, (U.K.) Ltd $50,000,000 Bank of Ireland $50,000,000 The Bank of New York $50,000,000 Cariplo - Cassa Di Risparmio Delle Provincie Lombarde SpA $50,000,000 Comerica Bank $50,000,000 Credit Agricole Indosuez $50,000,000 Credit Commercial de France $50,000,000 KBC Bank N.V. $50,000,000 Norddeutsche Landesbank Girozentrale New York Branch and/or Cayman Islands Branch $50,000,000 The Northern Trust Company $50,000,000 PNC Bank, National Association $50,000,000 Unicredito Italiano S.p.A. $50,000,000 The Bank of N.T. Butterfield & Son Ltd. $25,000,000 Westpac Banking Corporation $25,000,000 -------------- Total Commitments $4,500,000,000 ============== - ------------ * Denotes Swingline Bank PRICING SCHEDULE The "EURO-CURRENCY MARGIN" and "FACILITY FEE RATE" for any day are the respective percentages set forth below in the applicable row and column based upon the Utilization and Status that exist on such day (PROVIDED that for any day on or after February 9, 2001, the "Euro-Currency Margin" shall be equal to the respective percentage so determined plus (x) 1.00% per annum for any day on which Level I Status, Level II Status, Level III Status or Level IV Status exists or (y) 2.00% per annum for any day on which Level V Status or Level VI Status exists):
- --------------------------------------------------------------------------------------- Level Level Level Level Level Level Status I II III IV V VI - --------------------------------------------------------------------------------------- Euro-Currency Margin Utilization < 25% 0.315% 0.430% 0.525% 0.625% 0.7375% 0.800% Utilization > 25% 0.440% 0.555% 0.650% 0.750% 0.9875% 1.175% - --------------------------------------------------------------------------------------- Facility Fee Rate 0.060% 0.070% 0.100% 0.125% 0.1375% 0.200% - ---------------------------------------------------------------------------------------
For purposes of this Schedule, the following terms have the following meanings, subject to the concluding paragraph of this Schedule: "LEVEL I STATUS" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated A or higher by S&P OR A2 or higher by Moody's. "LEVEL II STATUS" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated A- or higher by S&P OR A3 or higher by Moody's and (ii) Level I Status does not exist. "LEVEL III STATUS" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated BBB+ or higher by S&P OR Baa1 or higher by Moody's and (ii) neither Level I Status nor Level II Status exists. "LEVEL IV STATUS" exists at any date if, at such date, (i) (x) the Borrower's senior unsecured long-term debt is rated BBB or higher by S&P OR Baa2 or higher by Moody's AND (y) the Borrower's commercial paper is rated A2 or higher by S&P AND P2 or higher by Moody's and (ii) none of Level I Status, Level II Status and Level III Status exists. "LEVEL V STATUS" exists at any date, if at such date, (i) the Borrower's senior unsecured long-term debt is rated BBB or higher by S&P Or Baa2 or higher by Moody's and (ii) none of Level I Status, Level II Status, Level III Status or Level IV Status exists. "LEVEL VI STATUS" exists at any date if, at such date, no other Status exists. "STATUS" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status exists at any date. "UTILIZATION" means, at any date, the percentage equivalent of a fraction (i) the numerator of which is the aggregate outstanding principal amount of the Loans at such date and (ii) the denominator of which is the aggregate amount of the Commitments at such date. If for any reason any Loans remain outstanding following termination of the Commitments, Utilization shall be deemed to be in excess of 25%. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities and/or commercial paper, as the case may be, of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If the Borrower is split-rated and the ratings differential is one notch, the higher of the two ratings will apply (E.G., A/A3 results in Level I Status). If the Borrower is split-rated and the ratings differential is more than one notch, the average of the two ratings (or the higher of two intermediate ratings) shall be used (E.G., A/Baa1 results in Level II Status, as does A/Baa2). 2 EXHIBIT A PROMISSORY NOTE New York, New York , 2000 For value received, TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date provided for in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made (i) if in Dollars, in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, at 60 Wall Street, New York, New York or (ii) if in an Alternative Currency, in such funds as may then be customary for the settlement of international transactions in such Alternative Currency at the place specified for payment thereof pursuant to the Credit Agreement. All Loans made by the Bank, the respective Classes, Types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; PROVIDED that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This promissory note is one of the Promissory Notes referred to in the 364-Day Credit Agreement dated as of February 11, 2000 among the Borrower, the banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. Except as permitted by Section 9.06 of the Credit Agreement, this Promissory Note may not be assigned by the Bank to any other Person. This Promissory Note shall be governed by and construed in accordance with the laws of the State of New York. TYCO INTERNATIONAL GROUP S.A. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: 2 Promissory Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL
- ----------------------------------------------------------------------------------------------- Amount Class Amount of Unpaid of and Type Principal Principal Maturity Notation Date Loan of Loan Repaid Amount Date Made By - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
3 EXHIBIT B FORM OF MONEY MARKET QUOTE REQUEST [Date] To: Morgan Guaranty Trust Company of New York (the "Agent") From: Tyco International Group S.A. Re: 364-Day Credit Agreement (the "Credit Agreement") dated as of February 11, 2000 among the Borrower, the Banks listed on the signature pages thereof and the Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
PRINCIPAL AMOUNT(1) INTEREST PERIOD(2) ---------------- --------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. TYCO INTERNATIONAL GROUP S.A. By ------------------------------- Title: By ------------------------------- Title: - --------------- (1) Amount must be $10,000,000 or larger multiple of $1,000,000. (2) Not less than one month (LOBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. EXHIBIT C FORM OF INVITATION FOR MONEY MARKET QUOTES To: [Name of Bank] Re: Invitation for Money Market Quotes to Tyco International Group S.A. (the "Borrower") Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of February 11, 2000 among the Borrower, the Banks parties thereto and the undersigned, as Agent (the "Credit Agreement"), we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________
PRINCIPAL AMOUNT INTEREST PERIOD ---------------- --------------- $
Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. Terms used herein have the meanings assigned to them in the Credit Agreement. MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------ Authorized Officer EXHIBIT D FORM OF MONEY MARKET QUOTE To: Morgan Guaranty Trust Company of New York, as Agent Re: Money Market Quote to Tyco International Group S.A. (the "Borrower") In response to your invitation on behalf of the Borrower dated _____________, 20__, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ----------------------------- 3. Date of Borrowing: ____________________* 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market
AMOUNT** PERIOD*** [MARGIN****] [ABSOLUTE RATE*****] -------- --------- ------------ -------------------- $ $
[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** ---------- * As specified in the related Invitation. ** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (notes continued on following page) We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the 364-Day Credit Agreement dated as of February 11, 2000 (the "Credit Agreement") among the Borrower, the Banks listed on the signature pages thereof and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part, in accordance with Section 2.03(f) of the Credit Agreement. Terms used herein have the meanings assigned to them in the Credit Agreement. Very truly yours, [NAME OF BANK] Dated:_____________ By:__________________________ Authorized Officer - ----------------- *** Not less than one month or not less than 30 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. **** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%). 2 EXHIBIT E Form of Opinion of Chief Corporate Counsel of the Guarantor February 11, 2000 To the Banks and the Agent Named on the Attached Distribution List c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Ladies and Gentlemen: I am the Executive Vice President and Chief Corporate Counsel of Tyco International Ltd., a Bermuda company (the "Guarantor"), which owns all of the outstanding capital stock of Tyco International Group S.A., a Luxembourg company (the "BORROWER"). I am rendering this opinion in connection with that certain 364-Day Credit Agreement (the "CREDIT AGREEMENT"), dated as of February 11, 2000, among the Borrower, the Guarantor, the banks listed on the signature pages thereof (the "BANKS") and Morgan Guaranty Trust Company of New York, as Agent. This opinion is being delivered to you pursuant to Section 3.01(c) of the Credit Agreement. Each term defined in the Credit Agreement and used herein, but not otherwise defined herein, has the meaning ascribed thereto in the Credit Agreement. In connection with the opinion set forth herein, I have caused attorneys employed under my supervision to review the Credit Agreement, the Promissory Notes of the Borrower (collectively, the "FINANCING DOCUMENTS"), and have caused attorneys employed under my supervision to examine originals or copies, certified or otherwise identified to my satisfaction, of such documents, records, certificates and instruments as I have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In connection with such examination, I have assumed the genuineness of all signatures on original documents, the authenticity of all documents submitted for review as originals, the conformity to the originals of all copies submitted for review as certified, conformed or photostatic copies, and the authenticity of the originals of such copies. As to various questions of fact material to this opinion, I have relied, without independent investigation or verification, upon statements, representations and certificates of officers and other representatives of the Borrower, the Guarantor and certificates of public officials. In addition, I have assumed that (i) the Credit Agreement has been validly authorized, executed and delivered by all parties thereto (other than the Borrower and the Guarantor), (ii) each party to the Credit Agreement (other than the Borrower and the Guarantor) has been duly organized and is a corporation or other entity validly existing and in good standing (to the extent applicable) under the laws of its respective jurisdiction of organization, with the full corporate or other organizational power to execute and deliver the Credit Agreement and to perform its respective obligations thereunder, (iii) the Credit Agreement constitutes the legal, valid and binding obligations of the respective parties thereto (other than the Borrower and the Guarantor) enforceable against such parties in accordance with its terms, (iv) the execution and delivery of the Credit Agreement by each party thereto (other than the Borrower and the Guarantor) and the performance by such parties of their respective obligations thereunder do not violate such parties' respective articles or certificate of incorporation or by-laws, or other organizational documents, and (v) the execution, delivery and performance by each party to the Credit Agreement (other than the Borrower and the Guarantor) and the performance by such parties of their respective obligations thereunder do not violate any agreement, judgment, injunction, decree, order of any governmental authority, other instrument, law or regulation applicable to such party. Based upon the foregoing, and subject to the qualifications and assumptions set forth herein, it is my opinion that: 1. The execution, delivery and performance by the Borrower of the Credit Agreement and the Promissory Notes (a) require no action by or in respect of, or filing with, any governmental body, agency or official, in each case, on the part of the Borrower; and (b) do not contravene, or constitute a default by the Borrower under, any provision of (i) applicable law or regulation, or (ii) any agreement or instrument evidencing or governing debt of the Borrower, or any other agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower. 2. The Credit Agreement constitutes a valid and binding agreement of the Borrower and each Promissory Note constitutes a valid and binding obligation of the Borrower. 3. The performance by the Guarantor of its obligations under the Credit Agreement (a) requires no action by or in respect of, or filing with, any governmental body, agency or official, in each case, on the part of the Guarantor; and (b) does not contravene, or constitute a default by the Guarantor under, any provision of (i) applicable law or regulation or (ii) any agreement or instrument evidencing or governing debt of the Guarantor, or any other agreement, judgment, injunction, order, decree or other instrument binding upon the Guarantor. 4. The Credit Agreement constitutes a valid and binding obligation of the Guarantor. 2 5. There is no action, suit or proceeding pending against, or, to the best of my knowledge, threatened against or affecting, the Guarantor or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable possibility of an adverse decision which could, based upon the facts and circumstances in existence on the date hereof, reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of the Financing Documents. 6. Each of the Guarantor's corporate Subsidiaries is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, except where the failure to be so incorporated, existing or in good standing could not, based upon the facts and circumstances existing on the date hereof, reasonably be expected to have a Material Adverse Effect, and has all corporate powers and all Consents required to carry on its business as now conducted other than those powers and Consents, the failure of which to be possessed or obtained could not, based upon the facts and circumstances in existence on the date hereof, reasonably be expected to have a Material Adverse Effect. The opinion set forth herein is subject to the following qualifications and limitations: (a) The enforceability of the Credit Agreement and the Promissory Notes may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or transfer or other similar laws and court decisions, now or hereafter in effect, relating to or affecting the rights of creditors generally. (b) The enforceability of the Credit Agreement and the Promissory Notes is or will be subject to the application of and may be limited by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Such principles of equity are of general application, and in applying such principles a court, among other things, might not allow a creditor to accelerate maturity of a debt under certain circumstances including, without limitation, upon the occurrence of a default deemed immaterial, or might decline to order the Borrower, the Guarantor or any of the other parties to the Financing Documents to perform covenants. Such principles as applied by a court might include a requirement that a creditor act with reasonableness and in good faith. Thus, I express no opinion as to the validity or enforceability of (i) provisions restricting access to legal or equitable remedies, such as the specific performance of executory covenants, (ii) provisions that purport to establish evidentiary standards, (iii) provisions relating to waivers, severability, set-off, or delay or omission of enforcement of rights or remedies, and (iv) provisions purporting to convey rights to persons other than parties to the Financing Documents. 3 (c) The remedy of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. I call your attention to the fact that I am admitted to practice law only in the State of New York and, in rendering the foregoing opinion, I do not express any opinion as to any laws other than the laws of the State of New York and the Federal laws of the United States of America. Insofar as the foregoing opinion involves matters governed by the law of Luxembourg or Bermuda, I have relied, without independent investigation or verification, upon the respective opinions of Beghin & Feider in association with Allen & Overy, special Luxembourg counsel for the Borrower, and of Appleby Spurling & Kempe, special Bermuda counsel for the Guarantor. The opinion expressed herein is based upon the laws in effect on the date hereof, and I assume no obligation to revise or supplement this opinion should any such law be changed by legislative action, judicial decision, or otherwise. This opinion is being delivered to you solely for your benefit in connection with the Financing Documents, and neither this opinion nor any part hereof may be delivered to, or used, referred to or relied upon, by any other person or for any other purpose without my express prior written consent, except that any person who is a permitted successor or assign of a Bank in accordance with the provisions of the Credit Agreement may rely upon this opinion as if it were specifically addressed and delivered to such person on the date hereof. Very truly yours, 4 EXHIBIT F Form of Opinion of Special Counsel for the Borrower To the banks listed on the signature pages of the Credit Agreement (defined below) and Morgan Guaranty Trust Company, as Agent 60 Wall Street New York, New York 10260 Luxembourg, February 11, 2000 TYCO INTERNATIONAL GROUP S.A. (INCORPORATED WITH LIMITED LIABILITY UNDER THE LAWS OF THE GRAND-DUCHY OF LUXEMBOURG) Dear Sirs: We have acted as your legal advisers in the Grand-Duchy of Luxembourg ("LUXEMBOURG") in connection with the 364-Day Credit Agreement dated as of February 11, 2000 (the "CREDIT AGREEMENT") among Tyco International Group S.A., a Luxembourg company (the "COMPANY"), Tyco International Ltd., a Bermuda company (the "GUARANTOR"), the Banks listed on the signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent (the "AGENT"). This opinion is being delivered to you pursuant to Section 3.01(c) of the Credit Agreement. We give this opinion on the basis of and subject to the assumptions and qualifications set out below. 1. BASIS OF OPINION (a) This opinion is confined to Luxembourg law currently in force and applied. This opinion is to be construed in accordance with the laws of Luxembourg. (b) For the purpose of giving this opinion, we have examined copies of the following documents: (i) the Credit Agreement; (ii) the Promissory Notes executed by the Company on February 11, 2000; (iii) [a copy of the articles of association of the Company in their version of 30th March 1998, filed with the Luxembourg Company Register on 22 April 1998 and published in the Official Gazette (MEMORIAL) C-N(0) 474 of 29th June 1998, an amendment to the articles of association of the Company by way of a notarial deed dated 6 July 1998 and published in the Official Gazette (MEMORIAL) C-N(0) 733 of 10th October 1998, an amendment to the articles of association of the Company by way of a notarial deed dated 22nd October 1998, not yet published, and an amendment to the articles of association of the Company by way of a notarial deed dated December 4, 1998, not yet published;][counsel to update] (iv) a copy of minutes of a meeting of the board of directors of the Company held on ____________ approving the execution of the Credit Agreement and the Promissory Notes; and (v) such other documents, records, certificates and instruments as we have thought necessary or desirable, including information gathered at the Luxembourg Company Register and at the District Court of Luxembourg. As used herein, the term "FINANCING DOCUMENTS" means the "Financing Documents" as defined in the Credit Agreement. Terms defined in the Credit Agreement and used herein, but not otherwise defined herein, have the meanings ascribed thereto in the Credit Agreement. 2. ASSUMPTIONS With your consent, we have assumed and we have not verified independently: (a) that any copies we have examined are complete and accurate copies of the originals; (b) the genuineness and authority of all the signatures, stamps and seals on all original or copy documents which we have examined; (c) that all documents have been duly authorized, executed and delivered by, and are within the capacity and power of, all the parties thereto, other than the Company; (d) that the documents which are not governed by Luxembourg law are legal, valid, binding and enforceable in accordance with their terms under their chosen governing law being the laws of the State of New York; and (e) that none of the opinions below would be affected by the laws (including the public policy) of any jurisdiction outside Luxembourg. 2 On the above basis and subject to the assumptions and qualifications set out above and below, and further subject to any matters, documents, or events not disclosed to us and to undisclosed matters of fact which would affect the conclusions set out below, we are of the opinion that: 3. OPINION (a) The Company is a limited liability corporation duly organized and validly existing under the laws of Luxembourg pursuant to the articles of association provided in a notarial deed of March 30, 1998, as amended, and was formerly incorporated under the laws of Gibraltar under the name of Velum Limited. (b) The Company has all company powers and all material governmental licenses, consents and approvals required to carry on its business as now conducted (other than such powers or consents the failure of which to be obtained could not reasonably be expected to have a Material Adverse Effect). (c) The execution, delivery and performance by the Company of the Credit Agreement and the Promissory Notes (i) are within the Company's powers, (ii) have been duly authorized by all necessary company action, (iii) require no action by or filing with any governmental body, agency or official, (iv) do not contravene or constitute a default under (A) applicable law or regulation, (B) the Company's articles of association or (C) any agreement or instrument governing debt of the Company or any other material agreement, judgment, injunction, order, decree or other instrument binding upon the Company. (d) The Credit Agreement constitutes a valid and binding agreement of the Company, and each Promissory Note constitutes a valid and binding obligation of the Company. (e) There is no action, suit or proceeding pending or threatened against or affecting the Company or any of its Subsidiaries in which there is a reasonable possibility of an adverse decision which could reasonably be expected to have a Material Adverse Effect or which in any manner draws into question the validity of the Financing Documents. (f) There is no tax, impost, deduction or withholding imposed by Luxembourg or any political subdivision thereof on or by virtue of the execution, delivery or enforcement of the Financing Documents or any other agreement or instrument relating thereto. (g) Each of the Financing Documents to which the Company is a party is in proper legal form under the laws of Luxembourg for the enforcement thereof against the Company under the laws of Luxembourg. 3 (h) To ensure the legality, validity, enforceability or admissibility in evidence of the Financing Documents in Luxembourg, it is not necessary that the Financing Documents or any other document be filed or recorded with any court or other authority in Luxembourg. (i) The choice of the laws of the State of New York to govern the Credit Agreement and the Promissory Notes is a valid and binding choice of law and will be recognized and applied by the courts of Luxembourg. (j) Any judgment obtained in any federal or New York State court sitting in New York City, arising out of or in relation to the obligations of the Company under the Financing Documents would be enforceable in Luxembourg against the Company. 4. QUALIFICATIONS The foregoing opinion is subject to the following qualifications. (a) INSOLVENCY. This opinion is subject to all insolvency and other similar laws affecting the rights of creditors VIS-A-VIS the Company, including INTER ALIA suspension of payments, bankruptcy, reorganization or moratorium. (b) CORPORATE BENEFIT. The Company may only validly enter the Financing Documents to which it is a party if and to the extent that such entry does not threaten its existence or the rights of its creditors and that the Company can reasonably hope to draw directly or indirectly a corporate benefit, at least in the long term, from the Financing Documents. We have no indication and no reason to believe that entering the Financing Documents would be other than for the corporate benefit of the Company. (c) CHOICE OF LAW. The Luxembourg courts (assuming that litigation were brought to the Luxembourg courts and that Luxembourg courts had jurisdiction) would not apply a chosen foreign law if: (i) it were not pleaded and proven; or (ii) if pleaded and proven, such foreign law would be contrary to the mandatory rules of Luxembourg law or manifestly incompatible with Luxembourg public policy. (d) ENFORCEMENT OF JUDGMENTS. The Luxembourg courts would enforce a final and conclusive judgment against the Company rendered by any federal or New York State court sitting in New York City in any suit, action or proceedings arising out of or in relation to the obligations of the Company under the Financing Documents provided, however, that such judgment would comply with the conditions imposed by article 678 of the Luxembourg NOUVEAU CODE DE PROCEDURE 4 CIVILE (i.e., the EXEQUATUR procedure) as currently interpreted by the Luxembourg courts and doctrine; namely, the foreign judgment (i) is final and enforceable in the jurisdiction where it has been rendered and complies with the conditions posed by any treaty, (ii) has been rendered in accordance with the legal formalities applicable in such jurisdiction, (iii) emanates from a court having both international (according to Luxembourg's conflict of laws rules) and national (according to the law of the foreign jurisdiction) competence, (iv) applies the substantive law of the country whose law would be applied according to Luxembourg's conflict of laws rules; and (v) is not contrary to Luxembourg public policy or mandatory rules of Luxembourg law. (e) JUDGMENT CURRENCY. Any obligation to pay an amount in a currency other than Luxembourg Francs will be enforceable in Luxembourg only in terms of Luxembourg Francs, though monetary judgments may be expressed in a foreign currency and/or its Luxembourg Francs equivalent at the time of payment, and any loss incurred as a result of a currency exchange fluctuation can be recovered under Luxembourg law. (f) LUXEMBOURG LEGAL CONCEPTS. This opinion shall be construed in accordance with Luxembourg law and Luxembourg legal concepts are expressed in English terms and not in their original French terms. The concepts concerned may not be identical to the concepts described by the same English terms as they exist under the laws of other jurisdictions. This opinion may, therefore, only be relied upon under the express condition that any issues of interpretation arising thereunder will be governed by Luxembourg law and be brought before a Luxembourg court. (g) REGISTRATION. If the Financing Documents are or must be produced in any court proceedings in Luxembourg or before any official authority in Luxembourg, registration thereof may be ordered in which case an AD VALOREM tax at the rate of 0.24 percent of the amount mentioned in the registered document or a fixed duty of LUF 500 for each of the Financing Documents would then be payable upon registration. (h) BINDING DOCUMENTS. The opinion expressed under (c)(iv)(C) is solely based upon a review of documents which have been filed by the Company with the Luxembourg Company Register and the certificate of the Managing Directors of the Company attached to this opinion as Appendix A. 5 (i) LITIGATION. The opinion expressed under (e) above is solely based on oral information received from the registrar of the district court of Luxembourg. (j) SET-OFF. No opinion can be expressed as to whether the provisions in the Credit Agreement on set-off (so far as the Company is concerned) would be effective and enforceable against a Luxembourg insolvency official. (k) PENALTY CLAUSE. It is possible that a Luxembourg court (if having jurisdiction) would consider Section 2.15 of the Credit Agreement whereby the Borrower may be obliged to pay additional interest on the related Euro-Dollar loan at a rate PER ANNUM determined by the relevant Bank as a penalty clause (CLAUSE PENALE). Penalty clauses as governed by article 1152 and articles 1226 ET SEQ. of the Luxembourg civil code are allowed to the extent that they provide for a reasonable level of damages. The judge has however the right to reduce (or increase) the amount thereof if it is unreasonably high (or low). (l) LANGUAGE DIFFERENCES. It is noted that there are always irreconcilable differences between languages making it impossible to guarantee a totally accurate translation or interpretation. In particular, there are always some legal concepts which exist in one jurisdiction and not in another, and in those cases it is bound to be difficult to provide a completely satisfactory translation or interpretation because the vocabulary is missing from the language. We accept no responsibility for omissions or inaccuracies to the extent they are attributable to such factors. This opinion is as of this date and we undertake no obligation to update this opinion or advise of changes hereafter occurring. We express no opinion as to any matters other than those expressly set forth herein, and no opinion is, or may be, implied or inferred herefrom. This opinion is given for your benefit as Agent for the Banks and it may be relied upon by you, the Banks as well as your or their assignees, successors, and your or their legal advisers. It may also be relied upon by Mark A Belnick, Executive Vice President and Chief Corporate Counsel to the Parent Guarantor, for the purposes of issuing the opinion required pursuant to Section 3.01(c)(i) of the Credit Agreement. It may not be relied upon by any other person. It may not be disclosed to third parties, quoted, referred to or otherwise used (save as required by law) without our prior written consent. Yours faithfully, 6 EXHIBIT G Form of Opinion of Special Counsel for the Guarantor To the Banks and the Agent Named on Schedule 1 to this Opinion c/o Morgan Guaranty Trust Company of New York (as Agent) 60 Wall Street New York, NY 10260 U.S.A. Dear Sirs, RE: TYCO INTERNATIONAL LTD. (THE "COMPANY") We have been instructed by the Company, a Bermuda corporation, which owns all of the issued shares of Tyco International Group S.A., a Luxembourg company (the "BORROWER"), to address this opinion to you in connection with the Credit Agreement dated as of February 11, 2000 among the Borrower, the Company, the Banks listed on the signature pages thereof and the Agent (the "CREDIT Agreement"), entered into by the Company in connection with all principal of and interest on amounts loaned to the Borrower under the Financing Documents. Unless otherwise defined therein, terms defined in the Credit Agreement have the same meanings when used in this opinion. For the purposes of this opinion, we have been supplied with and have reviewed, and relied upon the following documents: (A) a copy of the executed US $4,500,000,000 364-Day Credit Agreement; (B) a copy of the executed Promissory Notes; The Documents referred to in (A) and (B) inclusive are together referred to as the "FINANCING DOCUMENTS". (C) certified copies of the Certificate of Incorporation, the Certificate evidencing the change of name of the Company from ADT Limited to TYCO International Ltd. and the Memorandum of Association and the By-laws of the Company; (D) a certified copy of an extract of the minutes of a meeting of the Board of Directors of the Company held on ____________ (the "Resolutions"); and (E) a certified copy of the Share Certificate evidencing ownership by the Company of the Borrower. We also examined and relied upon: (A) Certificate of Compliance issued by the Registrar of Companies in Bermuda in respect of the Company on February [ ], 2000; and (B) Our searches of the documents of public record in relation to the Company maintained by the Registrar of Companies in Bermuda made on February [ ], 2000 and of the Causes Book maintained by the Registrar of the Supreme Court of Bermuda made on the same date (the "Searches"). In giving this opinion, we have assumed: (1) the capacity, power and authority of each of the parties other than the Company to execute, deliver and perform its obligations under and the due execution and delivery by all parties other than the Company of the Financing Documents; (2) that each party, other than the Company, has duly authorised, executed, delivered and taken such other action as may be required by such party to enter into and perform the Financing Documents in the form of the execution copies we have reviewed for the purpose of this opinion without alteration which is material to this opinion and that all such actions were duly authorised when taken; (3) that no authorization or approval by, or filing with, any governmental or regulatory authority, other than such authorizations, approvals and filings as each party other than the Company has obtained or made, is necessary for such party to duly execute and deliver, or to duly perform all of its obligations under the Financing Documents, or for the validity and enforceability of the Financing Documents; (4) that each of the Financing Documents constitutes the legal, valid and binding obligation of each party to it, other than the Company, and is enforceable against each such party in accordance with its terms; 2 (5) that the Financing Documents are legal, valid and binding under the laws of the State of New York by which they are expressed to be governed; (6) that the records which were the subject of the Searches on February [ ], 2000 were complete and accurate at the time of such searches and disclosed all information which is material for the purposes of this opinion and such information has not since such date been materially altered; (7) that there is no provision of the law of any jurisdiction, other than Bermuda, which would have any implication in relation to the opinions herein expressed; (8) the genuineness of all signatures on the documents which we have examined; (9) the conformity to original documents of all documents produced to us as copies and the authenticity of all original documents which, or copies of which, have been submitted to us; (10) the accuracy and completeness of all factual representations made in the Financing Documents, the Resolutions, and any certificates or other documents which we have examined and upon which we have relied; (11) that the Resolutions are in full force and effect and have not been rescinded or altered in any way material to this opinion; and (12) that the Company is entering into its obligations under the Credit Agreement in good faith and for the purpose of carrying on its commercial business in the ordinary course thereof and that there are reasonable grounds for believing that the transactions contemplated by the Financing Documents will benefit the Company. Based upon and subject to the foregoing, and subject to the reservations set out below, to matters not disclosed to us and matters of fact which would affect the conclusion set out below and having regard to such legal considerations as we deem relevant, we are of the opinion that: (i) The Company is a company duly incorporated, duly organised and validly existing under the laws of Bermuda. The Memorandum of Association of the Company has been duly filed in the office of the Registrar of Companies of Bermuda and no other filing, recording, publishing or other act is necessary or 3 appropriate in Bermuda in connection with the transaction as described in the Credit Agreement except those which have been duly made or performed. (ii) The Company has the corporate power and authority to enter into and perform the Credit Agreement and has taken all corporate action required on its part to authorise the execution, delivery and performance of the Credit Agreement. (iii) The execution, delivery and performance of the Credit Agreement by the Company (i) does not and will not violate the Certificate of Incorporation, Memorandum of Association or Bye-laws of the Company; (ii) conflict with The Companies Act 1981 or any other law or governmental rule or regulation published by the Bermuda Government which is applicable to the Company; and (iii) as far as can be ascertained from the Searches (which are not conclusive) does not and will not violate or conflict with any judgment, order, decree, injunction or award of any authority, agency or court in Bermuda to which the Company is subject. (iv) The obligations of the Company as set out in the Credit Agreement constitute, legal, valid and binding obligations of the Company. (v) The Company having been designated as non-resident for the purposes of the Exchange Control Act 1972, it is not necessary for the consent of any authority or agency in Bermuda to be obtained to enable the Company to enter into and perform its obligations set out in the Credit Agreement. (vi) The obligations of the Company under the Credit Agreement will rank at least PARI PASSU in priority of payment with all other unsecured unsubordinated indebtedness of the Company other than indebtedness which is preferred by virtue of any provision of Bermuda law of general application. (vii) As far as can be ascertained from the Searches (which are not conclusive), no litigation, arbitration or administrative proceedings of or before any court, arbitrator or governmental instrumentality of or in Bermuda is, to the best of our knowledge, pending with respect to the Company in connection with the Credit Agreement or the transactions contemplated thereby. (viii) The Company will be permitted to make all payments under the Credit Agreement free of any deduction or withholding therefrom in Bermuda and such payments will not be subject to any tax imposed by the Government of Bermuda or any taxing authority thereof or therein. (ix) The entry into, performance and enforcement of the Credit Agreement will not give rise to any registration fee or to any stamp, excise or other similar tax imposed by the Government of Bermuda or any taxing authority thereof or therein. 4 (x) Subject to paragraph (xii) and reservation (f) below, it is not necessary or advisable under the laws of Bermuda in order to ensure the validity, effectiveness or enforceability or admissibility in evidence of the Credit Agreement that the Credit Agreement be filed, registered or recorded with any Court, public office or other Bermuda regulatory authority. (xi) The choice of the laws of the State of New York to govern the Credit Agreement is a proper, valid and binding choice of law and will be recognised and applied by the courts of Bermuda provided that the point is specifically pleaded and that such choice of law is a valid and binding choice of law under the laws of the State of New York. (xii) A final and conclusive judgment obtained in the Courts of the State of New York or Federal Courts of the United States of America against the Company based upon the Credit Agreement under which a sum of money is payable (other than a sum of money payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty or in respect of Multiple Damages as defined in the Protection of Trading Interest Act, 1981) may be the subject of enforcement proceedings in the Supreme Court of Bermuda, without re-examination of the merits, under the Common Law Doctrine of Obligation. A final opinion as to the availability of this remedy should be sought when the facts surrounding the foreign judgment are known but, on general principles, we would expect such an application to be successful provided that: (A) the Court which gave the judgment was competent to hear the action in accordance with private international law principles as applied in Bermuda; (B) the judgment has not been obtained by fraud; (C) the judgment is not and its enforcement would not be contrary to public policy of Bermuda; (D) the judgment has not been obtained in proceedings contrary to natural justice; and (E) the correct procedures under the laws of Bermuda are duly complied with. Neither the Company nor any of its property or assets (or any portion thereof) enjoys, under the laws of Bermuda, immunity from suit, execution, attachment or other legal process in any proceedings in Bermuda in connection with the Credit Agreement. Our reservations are as follows: 5 (a) We are admitted to practise law in the Islands of Bermuda and we express no opinion as to any law other than Bermuda law and none of the opinions expressed herein relates to compliance with or matters governed by the laws of any jurisdiction except Bermuda. (b) Where an obligation is to be performed in a jurisdiction other than Bermuda, the Courts of Bermuda may refuse to enforce it to the extent that such performance would be illegal or contrary to public policy under the laws of such other jurisdiction. (c) We express no opinion as to the availability of equitable remedies, such as specific performance or injunctive relief, or as to matters which are within the discretion of the Courts of Bermuda such as the award of costs or questions relating to forum non-conveniens. Further, we express no opinion as to the validity or binding effect of any waiver of or obligation to waive any provision of law (whether substantive or procedural) or any right or remedy arising through circumstances not known at the time of entering into the Financing Documents. (d) We express no opinion as to the validity or the binding effect of any obligations of the Borrower in the Financing Documents which provide for the payment by the Borrower of a higher rate of interest on overdue amounts than on amounts which are current. A Bermuda Court, even if it were applying the laws of the State of New York might not give effect to such provision as being contrary to public policy if it could be established that the amount expressed as being payable was such that the provision was in the nature of a penalty; that is to say a requirement for a stipulated sum to be paid irrespective of, or necessarily greater than, the loss likely to be sustained. The Court will determine and award what it considers to be reasonable damages. Section 9 of The Interest and Credit Charges (Regulations) Act 1975 provides that the Bermuda Courts have discretion as to the amount of interest if any payable on the amount of a judgment after the date of judgment. If the Court does not exercise that discretion, then interest will accrue at the statutory rate which is currently 7% per annum. (e) The obligations of the Company under the Credit Agreement will be subject to any laws from time to time in effect relating to bankruptcy, insolvency or liquidation or any other laws or other legal procedures affecting generally the enforcement of creditors' rights and may also be the subject of the statutory limitation of the time within which such proceedings may be brought. (f) To the extent that the Financing Documents or the transactions contemplated thereunder, create or give rise to the creation of any charge over any assets of the Company, such charge will be registerable under Part V of The Companies Act 1981 of Bermuda. The fee payable for registration of a charge is $425.00. Registration is not compulsory and there is no time limit within which it must be effected. Any charge which is registerable, and which is registered, under Section 55 of The Companies Act will have priority based on the date that it is registered and not on the date of its creation (to the extent that priority of 6 competing charges are to be determined by reference to Bermuda law) and will have such priority over any unregistered charge. Accordingly, it is advisable to register any such charge. (g) Any provision in the Financing Documents that certain calculations and/or certificates will be conclusive and binding will not be effective if such calculations are fraudulent or erroneous on their face and will not necessarily prevent enquiry into the merits of any claim by an aggrieved party. (h) Where a party is vested with a discretion or may determine a matter in its opinion, such discretion may have to be exercised reasonably or such an opinion may have to be based on reasonable grounds. (i) Searches in the register of companies at the office of the Registrar of Companies and in the Supreme Court Causes Book at the Registry of the Supreme Court are not conclusive and it should be noted that the register of companies and the Supreme Court Causes Book do not reveal: (i) whether an application to the Supreme Court for the appointment of a receiver or manager has been presented; (ii) details of matters which have been lodged for registration but have not actually been registered or to the extent they have been registered have not been disclosed or appear in the public records at the date the search is concluded; (iii) details of matters which should have been lodged for registration but have not been lodged for registration at the date the search is concluded; or (iv) whether a receiver or manager has been appointed privately out of the Supreme Court pursuant to the provisions of a debenture or other security, unless notice of the fact has been entered in the register of charges in accordance with the provisions of the Act. (j) A Bermuda Court may refuse to give effect to any provisions of the Financing Documents in respect of costs of unsuccessful litigation brought before the Court or where that Court has itself made an order for costs. This opinion is issued on the basis that it will be governed by and construed in accordance with the provisions of Bermuda law and it is limited to and is given on the basis of the current law and practice in Bermuda and will not give rise to action in any other jurisdiction. It is issued solely for your benefit for the purpose of the transactions described in the Credit Agreement and it is not to be relied upon by any other person (other than permitted assigns and transferees under the Credit Agreement), or for any other purpose, without our written prior consent. Mr. Mark A Belnick, Executive Vice President and Chief Corporate 7 Counsel of the Company, may rely on our opinion as to matters of Bermuda law for the purpose of issuing his opinion of even date herewith. Yours faithfully, 8 EXHIBIT H OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENT To the Banks and the Agent Referred to Below c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Dear Sirs: We have participated in the preparation of the 364-Day Credit Agreement dated as of February 11, 2000 among Tyco International Group S.A., a Luxembourg company (the "Borrower"), Tyco International Ltd., a Bermuda company (the "Guarantor"), the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent (the "Agent"), and have acted as special counsel for the Agent for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of each of the Borrower and the Guarantor, and that each Promissory Note delivered on the date hereof constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, (i) we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect and (ii) insofar as the foregoing opinion involves matters governed by the laws of Luxembourg or Bermuda, we have relied, without independent investigation, upon the respective opinions of Beghin & Feider in association with Allen & Overy, special Luxembourg counsel for the Borrower, and of Appleby, Spurling & Kempe, special Bermuda counsel for the Guarantor, copies of which have been delivered to you. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other person without our prior written consent, except that any person who is a permitted successor or assign of a Bank in accordance with the provisions of the Credit Agreement may rely upon this opinion as if it were specifically addressed and delivered to such person on the date hereof. Very truly yours, 2 EXHIBIT I ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, ____ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), TYCO INTERNATIONAL GROUP S.A. (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the 364-Day Credit Agreement dated as of February 11, 2000 among the Borrower, the Guarantor, the Assignor and the other Banks party thereto, as Banks, and the Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate Dollar Amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate Dollar Amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. ASSIGNMENT. The Assignor hereby assigns and sells to the Assignee all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee, [the Borrower and the Agent] and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor and without any representations or warranties of any kind, except that the Assignor is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim created by the Assignor. SECTION 3. PAYMENTS. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.3 It is understood that facility fees in respect of the Assigned Amount accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. CONSENT OF THE BORROWER AND THE AGENT. This Agreement is conditioned upon the consent of the Borrower and the Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower and the Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. NON-RELIANCE ON ASSIGNOR. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. - ------------- (3) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum. 2 SECTION 6. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. COUNTERPARTS. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 3 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By: -------------------------------------- Title: [ASSIGNEE] By: -------------------------------------- Title: TYCO INTERNATIONAL GROUP S.A. By: -------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------------- Title: 4 EXHIBIT J SUBSIDIARY GUARANTEE Dated as of ____________ WHEREAS, Tyco International Group S.A., a Luxembourg company, has entered into a 364-Day Credit Agreement dated as of February 11, 2000 (as the same may be amended from time to time, the "Credit Agreement") among the Borrower, the banks listed on the signature pages thereof, and Morgan Guaranty Trust Company of New York, as Agent, pursuant to which the Borrower is or may be entitled, subject to certain conditions, to borrow up to $4,500,000,000; WHEREAS, in conjunction with the transactions contemplated by the Credit Agreement and in consideration of the financial and other support that the Borrower has provided, and such financial and other support as the Borrower may in the future provide, to the undersigned (together with its successors, the "Guarantor") and in order to induce the Banks and the Agent to enter into the Credit Agreements and to make Loans thereunder, the Guarantor is willing to guarantee the obligations of the Borrower under the Credit Agreement and the Promissory Notes issued thereunder; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. DEFINITIONS. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as therein defined. In addition the following terms, as used herein, have the following meanings: "Guaranteed Obligations" means (i) all obligations of the Borrower in respect of principal of and interest on the Loans and the Promissory Notes, (ii) all other amounts payable by the Borrower under the Credit Agreement or any Promissory Note and (iii) all renewals or extensions of the foregoing, in each case whether now outstanding or hereafter arising. The Guaranteed Obligations shall include, without limitation, any interest, costs, fees and expenses which accrue on or with respect to any of the foregoing and are payable by the Borrower pursuant to the Credit Agreement or any Promissory Note, whether before or after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of any one or more than one of the Obligors, and any such interest, costs, fees and expenses that would have accrued thereon or with respect thereto and would have been payable by the Borrower pursuant to the Credit Agreement or Promissory Note but for the commencement of such case, proceeding or other action. ARTICLE 2 GUARANTEE SECTION 2.01. THE GUARANTEE. Subject to Section 2.03, the Guarantor hereby unconditionally and irrevocably guarantees to the Banks and the Agent and to each of them, the due and punctual payment of all Guaranteed Obligations as and when the same shall become due and payable, whether at maturity, by declaration or otherwise, according to the terms thereof. This is a guarantee of payment and not merely of collection. In case of failure by the Borrower punctually to pay the indebtedness guaranteed hereby, the Guarantor, subject to Section 2.03, hereby unconditionally agrees to cause such payment to be made punctually as and when the same shall become due and payable, whether at maturity or by declaration or otherwise, and as if such payment were made by the Borrower. SECTION 2.02. GUARANTEE UNCONDITIONAL. The obligations of the Guarantor under this Article 2 shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by: (a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other Obligor under any Financing Document, by operation of law or otherwise; (b) any modification or amendment of or supplement to any Financing Document (other than as specified in an amendment or waiver of this Subsidiary Guarantee effected in accordance with Section 2.03); (c) any modification, amendment, waiver, release, non-perfection or invalidity of any direct or indirect security, or of any guaranty or other liability of any third party, for any obligation of any other Obligor under any Financing Document; (d) any change in the corporate existence, structure or ownership of any other Obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other Obligor or its assets or any resulting release or discharge of any obligation of any other Obligor contained in any Financing Document; (e) the existence of any claim, set-off or other rights which the Guarantor may have at any time against any other Obligor, the Agent, any Bank or any other Person, whether or not arising in connection with the Financing 2 Documents; PROVIDED that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; (f) any invalidity or unenforceability relating to or against any other Obligor for any reason of any Financing Document, or any provision of applicable law or regulation purporting to prohibit the payment by any other Obligor of the principal of or interest on any Promissory Note or any other amount payable by any other Obligor under any Financing Document; or (g) any other act or omission to act or delay of any kind by any other Obligor, the Agent, any Bank or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of the Guarantor under this Article 2. SECTION 2.03. LIMIT OF LIABILITY. The Guarantor shall be liable under this Subsidiary Guarantee only for amounts aggregating up to the largest amount that would not render its obligations hereunder subject to avoidance under Section 548 of the United States Bankruptcy Code or any comparable provisions of any other applicable law. SECTION 2.04. DISCHARGE; REINSTATEMENT IN CERTAIN CIRCUMSTANCES. Subject to Section 4.06, the Guarantor's obligations under this Article 2 shall remain in full force and effect until the Commitments are terminated and the principal of and interest on the Promissory Notes and all other amounts payable by the Borrower under the Financing Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Promissory Note or any other amount payable by the Borrower under any Financing Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any other Obligor or otherwise, the Guarantor's obligations under this Article 2 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time. SECTION 2.05. WAIVER. The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any other Obligor or any other Person. SECTION 2.06. SUBROGATION AND CONTRIBUTION. (a) The Guarantor irrevocably waives any and all rights to which it may be entitled, by operation of law or otherwise, upon making any payment hereunder (i) to be subrogated to the rights of the payee against the Borrower with respect to such payment or otherwise to be reimbursed, indemnified or exonerated by any other Obligor in respect thereof or (ii) to receive any payment, in the nature of contribution or for any other reason, from any other Obligor with respect to such payment. 3 (b) Notwithstanding the provision of subsection (a) of this Section 2.06, the Guarantor shall have and be entitled to (i) all rights of subrogation or contribution otherwise provided by law in respect of any payment it may make or be obligated to make under this Subsidiary Guarantee and (ii) all claims (as defined under Chapter 11 of Title 11 of the United States Code, as amended, or any successor statute (the "Bankruptcy Code")) it would have against the Borrower or any other Guarantor (each an "Other Party") in the absence of subsection (a) of this Section 2.06 and to assert and enforce the same, in each case on and after, but at no time prior to, the date (the "Subrogation Trigger Date") which is one year and five days after the Termination Date if, but only if, (x) no Default or Event of Default of the type described in Section 6.01 of the Credit Agreement with respect to the relevant Other Party has existed at any time on and after the date of this Subsidiary Guarantee to and including the Subrogation Trigger Date and (y) the existence of such Guarantor's rights under this clause (b) would not make such Guarantor a creditor (as defined in the Bankruptcy Code) of such Other Party in any insolvency, bankruptcy, reorganization or similar proceeding commenced on or prior to the Subrogation Trigger Date. SECTION 2.07. STAY OF ACCELERATION. If acceleration of the time for payment of any amount payable by the Borrower under the Financing Documents is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of the Financing Documents shall nonetheless be payable by the Guarantor hereunder forthwith on demand by the Agent made at the request of the Required Banks. ARTICLE 3 REPRESENTATIONS AND WARRANTIES The Guarantor represents and warrants to the Agent and the Banks that: SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of __________. SECTION 3.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Guarantor of this Subsidiary Guarantee: (a) are within the Guarantor's corporate powers; (b) have been duly authorized by all necessary corporate action on the part of the Guarantor; (c) require no action by or in respect of, or filing with, any governmental body, agency or official, in each case, on the part of the Guarantor; and 4 (d) do not contravene, or constitute a default by the Guarantor under, any provision of (i) applicable law or regulation, (ii) the certificate of incorporation or by-laws of the Guarantor, or (iii) any agreement or instrument evidencing or governing Debt of the Guarantor or any other material agreement, judgment, injunction, order, decree or other instrument binding upon the Guarantor. SECTION 3.03. BINDING EFFECT. This Subsidiary Guarantee constitutes a valid and binding obligation of the Guarantor. SECTION 3.04. NOT AN INVESTMENT COMPANY. The Guarantor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. ARTICLE 4 MISCELLANEOUS SECTION 4.01. NOTICES. All notices, requests and other communications to be made to or by the Guarantor hereunder shall be in writing (including, without limitation, bank wire, telex, facsimile transmission or similar writing) and shall be given: (a) if to the Guarantor, to it at its address or facsimile number set forth on the signature pages hereof or such other address or facsimile number as the Guarantor may hereafter specify for the purpose by notice to the Agent and (b) if to any party to the Credit Agreement, to it at its address or telex or facsimile number for notices specified in or pursuant to the Credit Agreement. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section 4.01 and the appropriate answerback is received, (ii) if given by facsimile, when such facsimile is transmitted to the facsimile transmission number specified in this Section 4.01 and electronic, telephonic or other appropriate confirmation of receipt thereof is received by the sender, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv)if given by any other means, when delivered at the address specified in this Section 4.01. SECTION 4.02. NO WAIVER. No failure or delay by the Agent or any Bank in exercising any right, power or privilege under this Subsidiary Guarantee or any other Financing Document shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein and therein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 4.03. AMENDMENTS AND WAIVERS. Any provision of this Subsidiary Guarantee may be amended or waived if, and only if, such amendment 5 or waiver is in writing and is signed by the Guarantor and the Agent with the prior written consent of the Required Banks under the Credit Agreement. SECTION 4.04. SUCCESSORS AND ASSIGNS. This Subsidiary Guarantee is for the benefit of the Banks and the Agent and their respective successors and assigns and in the event of an assignment of the Loans, the Promissory Notes or other amounts payable under the Financing Documents, the rights hereunder, to the extent applicable to the indebtedness so assigned, shall be transferred with such indebtedness. All the provisions of this Subsidiary Guarantee shall be binding upon the Guarantor and its successors and assigns. SECTION 4.05. TAXES. All payments by the Guarantor hereunder shall be made free and clear of Taxes in accordance with Section 8.04 of the Credit Agreement. If the Guarantor is organized under the laws of, or has its principal place of business in, a jurisdiction outside the United States, this Section 4.05 shall be modified in a manner satisfactory to the Agent and the Guarantor to indemnify for any foreign taxes which may be applicable. SECTION 4.06. EFFECTIVENESS; TERMINATION. (a) This Subsidiary Guarantee shall become effective when the Agent shall have received a counterpart hereof signed by the Guarantor. (b) The Guarantor may at any time elect to terminate this Subsidiary Guarantee and its obligations hereunder, PROVIDED that, after giving effect thereto, no Default shall have occurred and be continuing; and PROVIDED FURTHER that this Subsidiary Guarantee may not be so terminated in respect of any Guarantor which is at the time a guarantor of TycoLux Debt Securities under the Indenture. If the Guarantor so elects to terminate this Subsidiary Guarantee, it shall give the Agent notice to such effect, which notice shall be accompanied by a certificate of a Responsible Officer to the effect that, after giving effect to such termination, no Default shall have occurred and be continuing. The Agent may if it so elects conclusively rely on such certificate. Upon receipt of such notice and such certificate, unless the Agent determines that a Default shall have occurred and be continuing, the Agent shall promptly deliver to the Guarantor the counterpart of this Subsidiary Guarantee delivered to the Agent pursuant to Section 4.06(a), and upon such delivery this Subsidiary Guarantee shall terminate and the Guarantor shall have no further obligations hereunder. SECTION 4.07. GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS SUBSIDIARY GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTEE OR THE 6 TRANSACTIONS CONTEMPLATED HEREBY. THE GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (b) If the Guarantor is not organized under the laws of the United States of America or a State thereof: (i) APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. The Guarantor hereby irrevocably designates and appoints CT Corporation System having an office on the date hereof at 111 Eighth Avenue, New York, New York 10011 as its authorized agent, to accept and acknowledge on its behalf, service or any and all process which may be served in any suit, action or proceeding of the nature referred to in subsection (a) above in any federal or New York State court sitting in New York City. The Guarantor represents and warrants that such agent has agreed in writing to accept such appointment and that a true copy of such designation and acceptance has been delivered to the Agent. Such designation and appointment shall be irrevocable until all principal and interest and all other amounts payable hereunder shall have been paid in full in accordance with the provisions hereof. If such agent shall cease so to act, the Guarantor covenants and agrees to designate irrevocably and appoint without delay another such agent satisfactory to the Agent and to deliver promptly to the Agent evidence in writing of such other agent's acceptance of such appointment. (ii) SERVICE OF PROCESS. The Guarantor hereby consents to process being served in any suit, action, or proceeding of the nature referred to in subsection (a) above in any federal or New York State court sitting in New York City by service of process upon the agent of the Guarantor, as the case may be, for service of process in such jurisdiction appointed as provided in subsection (b)(i) above; PROVIDED that, to the extent lawful and possible, written notice of said service upon such agent shall be mailed by registered airmail, postage prepaid, return receipt requested, to the Guarantor at its address specified on the signature pages hereof or to any other address of which the Guarantor shall have given written notice to the Agent. The Guarantor irrevocably waives, to the fullest extent permitted by law, all claim of error by reason of any such service and agrees that such service shall be deemed in every respect effective service of process upon the Guarantor in any such suit, action or proceeding and shall, to the fullest extent permitted by law, be taken and held to be valid and personal service upon and personal delivery to the Guarantor. 7 (iii) NO LIMITATION ON SERVICE OR SUIT. Nothing in this Section 4.07 shall affect the right of the Agent or any Bank to serve process in any other manner permitted by law or limit the right of the Agent or any Bank to bring proceeding against the Guarantor in the courts of any jurisdiction or jurisdictions. SECTION 4.08. WAIVER OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 4.09. JUDGMENT CURRENCY. If, under any applicable law and whether pursuant to a judgment being made or registered against the Guarantor or for any other reason, any payment under or in connection with this Subsidiary Guarantee, is made or satisfied in a currency (the "Other Currency") other than that in which the relevant payment is due (the "Required Currency") then, to the extent that the payment (when converted into the Required Currency at the rate of exchange on the date of payment or, if it is not practicable for the party entitled thereto (the "Payee") to purchase the Required Currency with the other Currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so) actually received by the Payee falls short of the amount due under the terms of this Subsidiary Guarantee, the Guarantor shall, to the extent permitted by law, as a separate and independent obligation, indemnify and hold harmless the Payee against the amount of such short-fall. For the purpose of this Section, "rate of exchange" means the rate at which the Payee is able on the relevant date to purchase the Required Currency with the Other Currency and shall take into account any premium and other costs of exchange. 8 IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly executed by its authorized officer as of the date first above written. [GUARANTOR] By ------------------------------- Title: [Address] Facsimile Number: 9 EXHIBIT K [Form of Opinion of Counsel for the Subsidiary Guarantor] To the Banks and the Agent Named on the Attached Distribution List c/o Morgan Guaranty Trust Company of New York, as Agent 60 Wall Street New York, New York 10260 Ladies and Gentlemen: I am the [Associate] General Counsel of Tyco International Group S.A., a Luxembourg company (the "Borrower"), and have acted as counsel for [name of Subsidiary Guarantor] (the "Guarantor"), and am rendering this opinion in connection with that certain Subsidiary Guarantee (the "Subsidiary Guarantee"), dated as of __________, entered into by the Guarantor, pursuant to that certain 364-Day Credit Agreement dated as February 11, 2000 (the "Credit Agreement"), among the Borrower, the banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of New York, as Agent. Each term defined in the Subsidiary Guarantee and used herein, but not otherwise defined herein, has the meaning ascribed thereto in the Subsidiary Guarantee. This opinion is being delivered to you pursuant to the Credit Agreement. In connection with the opinion set forth herein, I have reviewed the Credit Agreement, the Promissory Notes and the Subsidiary Guarantee and have examined originals or copies, certified or otherwise identified to my satisfaction, of (i) the [Certificate of Incorporation] and By-laws of the Guarantor, each as in effect on the date hereof and (ii) such other documents, records, certificates and instruments as I have deemed relevant and necessary as a basis for the opinion hereinafter expressed. In my examination, I have assumed the genuineness of all signatures on original documents, the authenticity of all documents submitted to me as originals, the conformity to the originals of all copies submitted to be as certified, conformed or photostatic copies, and the authenticity of the originals of such copies. As to various questions of fact material to this opinion, I have relied, without independent investigation or verification, upon statements, representations and certificates of officers and other representatives of the Guarantor and certificates of public officials. Based upon the foregoing, and subject to the qualifications and assumptions set forth herein, it is my opinion that: (1) The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of _________________. (2) The execution, delivery and performance by the Guarantor of the Subsidiary Guarantee (a) are within the Guarantor's corporate powers; (b) have been duly authorized by all necessary corporate action on the part of the Guarantor; (c) require no action by or in respect of, or filing on the part of the Guarantor with, any governmental body, agency or official, in each case, on the part of the Guarantor; and (d) do not contravene, or constitute a default by the Guarantor under, any provision of (i) applicable law or regulation, (ii) the certificate of incorporation or by-laws of the Guarantor or, (iii) any agreement or instrument evidencing or governing Debt of the Guarantor, or any other material agreement, judgment, injunction, order, decree or other instrument binding upon the Guarantor. (3) The Subsidiary Guarantee constitutes a valid and binding obligation of the Guarantor. (4) The Guarantor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The opinion set forth herein is subject to the following qualifications and limitations: (a) The enforceability of the Subsidiary Guarantee may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance or transfer or other similar laws and court decisions, now or hereafter in effect, relating to or affecting the rights of creditors generally. (b) The enforceability of the Subsidiary Guarantee is or will be subject to the application of and may be limited by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law). Such principles of equity are of general application, and in applying such principles a court, among other things, might not allow a creditor to accelerate maturity of a debt under certain circumstances including, without limitation, upon the occurrence of a default deemed immaterial, or might decline to order the Guarantor to perform covenants. Such principles as applied by a court might include a requirement that a creditor act with reasonableness and in good faith. Thus, I express no opinion as to the validity or enforceability of (i) provisions restricting access to legal or equitable remedies, such as the specific performance of executory covenants, (ii) provisions that purport to establish evidentiary standards, (iii) provisions relating to waivers, severability, set-off, or delay or 2 omission of enforcement of rights or remedies, and (iv) provisions purporting to convey rights to persons other than parties to the Subsidiary Guarantee. (c) The remedy of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (d) I have not been requested to render, and with your permission I do not express, any opinion as to the applicability to any provisions of the Subsidiary Guarantee, of Section 548 of the Federal Bankruptcy Code, Article 10 of the New York Debtor & Creditor Law, or any other fraudulent conveyance, insolvency or transfer laws or any court decisions with respect to any of the foregoing. I call your attention to the fact that I am admitted to practice law only in the State of New York and the Commonwealth of Massachusetts, and, in rendering the foregoing opinion, I do not express any opinion as to any laws other than the laws of [the jurisdiction of incorporation of the Guarantor], the State of New York, the Commonwealth of Massachusetts and the Federal laws of the United States of America. The opinion expressed herein is based upon the laws in effect on the date hereof, and I assume no obligation to revise or supplement this opinion should any such law be changed by legislative action, judicial decision, or otherwise. 3 This opinion is being delivered to you solely for your benefit in connection with the Subsidiary Guarantee, and neither this opinion nor any part hereof may be delivered to, or used, referred to or relied upon, by any other person or for any other purpose without my express prior written consent, except that any person who is a permitted successor or assign of a Bank in accordance with the provisions of the Credit Agreement may rely upon this opinion as if it were specifically addressed and delivered to such person on the date hereof. Very truly yours, 4 EXHIBIT L MANDATORY COSTS RATE 1. DEFINITIONS In this Exhibit: "ACT" means the Bank of England Act of 1998. The terms "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have the meanings ascribed to them under or pursuant to the Act or by the Bank of England (as may be appropriate), on the day of the application of the formula. "FEE BASE" has the meaning ascribed to it for the purposes of, and shall be calculated in accordance with, the Fees Regulations. "FEES REGULATIONS" means, as appropriate, either: (a) the Banking Supervision (Fees) Regulations 1998; or (b) such regulations as from time to time may be in force, relating to the payment of fees for banking supervision in respect of periods subsequent to March 31, 1999. "FSA" means the Financial Services Authority. Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time. 2. CALCULATION OF THE MANDATORY COSTS RATE The Mandatory Costs Rate is an addition to the interest rate on each Euro-Currency Loan or any other sum on which interest is to be calculated to compensate the Banks for the cost attributable to each Euro-Currency Loan or such sum resulting from the imposition from time to time under or pursuant to the Act and/or by the Bank of England and/or the FSA (or other United Kingdom governmental authorities or agencies) of a requirement to place non-interest bearing or Special Deposits (whether interest bearing or not) with the Bank of England and/or pay fees to the FSA calculated by reference to liabilities used to fund the relevant Euro-Currency Loan or such sum. The "MANDATORY COSTS RATE" will be the rate determined by the Agent to be equal to the arithmetic mean (rounded upward, if necessary, to the next higher 1/100 of 1%) of the respective rates notified by each of the Reference Banks to the Agent as the rate resulting from the application of the following formula: FOR STERLING: XL + S(L-D) + F X 0.01 ---------------------- 100 - (X + S) FOR OTHER ALTERNATIVE CURRENCIES: F x 0.01 -------- 300 where on the day of application of the formula: X is the percentage of Eligible Liabilities (in excess of any stated minimum) by reference to which such Reference Lender is required under or pursuant to the Act to maintain cash ratio deposits with the Bank of England; L is the rate of interest (exclusive of Euro-Currency Margin and Mandatory Costs Rate) payable on that day on the related Euro-Currency Loan or unpaid sum pursuant to this Agreement; F is the rate of charge payable by such Reference Lender to the FSA pursuant to the Fees Regulations and expressed in pounds per ,1 million of the Fee Base of such Reference Lender; S is the level of interest-bearing Special Deposits, expressed as a percentage of Eligible Liabilities, which such Reference Lender is required to maintain by the Bank of England (or other United Kingdom governmental authorities or agencies); and D is the percentage rate per annum payable by the Bank of England to such Reference Lender on Special Deposits. (X, L, S and D are to be expressed in the formula as numbers and not as percentages. A negative result obtained from subtracting D from L shall be counted as zero.) If any Reference Bank fails to notify any such rate to the Agent, the Mandatory Costs Rate shall be determined on the basis of the rate(s) notified to the Agent by the remaining Reference Bank(s). The Mandatory Costs Rate attributable to a Euro-Currency Loan or other sum for any period shall be calculated at or about 11:00 A.M. (London time) on the first day of such period for the duration of such period. 2 The determination of Mandatory Costs Rate by the Agent in relation to any period shall, in the absence of manifest error, be conclusive and binding on all parties hereto. 3. CHANGE OF REQUIREMENTS If there is any change in circumstance (including the imposition of alternative or additional requirements) which in the reasonable opinion of the Agent renders or will render the above formula (or any element thereof, or any defined term used therein) inappropriate or inapplicable, the Agent shall (with the written consent of the Borrower, which shall not be unreasonably withheld) be entitled to vary the same. Any such variation shall, in the absence of manifest error, be conclusive and binding on all parties and shall apply from the date specified in such notice. 3 EX-21.1 5 a2030822zex-21_1.txt SUBSIDIARY LIST EXHIBIT 21.1 TYCO INTERNATIONAL LTD. Subsidiaries at 30 September 2000 ARGENTINA: Grinnell Sistemas de Proteccion Contra Incendio S.A. (Argentina) Inproteco SA Interco Argentina S.A. Raychem S.A. Industrial & Comercial Tyco Electronics Argentina S.A. Tyco Flow Control Argentina S.A. Tyco Submarine Systems de Argentina S.A. AUSTRALIA: 000 233 536 Pty. Limited ACN 000 343 019 Pty Ltd. ADT Security Pty. Ltd. Auto Suture Holdings Pty. Limited Banool Investments (VIC) Pty Ltd. Bonvilla Holdings Pty Ltd Braidville Pty. Ltd. Clarebury Pty Ltd Coastline Foundry (Qld) Pty Limited Complete Engineering Group Pty. Limited Danby Pty Limited Dulmison Australia Pty Ltd Dulmison Pty Ltd Earth Tech Engineering Pty. Limited Egan Bros. Plumbing & Building Services Pty L Environ Pty. Limited Fire Control Pty Limited Firefair Pty Limited Firepipe Protection Pty Limited Firmagroup Operations Holdings Pty Limited Gold Energy (Aust) Pty. Limited Grangehurst Enterprises Pty Ltd. Haden Engineering Pty Limited Haden F M Pty Limited Haden Staff Superannuation Fund Pty Limited Kalanda Enterprises Pty Ltd Keystone Asia Pacific Pty. Ltd. Mather & Platt Pty. Ltd. MB John Limited Metropolitan Fire Services Pty Limited Metropolitan Fire Systems Pty Limited MFS Holdings Pty Limited Microwave Associates Australia Pty. Limited Morlynn Ceramics Pty Ltd. Nationguard Security Pty Limited Panmedica Pty. Ltd. Raychem (Australia) Propietary, Ltd. Rindin Enterprises Pty. Ltd. Sherwood Medical Industries Pty. Limited Steel Mains Pty Limited Super Nomines (NSW) Pty Limited Swan Metal Skirtings Pty. Limited TISP Pty Limited Tyco Acquisition Pty. Ltd. (ACN 008 399 004) Tyco Australia Pty. Ltd. Tyco Building Products Pty Limited Tyco Electronics Australia Pty. Limited Tyco Engineering and Construction (Asia) Pty. Tyco Flow Control Pacific Pty. Limited Tyco Healthcare Pty Limited Tyco International Pty Limited Tyco Water Pty Ltd. Valleylab Australia Pty.Limited Viking Fire Systems Pty Limited Yarway Australia Pty. Ltd. AUSTRIA: AMP Osterreich Handelsgesellschaft m.b.H. EH-Schrack Anlagenverwaltungs GmbH EH-Schrack Components GmbH Total Walther Feuerschutz und Sicherheit GmbH Tyco Electronics GmbH Tyco Healthcare Austria GmbH Tyco Projects GmbH BAHAMAS: Exeter Holdings Limited Graphic Controls (Barbados), Ltd. MaCom Holdings Ltd. TSSL Foreign Sales Corporation Tyco Electronics Holdings Ltd. Tyco International Holdings Ltd. Tyco International Sales Corp. Tyco Worldwide Holdings Ltd. TyCom Holdings (Barbados) Ltd. USSC FSC, Inc. BARBADOS: Newington Limited TyCom Services Inc. TyCom Shares Ltd. World Services Inc. BELGIUM: ADT Security Services S.A. Airvans Belgium S.A. Alarm Centrale AMP Belgium Auto Suture Belgium B.V. CIPE Belgium S.A. Intervalve B.V. Raychem European Head Office (Belgium) Raychem Industries NV Tyco Electronics Belgium EC N.V. Tyco Electronics Raychem N.V. Tyco Europe Security N.V. Tyco Flow Control Europe S.A. Tyco Healthcare Belgium S.A. 2 Tyco Projects BVBA TyCom Contracting (Belgium) TyCom Networks (Belgium) Vonk Enschede BV WHICH Belgium S.A. Wormald S.A. Zettler Belgique S.A. BERMUDA: AMP Exports Limited Camron (Bermuda) Insurance, Ltd. Cawich Limited Electro-Protective Limited Kral Steel, Ltd. MaCom Ltd. TGN Holdings Ltd. Tyco (Bermuda) Unlimited No. 1 Tyco (Bermuda) Unlimited No. 10 Tyco (Bermuda) Unlimited No. 2 Tyco (Bermuda) Unlimited No. 3 Tyco (Bermuda) Unlimited No. 4 Tyco (Bermuda) Unlimited No. 5 Tyco (Bermuda) Unlimited No. 6 Tyco (Bermuda) Unlimited No. 7 Tyco (Bermuda) Unlimited No. 8 Tyco (Bermuda) Unlimited No. 9 Tyco Alpha Limited Tyco Beta Limited Tyco Delta Limited Tyco Epsilon Limited Tyco Eta Limited Tyco Gamma Limited Tyco Holdings (Bermuda) No. 10 Limited Tyco Holdings (Bermuda) No. 11 Limited Tyco Holdings (Bermuda) No. 12 Limited Tyco Holdings (Bermuda) No. 13 Limited Tyco Holdings (Bermuda) No. 14 Limited Tyco Holdings (Bermuda) No. 15 Limited Tyco Holdings (Bermuda) No. 4 Limited Tyco Holdings (Bermuda) No. 5 Limited Tyco Holdings (Bermuda) No. 6 Limited Tyco Holdings (Bermuda) No. 7 Limited Tyco Holdings (Bermuda) No. 9 Limited Tyco Holdings Limited Tyco International Ltd. Tyco Kappa Limited Tyco Lambda Tyco lota Limited Tyco Omega Limited Tyco Rho Limited Tyco Sigma Limited Tyco Zeta TyCom Asia Networks Ltd. TyCom Contracting Ltd. TyCom Global Marketing Ltd. TyCom Ltd. 3 TyCom Networks Limited BORNEO: Tyco Services (B) Sdn. Bhd. BRAZIL: Auto Suture do Brasil Ltda. Batts do Brazil Crosslink-Industria E Comercio Ltda. Empresa de Transmissao de Energia do Oeste Lt Grinnell Sistemas de Protecao Contra Incendio Ltda. (Brazil) Keystone do Brasil Ltda. Multiservice Engenharia Ltda. Raychem Productos Irradiados Ltda. Schrack Eletronica Ltda. Tyco Electronics Brasil Ltda. Tyco Flow Control do Brasil Ltda. Tyco Submarine Systems Brasil Ltda. Valvulas Crosby Industria e Commercio Ltd. Westlock Controls Equipmentos de Controle Ltd BRITISH VIRGIN ISLANDS: Praegitzer Industries (B.V.I.) Inc. Praegitzer Industries Scotland (B.V.I.) Inc. Somerset Holdings Ltd. CANADA: 1057673 Ontario Inc. 495649 Ontario Limited 620919 Ontario Limited 919551 Ontario Inc. 921150 Ontario Inc. ADT Canada Holdings Limited (72.84%) ADT Finance Inc. Alarmex Ltd. Ansul Canada Limited ASL Alarm Suppliers Ltd. Batts Enterprises (Canada) Ltd. Cantech Corporation Centralarme Inc. Century Industries Company Citi-Page Answering & Secretarial Services Code Red Fire Services, Ltd. Code Red Security Systems, Corp. Columbia-MBF Inc. Detron Safety Inc. Drapeau Fire Protection Limited Earth Tech (Canada) Inc. F.C.V. Systems (London) Inc. Firecom Sales & Consulting Firefighter Protection / Mobile Fire Extinguish Recharging Ltd. Forward Safety Systems (Eastern) Inc. Forward Safety Systems, Inc. Gestion J.R.S.S. Inc. Hawley Group Canada Limited Hygieia Holdings (Canada) Inc. 4 Icon Systems Limited Inbrand Corporation (Canada) Inc. Jentek Controls Ltd. Keystone Canada, Co. Ludlow Canada, Inc. Minervatech Inc. Murphy Fire Systems Ltd. Niagara Fire Extinguisher Co. Ltd. Parkwood Security Systems Inc. Raychem HTS Canada Inc. Rovalve Canada Ltd. Serv-Alarm Limited Serv-Alarm Niagara Ltd. Serv-Alarm Toronto Ltd. SKS Fire & Communications Inc. Spanguard Devices, Inc. Surgical Dynamics Canada Inc. Tyco Electronics Canada Ltd. Tyco Healthcare Group Canada Inc. Tyco International of Canada Ltd. Tyco Submarine Systems Canada Ltd. Tyco Valves & Controls Canada Inc. Unistrut Canada Limited Universal Electronic Protection Inc. WFEI Holdings Inc./Gestion Holdings Inc. CAYMAN ISLANDS: Davis & Geck Caribe Limited Davis & Geck Limited Raychem International (Cayman Islands) CHILE: Grinnell Sistemas de Proteccion Contra Incendios, S.A. (Chile) Kendall Colombia, S.A. Raychem S.A. (Colombia) Tyco Electronics Colombia Ltda. COLUMBIA: Kendall Colombia, S.A. Raychem S.A. (Colombia) Tyco Electronics Colombia Ltda. COSTA RICA: A&E Costa Rica Kendall Innovadores en Cuidados al Paciente S CYPRESS: Raychem Technologies Limited CZECH REPUBLIC: Raychem s.r.o. SET EC s.r.o. Siemens Elektropristroje s.r.o. Tyco Electronics Czech s.r.o. Wormald CZ s.r.o. Zettler C.R. Spol. s.r.o. 5 Zettler CR, Ltd. DENMARK: AMP Danmark CIPE Holding (Denmark) ApS CIPE Holding ApS K.S. Kaalund A/S International KBIL 38 nr. 2201 ApS Raychem A/S (Denmark) TSD Tyco Holding I (Denmark) ApS Tyco Holding II (Denmark) ApS Tyco Holding III (Denmark) ApS Tyco Holding IV (Denmark) ApS Tyco Holding IX (Denmark) ApS Tyco Holding V (Denmark) ApS Tyco Holding VI (Denmark) ApS Tyco Holding VII (Denmark) ApS Tyco Holding VIII (Denmark) ApS Tyco Holding X (Denmark) ApS Tyco Holding XI (Denmark) ApS Tyco Holding XII (Denmark) ApS Tyco Holding XIII (Denmark) ApS Tyco Holding XIV (Denmark) ApS Tyco Holding XIX (Denmark) ApS Tyco Holding XV (Denmark) ApS Tyco Holding XVI (Denmark) ApS Tyco Holding XVII (Denmark) ApS Tyco Holding XVIII (Denmark) ApS TyCom Contracting (Denmark) ApS TyCom Networks (Denmark) ApS Water Holding (Denmark) ApS Wormald A/S ECUADOR: Grinnell Sistemas de Proteccion Contra Incendios S.A. (Ecuador) EGYPT: Raychem Egypt Limited Raychem Technologies Limited, Egypt Branch, R ESTONIA: AMP EESTI AS FIJI: Armourguard Fiji Limited Fire Control Fiji Limited Guardforce Fiji Limited Security Systems (Fiji) Limited FINLAND: Oy Electro-Heat Ab Raychem Oy TSA Gap Prive Tyco Electronics Finland OY 6 FRANCE: Acheroise de Participations Acroba S.A. ADT Provider SA ADT Securite Services S.A. Alstom Vannes SA Alte AMP - SIMEL SA AMP Holding France S.A.S. APM SARL ASE Continuing Education Center S.A. ASE Partners S.A. Auto Suture Europe Holdings, Inc. (French Bra Auto Suture Europe S.A. Auto Suture European Services Center, S.A. Auto Suture France S.A. Automatisation et Securite de L'Quest (A.S.O. Bayard CAP Services CEDI Fabrication CEDI Securite SA Ceditel SA CEDP CEMOS S.A. CEPA CIPE France S.A. COFILION Cormerais Electronique S.A. CPS Alarme CPS Surveillance D.S.I. Sarl (34%) Descote SA Earth Tech France S.a.r.l. Europ Telesecurite SAS Euroville France FAB ELEC Fibaly SA FINASUR Fingerkey S.A. FIRENT First Alarme Flow Control Technologies SA GMC SARL Graphic Controls France S.A.R.L. Grinnell Distribution France Sarl Gubri Inbrand France SA Isopad, SA Karner-Batts SARL Kendall Incontinence KLEIN La Commande Numerique Label S.A. Laborotoires Sherwood, Davis & Geck LAJE Mather & Platt S.A. 7 Nomos SA Omnium de Prevention & de Protection Incendie PREFI Protel Raychem SA (France) S.T.M.T. (s.a.r.l.) Sarthe Mayenne Telesurveillance Electronique Sayag Electronique International (S.E.I.) Sci Alain Martin Sci Becaro Sci Chanle Sci Du Mouzon Sci Mazal Sci Tov Securifin SEGE SA Sherwood, Davis and Geck Needles S.A. Societe de Communication et Telesurveillance Societe Europeene de Protection Control L'Inc STPE (94%) Swair T.S. France SA T.S.M.C. Telesix TEP France SA Thomas & Betts France SA TSA Gap (34%) Tyco Electronics EC France Tyco Electronics Export Tyco Electronics France SAS Tyco Europe S.A. Tyco European Security Holdings SA Tyco European Security Management Tyco Flow Control Holding S.A. Tyco Healthcare France SAS Tyco Projects France SARL Tyco Submarine Systems SARL Tyco Valves & Controls Distribution (France) TyCom Contracting (France) SAS TyCom Networks (France) SAS Visagest Sarl GERMANY: ADT Security Deutschland GmbH AZ Elektroanlagenbau GmbH AZ Immobilien GbR B. Braun-Dexon GmbH (50%) Babcock Sempell AG Babcock Sempell Armaturen-Service GmbH CDK Holding Deutschland GmbH Chemat GmbH Armaturen fur Industrie Chemische Fabrik Pirna-Copitz GmbH CIPE France (Deutschland) GmbH Descote GmbH Elo TouchSystems GmbH & Co KG 8 Elo TouchSystems Verwaltungs-GmbH Erika-Stiftung e.V. Flow Control Technologies GmbH Grinnell Flow Control GmbH Grinnell Flow Control GmbH & Co. Distribution Helmut Geissler Glasinstrumente GmbH JALEX Gesellschaft fur elektronische Zahlungs Karner-Batts GmbH Kendall-Medizinische Erzeugnise Medolas Gesellschaft Fur Medizintechnik MBH (80%) NARVIK-Yarway GmbH Ofa Bamberg Otto Fankhanel & Sohn GmbH Praekon Sandermaschinen, GmbH Rathgeber BIOFORM GmbH SABO-Armaturen Service GmbH Schumacher GmbH & Co. Kommanditgesellschaft Schumacher Medizinprodukte GmbH SHG Vermogensverwaltungsgesellschaft mbH Sigmaform GmbH TEP (Germany) Thorn Sicherheits GmbH Total Walther Feuerschutz Loschmittel GmbH Total Walther GmbH Tyco Electromechanical Components Verwaltung Tyco Electronics AMP GmbH Tyco Electronics EC GmbH & Co. KG Tyco Electronics Holding GmbH Tyco Electronics Raychem GmbH Tyco Healthcare Deutschland GmbH Tyco Healthcare Deutschland Manufacturing Gmb Tyco Holding GmbH Tyco International Armaturen Holding GmbH Tyco Valves & Controls Distribution GmbH Walter Rose GmbH Wellcom International Sales and Services GmbH Wellcom International Sales and Services... WHICH Deutschland GmbH Zettler Hilfe e.V. GIBRALTAR: Espion (International) Limited Silver Avenue Holdings Limited Stralen Investments Limited Velum 1998 Limited Verdana Holdings Limited GREECE: ADT Greece S.A. (82.5%) ADT Greece S.A. Sec (Greece) Greene Insurance Limited Raychem Hellas E.P.E. Tyco Electronics Hellas MEPE Tyco Hellas S.A. GUATEMALA: ADT Sistemas de Seguridad, S.A. 9 Grinnell Sistemas de Proteccion Contra Incendio, S.A. (Guatemala) Incendio, S.A. de C.V. (Guatamala) Tyco Ingenieria y Construccion S.A. Tyco Submarine Systems, Sociedad Anonima HONDURAS: A&E Hangers S.A. HONG KONG: A&E Products (Far East) Limited AMP Products Pacific Limited Batts Far East Limited Central Spraysafe Company (Hong Kong) Limited Critchley Asia Limited Crown Nation International Limited (50%) Dawson Engineering Limited (50%) Madison Cable Asia Limited Original Electromechanical (HK) Limited Pioneer Faith International Limited (50%) Praegitzer International (HK) Limited (99%) Raychem (HK) Limited Raychem China Limited NV Raychem China Marketing Services Limited Tak Cheong (Yau Kee) Engineering Ltd. TEC HK Limited Thorn Security (Hong Kong) Limited Tyco Electronics H.K. Limited Tyco Engineering & Construction (HK) Limited Tyco Flow Control Hong Kong Limited Tyco Healthcare (HK) Co., Ltd. Tyco Healthcare (HKSAR) Limited Tyco/Tudawe Trading Corporation Wormald Engineering Ltd. Wormald Engineering Services Ltd. HUNGARY: Raychem GmbH (Hungary Branch) Raychem Sales and Marketing Kft. Thomas & Betts Hungary Kft. Total Walther Kft. Tyco Electronics EC Ltd. Tyco Electronics Hungary Manufacturing Ltd. INDIA: A&E India Private Limited Automotive Wiring Systems Private Limited (49%) Keystone India Pvt. Ltd. Modern Alarms & Electronics Pvt Ltd. Precision Interconnect India Private Limited Raychem (Delaware) Ltd. (Indian Branch) Raychem RPG Limited Tyco Electronics Corporation India Limited Tyco Electronics Tools (India) Pvt. Ltd. Tyco Engineering & Construction Private Ltd. Tyco Healthcare Pte. Ltd. 10 INDONESIA: P.T. ODG Wormald Indonesia (80%) Pt. Siemens Precision Electronics Raychem Indonesia Representative Office IRELAND: Abel Alarms Ireland Ltd. ACE Alarm Systems Limited ADT Limited Allied Alarms & Safes Ltd. Allied Alarms Limited Allied Metal Products Limited Allied Security Products Ltd. AMP Reinsurance Company Limited (ARCL) Audio Education Limited B & E Electrics Limited Brangate Limited Flo-Check Valves Limited IAMASCO Plc Irish Building Services (Manufacturing Ltd) Irish Building Services Ltd. Mather & Platt (Ireland) Limited Mather & Platt Ireland (Manufacturing) Limite Modern Security Systems Limited Securitag Limited Sherwood Medical Industries of Ireland Limite Tyco Far East Holdings Limited Tyco International Finance Ireland Tyco Ireland Limited Tyco Submarine Systems Ireland United States Surgical Corporation (Ireland) ISRAEL: Raphael Mitzpe Ramon Ltd. Raphael Valves Industries (1975) Ltd. Raychem Limited [Israel] Sintram Limited (50%) TCM Contracting (Israel) Ltd. TCM Networks (Israel) Ltd. Tyco Electronics (Israel) Ltd. Tyco Healthcare (Israel) Ltd. ITALY: Belgicast Italia S.R.L. Biffi Italia S.r.l. Faro S.r.l. Fasani S.p.A. Fratelli Fasant s.r.l. Karner-Batts SRL Meditec s.r.l. Politermica Distribution S.r.l. Raimondi International s.r.l. Raimondi Valvole Raychem SpA Thomas & Betts S.r.l. Tyco Electronics AMP Italia Products S.p.A. 11 Tyco Electronics AMP Italia S.p.A. Tyco Foam Italia Srl Tyco Healthcare Italia, S.p.A.. Vanessa S.r.l. Wormald Italiana S.P.A. Zettler App. Eletricci S.p.A. Zettler S.R.L. JAPAN: AMP (Japan) Limited Ansul-Nissho, Inc. Aomori Dry-Chemical Kabushiki Kaisha Auto Suture Japan Inc. Businessland Japan Co., Ltd. Central Sprinkler Japan, Limited (40%) Chiba Atsuryoku Youki Seizo Kabushiki Kaisha Goto Valve K.K. Hokkaido Dry-Chemical Kabushiki Kaisha Kabushiki Kaisha Keiyo Shobo Hoshu Center Kitamura Valve Giken Co., Ltd. Kitamura Valve Mfg. Co., Ltd. Nippon Dry-Chemical Kabushiki Kaisha Nippon Keystone Corporation Nippon Sherwood Medical Industries Ltd. Original Electromechanical Japan Co., Ltd. Surgical Dynamics Japan Inc. Touch Panel Systems Corporation Tyco Electronics Raychem K.K. Tyco Healthcare Products (Japan) Co., Ltd. Tyco Systems Japan Co., Ltd. TyCom Contracting (Japan) KK TyCom Networks (Japan) KK Yamaguchi Tokushu Seiko K.K. LUXEMBOURG: ADT Finance S.A. ADT Luxembourg S.A. CIPE Luxembourg S.A. Ocarina S.A. Thomas & Betts (Luxembourg) S.A. Tyco Group S.a.r.l. Tyco International Group S.A. TyCom Holdings A Sarl TyCom Holdings B Sarl TyCom Holdings C Sarl TyCom Holdings I Sarl TyCom Holdings II SA TyCom Holdings III Sarl Valera Holdings S.a.r.l. MALAYSIA: ADT Alarm Research (M) Sdn. Bhd. Alarm Detection Technology (M) Sdn. Bhd. AMP Connectors (Malaysia) Sdn. Bhd. AMP Products (Malaysia) Sdn. Bhd. Brunsfield Holdings Sdn. Bhd. (50%) 12 Brunsfield Thorn Technology Sdn. Bhd. Dulmison (Malaysia) Sdn. Bhd. Grinnell Supply Sales (Malaysia) Sdn. Bhd. (50%) Innodouble (M) Sdn. Bhd. (51%) Japan Original (M) Sdn Bhd Kumpulan Injap Kebesan (M) Sdn. Bhd. Mediquip Sdn. Bhd. Praegitzer Asia Sdn. Bhd Raychem Sdn. Bhd. Senivisa Trading Sdn. Bhd. Sigmaform (M) Sdn. Bhd. Thomas & Betts (Malaysia) Sdn. Bhd. Tyco Electronics (M) Sdn. Bhd. Tyco Engineering & Construction (Malaysia) Sdn. Bhd. (70%) Tyco Flow Control (Malaysia) Sdn. Bhd. Tyco Grinnell KM Sdn. Bhd. (30%) Tyco Services Malaysia Sdn. Bhd. (100% owned; 70% held by nominee) Tyco Valves & Controls (M) Sdn. Bhd. MARSHALL ISLANDS: C.S. Tyco Provider, Inc. C.S. TyCom Decisive Inc. C.S. TyCom Dependable Inc. C.S. TyCom Durable Inc. C.S. TyCom Reliance C.S. TyCom Resolute Inc. C.S. TyCom Responder Inc. Coastal Cable Ship Co. Inc. MAURITIUS: Tyco Asia Investments Limited MEXICO: ADT Security Services, S.A. de C.V. AMP Amermex, S.A. de C.V. AMP De Mexico, S.A. Ansul Mexico, S.A. de C.V. Batts de Mexico S.A. de C.V. Carlisle Recycling de Mexico S.A. de C.V. Cima de Acuna S.A. de C.V. Especialidades Medicas Kenmex, S.A. Euro-Flex de Mexico, S.A. de C.V. Grinnell Sistemas de Proteccion Contra Incendio Mexico S.A. de C.V. (Mexico) Kelsar S.A. de C.V. Kendall de Mexico S.A. de C.V. Kenmex Holding Company, S.A. de C.V. Plasticos Bajacal, S.A. de C.V. Plasticos Mexical S.A. de C.V. Potter & Brumfield de Mexico, S.A.; de C.V. Productos de Atencion de Salud de Mexico, S.A Raychem Juarez, S.A. de C.V. Raychem Servicos, S.A. de C.V. Raychem Technologias, S.A. de C.V. Raychem Tijuana Services, S.A. de C.V. Rust Servicios Ambientales E Infraestructura, Thomas & Betts Hermosillo S. de R.L. de C.V. 13 Tyco Engineering and Construction S.A. De C.V Tyco Submarine Systems, S.A. de C.V. Valvulas Keystone de Mexico S.A. de C.V. NETHERLANDS: ADT Canada B.V. ADT Canada Holdings B.V. ADT Finance B.V. ADT Holdings B.V. ADT Security Services N.V. AMP Automotive Development Centre B.V. AMP Laminates B.V. AMP Taiwan B.V. AMP Trading B.V. Ampliversal B.V. CIPE Nederland B.V. Descote Benelux B.V. Grinnell Sales & Distribution B.V. Hovap Beheer B.V. Hovap Consolidated B.V. Hovap Holding B.V. Hovap International (Holland) B.V. Isopad B.V. Karner-Batts Benelux Keystone Valve (Europa) B.V. M/A-COM Eurotec B.V. MDC Meldkamer B.V. Narvik-Yarway B.V. Pompenfabriek Anema B.V. Pritchard Services Group BV Raychem (Nederland) BV Sherwood Medical Nederland B.V. TEP Security B.V. Thorn Security Nederland BV Total Walther B.V. Tyco Electronics Nederland B.V. Tyco Healthcare Nederland BV Tyco Labs Holland I.B.V. Tyco Systems Nederland B.V. Tyco Waterworks B.V. Unirax B.V. Unistrut (Benelux) B.V. Vonk Chokes B.V. Wormald B.V. Zettler Netherlands N.V. NETHERLANDS ANTILLES: DE20 N.V. NEW ZEALAND: A.F.A. Monitoring Limited Armourguard Security Limited Danks Bros. Limited Dulmison (NZ) Limited Fire Protection Inspection Services Ltd. Haden Engineering Limited 14 Keystone New Zealand Limited New Zealand Valve Company Limited Nortrac Engineering Limited Tyco Electronics NZ Limited Tyco Healthcare Limited Tyco New Zealand Limited NORWAY: Raychem A/S (Norway) Tyco Electronics Norge AS Wormald Signalco A/S PANAMA: Kendall de Panama S.A. Tyco Submarine Systems S.A. [Panama] PEOPLE'S REPUBLIC OF CHINA: AMP (China) Investment Co. Ltd. AMP Qingdao Connector Co. Ltd. AMP Shanghai, Ltd. (92.31%) * AMP Shunde Connector Limited AMP Suzhou Connector Tool, Ltd. AMP Trading (Shanghai) Company Limited Beijing Keystone Valve Co. Ltd. Dulmision Zibo Insulators Co., Ltd. Earth Tech, Inc. - Beijing Branch Office Kendall-Yantai Medical Products Company, Ltd. Keystone (Jingmen) Valve Co. Ltd. (80%) Keystone Valve (China) Ltd. Raychem (Shanghai) Trading Ltd. Raychem Electronics (Shanghai) Ltd. Raychem Electronics (Shenzhen) Ltd. Raychem Shanghai Cable Accessories Ltd. Shanghai Ouli Trading Co. Ltd. Shenyang OYT-Grinnell Fire Door Manufacturing (50%) Shenyang Yarway Valve Co. Ltd. Shenzhen Original Electric Co Ltd Spraysafe Beijing Tyco Packaging Systems (Shanghai) Limited PERU: Grinnell Sistemas de Proteccion contra Incendio S.A.(Peru) Tyco Electronics Del Peru S.A.C. Tyco Submarine Systems del Peru S.A. PHILLIPINES: Carlisle Philippines, Inc. Raychem Asia Pacific Management (Branch) Tyco Electronics, Inc. Tyco-PIECO Corporation, Inc. (80%) POLAND: AMP Polska Sp.z.o.o. Raychem Polska Sp. z.o.o - ------------------------------- * Percentage owned by Tyco International Ltd. or its subsidiaries 15 Tyco Polska Sp.z.o.o. Tyco Systems Polska Sp. z.o.o. PORTUGAL: AMP Portugal - Conectores Electricos E Electr B. Braun-Dexon (Portugal) Produtos Hospitalar (50%) Industra - Comercio de Equipamentos Industria Industra SA Karner-Batts, Lda. Pressini Raychem (Portugal) Productos Quimicos Limited Tyco Electronics Componentes Electromecanico TyCom Contracting (Portugal) REPUBLIC OF SLOVENIA: AMP d.o.o., in Slovenia Total Walther - Stabilne hasiace zariadenia s REPUBLIC OF UKRAINE: Kiev Representative Office of Raychem GmbH ROMANIA: Robinete Raf Campina, S.A. RUSSIA: Auto Suture Surgical Instruments Moscow Representative Office of Raychem GmbH Rayenergo (ZAO Rayenergo) SAUDI ARABIA: Abahsain-Cope, S.A. Ltd. (49%) Raychem Saudi Arabia Limited SCOTLAND: Alexander McKay Limited F.C.T. Services (UK) Limited Firewise Equipment Limited Madison Cable Limited Prestaroy Limited WM Fire Systems Ltd. SINGAPORE: ADT Security Services AMP Manufacturing (S) Pte, Ltd. AMP Singapore Pte. Ltd. Aston & Lee Engineering Central Spraysafe Company PTE Limited Crosby Valve Pte Ltd Grinnell Supply Sales Asia Pte.Ltd. Junitash Pacific Pte. Ltd. (40%) Keystone Valve Singapore O'Donnell Griffin Instrumentation and Electrical Contractor (ODG) Raychem Singapore Pte. Limited Siemens Electromechanical Components & Module Thorn Security Pte. Limited Thorn Services 16 Tyco Building Services Pte. Ltd. Tyco Electromechanical Components & Modules Asia Pte. Ltd. Tyco Electronics Manufacturing Singapore Pte. Ltd. Tyco Engineered Products Tyco Engineering and Construction (SEA) Pte. Tyco Fire and Security Services Asia Tyco Flow Control Pte. Ltd. Tyco Healthcare Pte. Ltd. Tyco Integrated Systems Tyco Laboratories International (1993) Pte. L Tyco Services Singapore Pte. Ltd. Tyco Submarine Systems (S) Pte. Ltd. Tyco Valves & Controls Tyco Waterworks Asia Unistrut Service Centre of Singapore Wormwald Fire Systems Wormwald Marine Engineering SLOVAK REPUBLIC: Stabilni Hasici Zarizeni spol s.r.o. SOUTH AFRICA: A&E Products South Africa (Proprietary) ltd Belgicast (PTY) Czechtech (Pty) Ltd. Intervalve (Pty) Ltd. Kendall Company of South Africa (Pty) Limited MeasureTech (PTY) Ltd. Raychem (South Africa) (Pty) Limited Tyco Electronics South Africa (Pty) Ltd. Tyco Healthcare (Proprietary) Limited SOUTH KOREA: AMP Korea Auto Suture Korea, Inc. Batts Korea Ltd. Caps Co. Ltd. Dong Bang Electronic Industrial Co. Ltd. (98.5%) Kendall Medical Ltd. (korea) Keystone Valve (Korea) Limited Original Electromechanical (Korea) Ltd Raychem Korea Ltd. SPAIN: ADT Espana S.L. ADT Espana Servicios de Seguridad, S.L. Automated Security International, S.A. B. Braun-Dexon Surgical S.A. B. Braun-Dexon, S.A. Belgicast International S.L. CIPE Espana Controles Graphicos Ibericos, S.A. Ingenieros Promotores, S.L. Kendall Espana S.A. Mondragon Telecommunications S.L. Raychem SA (Spain) 17 Raychem Telco S.L. Segurmatica, S.A. Telecomunicaciones Marinas, S.A. Tyco Electronics AMP Espana, S.A. Tyco Healthcare Spain SL Tyco Iberia, S.L. TyCom Contracting Iberica, S.L. Wormald Mather & Platt Espana, S.A. SRI LANKA: A&E Products Lanka (PVT) Ltd SWEDEN: Karner-Batts AB Modern Prefabspecialisten Sprinkler i Lammhul Prefabspecialisten Sprinkler i Lammhult Aktie Raychem Aktiebolag Thomas & Betts Sweden A.B. Thorin & Thorin AB Tyco Electronics Svenska AB Tyco Healthcare Norden AB TyCom Contracting AB TyCom Networks AB Wormald Fire Systems A.B. SWITZERLAND: ADT Franchising AG ADT Services AG Ammo AG CIPE (Suisse) SA Confab Services AG Decolletage SA St. Maurice (DSM) Neotecha AG Robatel SA Sherwood Services AG Sirat SA Thomas & Betts Switzerland AG Total Walther Feuerschutz AG Tyco Alpha Services AG Tyco Beta Services AG Tyco Electronics (Schweiz) AG Tyco Electronics (Schweiz) HFI AG Tyco Electronics (Schweiz) Produktions AG Tyco Electronics Logistics AG Tyco Epsilon Group AG Tyco Epsilon Services AG Tyco Flow Services AG Tyco Group S.a.r.l., Schaffhausen branch Tyco Healthcare Group AG Tyco Healthcare Schweiz AG Tyco International Holding AG Tyco International Services AG Tyco Plastics Services AG TyCom Holdings III Sarl, Schaffhausen branch TyCom Services AG WHICH (Suisse) SA 18 Zettler AG TAIWAN: A&E Taiwan, Ltd. AMP Manufacturing Taiwan Ltd Carlisle Taiwan, Inc. Descote Asia Co., Ltd Raychem Pacific Corporation (50%) Raychem Taiwan Limited Taiwan Superior Electric Co., Ltd. Taliq Taiwan Limited Tyco Healthcare (Taiwan) Ltd. Wormald Engineering Systems Taiwan Ltd. THAILAND: ACS Asia (1996) Company Ltd. AMP (Thailand) Limited Kendall Gammatron Limited (85%) Keystone Valve (Thailand) Co., Ltd. Raychem Thai Limited TEAC Services Limited Tyco Earth Tech (Thailand) Limited Tyco Healthcare (Thailand) Limited Tyco International (Thailand) Limited (50%) Tyco Valves & Controls (Thailand) Limited WHC Holdings Limited (49%) Windmill Street Limited TURKEY: AMP Turkey Karner-Batts Turkey Raychem Elektro Yalitium Sistemieri Limited S Raychem N.V. (Irtibat Burosu) Tibset Steril Tibbi Aletler Sarayi ve Ticaret Anonim Sirketi UNITED KINGDOM: A G Marvac Limited A.R.C. Fire Protection Ltd. A.S. (Overseas) Limited A.V.S. Systems Limited Abbey Security International Limited. Able Arts Holdings Ltd. Access Control Systems Limited ADT (UK) Holdings plc ADT (UK) Limited ADT Aviation Limited ADT Finance PLC ADT Fire and Security plc ADT Group PLC ADT Linen Services Limited ADT Pension Fund Limited ADT Properties Limited ADT Securities Limited ADT Security Systems Limited ADT Travel Group Limited ADT Travel Holdings Limited 19 ADT Travel Limited ADT Trustees Limited ADT UK Investments Limited Advanced Absorbent Products Holdings Limited Advanced Alarm Systems Limited Advanced Security Installations Limited AFA-MINERVA Limited American District Telegraph Services AMP Finance Limited AMP of Great Britain Limited Ansell Jones Limited Applied Maintenance Systems Limited Argus Fire & Security Group Plc Argus Fire Systems Limited Argus Group Plc Argus House Limited Argyle Medical Industries (U.K.) Limited Ariel Burglary and Fire Protection Company Li Ash Capital Finance (Jersey) Limited Ash Group Services Limited Ash Rentals Limited ATG Manufacturing Ltd. Atlas Fire Engineering Limited Auto Auctions (Scotland) Limited Auto Auctions Limited Auto Suture U.K. Limited Auto Suture UK Export Limited Automated Loss Prevention Systems Internation Automated Loss Prevention Systems Limited Automated Security (Equipment) Limited Automated Security (Holdings) PLC Automated Security (International) Limited Automated Security (Investments) Limited Automated Security (Properties) Ltd. Automated Security Information Systems Automated Security Limited Avalon Emergency Systems Limited Basingkirk Estates Limited Bastion Security Limited BCA (Auctions) Limited BCA (Mobile Homes) Limited BCA Sports Management Limited BCA Vehicle Preparation Limited Bedford Car Auctions Limited Bissell Healthcare Limited Britannia Access Systems Limited Britannia Monitoring Services Limited Britannia Photovision Limited Britannia Security Group (C.I.) Limited Britannia Security Group Limited Britannia Security Systems (Midlands) Limited Britannia Security Systems (Southern) Limited Britannia Security Systems Limited British Car Auctions (Aviation) Limited British Car Auctions (Flying) Limited British Security Consortium Limited, The 20 Brocks Alarms Limited Brook Security Services Limited Camp Limited Capitol Alarms Limited CDK U.K. Limited Cellularm Limited Central Spraysafe Company Limited Charles Winn (Valves) Limited Cheshire Alarm Services Ltd. Chiltern Security Limited City Laundry (Norwich) Limited, The Clarion Security Systems Limited Cleaners (South West) Limited Cleaners Limited Coin Machine Sales Limited Collmain Customer Installations Limited Collmain Customer Services (C.I.) Limited Collmain Plc Collmain Services Limited Combat Alarms Limited Comforta Healthcare Ltd. (UK) Commercial Motor Auctions Limited, The Communication & Tracking Services Limited Confab International Limited Constable's Alarm Company Limited Countryside Security Limited Countrywide Leisure Holdings Limited Crosby Valve and Engineering Limited Crosby Valves & Engineering Company Ltd. D.C.S. Alarms Limited D.J. Security Alarms (Wales) Limited D.J. Security Alarms Limited Descote Limited Dicerule Limited Discreet Disposables Ltd. Distribution and Transmission Equipment Ltd Donald Campbell Associates Limited Dong Bang Minerva (UK) Limited Ductile Steel Processors Limited Dulmision (UK) Ltd. Earth Tech Engineering Limited Edward Barber & Company Limited Edward Barber (U.K.) Limited Ellis Son & Paramore Limited Emos Information Systems Limited Emos Rentals Limited Excelsior Security Services Limited Exeter Insurance Company Limited Expedier Development Company Limited, The Eyelevel Electronics Limited Farnham Limited Finesnatch Limited Fire Defender (U.K.) Ltd. (50%) Fire Safety Inspection Company Limited Ford Electronic Services Limited Freedom Systems Limited 21 Frome Motor Auction Sales Limited Gailey Caravan and Leisure Limited Galequest (Electronics) Limited Ganmill Limited Gardner Security General Cleaning Contractors Limited Grinnell (U.K.) Ltd. Grinnell Sales & Distribution (U.K.) Ltd. Group Sonitrol Security Systems Limited Hawley International Finance Limited Hertfordshire Security Systems Limited Hindle Cockburns Limited HMC Factors Limited Huddersfield Motor Auctions Limited Hygood Limited Inbrand Holdings Limited Inbrand Limited Inbrand UK Limited Industrial Cleaners (UK) Limited Integrated (Fire & Safety) Services Limited Integrated Transport Systems Limited (10%) Isopad Limited James Deacon Security Limited JEL Building Management Limited JEL Building Management Systems Limited JMC Rehab Limited Johnson & Sons Limited Kaldistone Limited Karner-Batts (UK) Ltd. Karner-Batts, Ltd. Kean & Scott Limited Kendall-Camp Pension Trustees Limited Keystone Valve (U.K.) Ltd. KS Lift Services Limited Lander Urban Renewal Limited Lesters Health Care Services Limited Libas International Limited Live-In-Style Furniture Limited Loss Prevention Limited M/A - COM Greenpar Ltd. M/A-COM (UK) Ltd. M/A-COM Ltd M1 Car Auctions Limited M1 Motor Car Auctions Limited M25 Motor Auctions Limited M3 Car Auctions Limited Macron Fireater Limited Maidstone Fire Protection Malgor Security Plc Management and Control Systems Limited Markden No. 1 Limited Markden No. 4 Limited Markden No. 7 Limited Mather & Platt (Exports) Ltd. Mather & Platt Fire Protection Limited Measham Motor Auctions Limited 22 Meridian Fire Protection Limited Microwave Associates Ltd. Mid-Ulster Alarms Limited Midland Counties Motor Auctions Limited Minerva Fire Defence Limited Mirror Laundries Limited, The Modern Alarms (Scotland) Limited Modern Alarms Limited Modern Automated Security Limited Modern Automatic Alarms (N.I.) Limited Modern Automatic Alarms Limited Modern Carecall Limited Modern Homepack Limited Modern Integrated Systems Limited Modern Security Systems Modern Security Systems (IOM) Ltd. Modern Security Systems (Products) Limited Modern Telecom Limited Modern Telecom Security Limited Monitor Security Systems Limited Motor Auctions (Derby) Limited, The Motor Auctions (London) Limited, The Motor Auctions (Scotland) Limited, The Motor Auctions Group Limited, The Mountwest 81 Limited Newman Tubes Limited OCYT 1 Limited OCYT 2 Limited OCYT 6 Limited ODL Limited OKD Limited OMK Limited Omni Spectra Ltd. Orbis Security Systems Limited P.M.H. Electronics Limited Paul Fabrications Limited Phoenix Security Services Limited Photovision Rentals Limited PPR Alarms Limited Priory Security Services Limited Pritchard Insurance Services Limited Pritchard Laundries Limited Pritchard Services Group Investments Limited Progressive Securities Investment Trust Limit Prospect Cleaning Supplies Limited Prospect House Investments Limited Prospect House No. 11 Limited Prospect House No. 5 Limited Prospect House No. 7 Limited Protec Systems Limited Provincial Limited Pryor & Howard (1988) Limited Raychem International Limited, Ireland Branch Raychem Limited - UK Realm Security Systems Limited Redhill Security Services Limited 23 Region Protection (Notts) Limited S&W Bedrooms Limited Safeguard Electronics Limited Saffire Alarm Systems Limited Saffire Extinguishers Limited Samaritan Integrated Systems Limited Samaritan Security Systems Limited Screentone Limited Secure-It (UK) Limited Securitag International Limited Security Alarms Limited Security Centres (Scotland) Limited Security Centres (UK) Holdings Limited Security Centres (UK) Limited Security Centres Holdings International Ltd. Security Centres Holdings Limited Security Centres Investments Limited Security Systems (Rental) Limited Security Watch Limited Shepton Holdings Limited Shield Protection Limited Show Contracts Limited Sigmaform UK Limited Sky Signs Limited Snap Printing Limited Sonitrol Limited Sovereign Security Systems Limited Spensall Engineering Limited Splendor Cleaning Services Limited Spraysafe Automatic Sprinklers Limited Stapp Limited Steel Support Systems Limited Steeplock Limited Streets Machine Operating Company Limited Stretford Security Services Limited Surveillance and Fire Equipment Limited Taskman Security Services Limited TDI Batteries (Europe) Limited Telecom Security Limited Ten Acre Securities Ltd. Thameside Lock and Safe Company Limited Thorn Security Group Limited Thorn Security International Limited Thorn Security Limited Thorn Security Pension Trustees Limited Thornfire Limited Total Lift Services Limited Tower Manufacturing Limited Trade Fire Limited Triangle Controls Ltd. TSG Trustees Limited Tunite Limited Tustin Machine Tools Limited Tyco Electronics UK Limited Tyco Energy (UK) Limited Tyco Engineered Products (UK) Ltd 24 Tyco European Metal Framing Limited Tyco European Steel Strip Limited Tyco European Tubing Limited Tyco Fire Products Manufacturing Ltd. Tyco Flow Control (UK) Limited Tyco Healthcare (UK) Commercial Limited Tyco Healthcare UK Limited Tyco Holdings (UK) Limited Tyco Integrated Systems Limited Tyco Tech Limited Tyco Tubing Ltd. Tyco Valves & Controls Distribution (UK) Limi Tyco Valves Limited TyCom Contracting (UK) Limited TyCom Networks (UK) Limited Tyne Car Auction Limited UCP Universal Consumer Products Limited Ultra Security Alarms Limited Unifast Systems Limited Unipower Limited Unirax Limited Unistrut Europe Ltd. Unistrut Holdings Ltd. Unistrut Limited Vic Engineering Limited Vital Communication International Ltd. W&S Freeman Limited Wealdpoint Limited Westlock Controls Limited Whessoe Vapour Control Limited Whessoe Varec Company, The White Group Electronics Limited Wholematch Limited Willow (Wales) Limited WM Fire Protection Limited Wormald Ansul (U.K.) Ltd. Wormald Engineering Limited Wormald Fire Systems Limited Wormald Holdings (U.K.) Ltd. Wormald Industrial Property Ltd. Zettler Limited UNITED STATES OF AMERICA: A&E Construction Products, Inc. A&E GP Holding, Inc. A&E Hangers, Inc. A&E Holding A&E Products Group LP A&E Products Group, Inc. A-G Holding, Inc. I Adhesive Technologies, Inc. Adhesives Holding ADT General Holdings, Inc. ADT Holdings, Inc. ADT Investments II, Inc. 25 ADT Investments, Inc. ADT Maintenance Services, Inc. ADT Operations, Inc. ADT Property Holdings, Inc. ADT Security Services, Inc. ADT Security Systems, West, Inc ADT Services, Inc. ADT Title Holding Company I ADT Title Holding Company II ADT Travel Group Limited Advanced Communication Systems, Inc. Advanced Services Corporation AEPG, Inc. AFC Cable Systems, Inc. AFC Fittings, Inc. AFC Investments, Inc. AFC Realty Holding Corp. Alert Centre (Name Saver / Assumed Name Corp) Alliance Integrated Systems, Inc. Allied Tube & Conduit Corporation Amcel Institutional Products, Inc. AMP Building Technology, Inc. AMP China Incorporated AMP International Enterprises Limited AMP Investments, Inc. AMP Services, Ltd. AMP Technologies, Inc. Amtech Security Corporation Anderson, Greenwood & Co. Anderson, Greenwood LP Ansul, Incorporated API Security, Inc. AppServ, Inc. APS Group Holding, Inc. Area Lighting Research, Inc. ARR, Inc. ATC Sales Company Atcor, Inc. Augat Inc. Augat Wiring Systems, Inc. Auto Suture Company, Australia Auto Suture Company, Canada Auto Suture Company, Netherlands Auto Suture Company, U.K. Auto Suture Eastern Europe, Inc. Auto Suture Europe Holdings, Inc. Auto Suture International, Inc. Auto Suture Norden Co. Auto Suture Puerto Rico, Inc. Auto Suture Russia, Inc. Automated Security Corp. Automated Security Holdings, Inc. B & B Electronics Manufacturing Company Batts, Inc. Beta 1 Corp. Beta Acquisition Corp. 26 Burton, Adams, Kemp & King, Inc. C.S. Charles L. Brown, L.P. (75%) C.S. Global Link, L.P. (75%) C.S. Global Mariner, L.P. (55%) C.S. Global Sentinel, L.P. (55%) C.S. Long Lines, L.P. (75%) Caprock Fire Alarm, Inc. Carlisle Plastics Holding LLC Carlisle Plastics LP Carroll Touch International Ltd. CASS Water Engineering, Inc. CCTC International, Inc. Central Castings Corporation Central CPVC Corporation Central Sprinkler Company Central Sprinkler Corporation Chemgene Corporation Confab Holding Corp. Confab International L.P. Crosby GP Holding, Inc. Crosby Holding, Inc. I Crosby Valve International Ltd. Crosby Valve Sales & Services Corporation Crosby Valve, Inc. CV Holding Inc. CVG Holding Corp. D.A.S. International, Ltd. Descote, Inc. Detect, Inc. Dixie Burglar Alarm, Inc. E.C. Technologies, Inc. Earth Tech (Infrastructure) Inc. Earth Tech Architecture Inc. Earth Tech Engineers of New York, P.C. Earth Tech Environment & Infrastructure Inc. Earth Tech Holdings, Inc. Earth Tech of New York Inc. Earth Tech of North Carolina, Inc. Earth Tech of Ohio Inc. Earth Tech Water Engineering LP Earth Tech WE Holding Inc. Earth Tech, Inc. Earth Technology Corporation (USA), The Electro Signal Lab, Inc. Electro-Trace Corporation Elkay Services LLC Elo TouchSystems, Inc. EVM Merger Corp. FCI Liquidations, Inc. Federal Hose Manufacturing, Inc. Fire Services, Inc. Firth Cleveland Steels, Inc. Forever Hangers, Inc. Franklin Fire & Safety Company, Inc. FRM Services, Inc. GC Holding, Inc. I 27 GC Holdings, Inc. General Acquisition Corp. General Sub Acquisition Corp. General Surgical Innovations, Inc. Georgia Packaging, Inc. Georgia Pipe Company Graphic Controls Corporation Graphic Holdings, Inc. Grinnell Building Services Corporation Grinnell Corporation Holmes Protection, Inc. (Name Saver Corp.) Interamics J.B. & S. Lees Inc. J.R. Clarkson Company, The JakeCo of Nevada, Inc. Kaf-Tech, Inc. Kaiser Engineers Corporation Kendall Holding Company Keystone France Holdings Corp. Keystone Germany Holdings Corp. Keystone Kuwait, Inc. Keystone Middle East, Inc. Keystone Saudi, Inc. Keystone Valve-Middle East, Inc. KTM Products, Inc. Laser Diode Incorporated Ludlow Building Products, Inc. Ludlow Company LP, The Ludlow Corporation Ludlow Jute Company Limited Ludlow Services LLC M/A-COM Foundation, The Madison Cable Corporation Madison Equipment Co., Inc. Management Association of M/A-COM, Inc., The Mid-Atlantic Security, Inc. Mobile Security Communications, Inc. (19%) Mode Plastics, Inc. Montclair Molding, Inc. National Tape Corporation New England Fire Equipment Company, Inc. Newtown Specialty Glass, Inc. Oleans Fire and Safety Equipment Service, Inc OTTO, L.L.P. (25%) Pasadena Fire & Safety Inc. PI Holding Polyken Technologies Europe, Inc. Polymers and Colorants, Inc. Precision Interconnect, Inc. Printed Circuits, Inc. Private Products, Inc. Quantum Instrument Corporation Raychem (Delaware) Ltd. Raychem Asia / Pacific Management Services, I Raychem Colombia, Inc. [California] Raychem Corporation of Arizona 28 Raychem Foundation Raychem Gulf Coast, Inc. Raychem HTS LLC Raychem International Corporation Raychem International Manufacturing Corp. Raychem Radiation Technologies, Inc. Raychem Ventures, Inc. Rayshrink Corporation Raythene Systems Corporation Remtek International, Inc. Remtek Sales Corporation Ri-Conn Fire Systems, Inc. Rochester Corporation, The Rust Environment & Infrastructure of Michigan Sawyer Signal, Inc. Security Watch, Inc. Sherwood Medical Company Sherwood Medical Company I Sherwood-Accurate Inc. Sigma Circuits, Inc. Sigma GP Holding, Inc. Sigma Holding Corp. Sigmaform International Corporation Sigmaform Pacific Sales Corporation Sonitrol Corporation Sonitrol Management Corporation Sonitrol of Chattanooga, Inc. Spiraduct, Inc. SSI Atlantic Crossing Holdings LLC SSI Atlantic Crossing LLC Star Sprinkler, Inc. Sunbelt Holding LLC Sunbelt Holding, Inc. I Sunbelt Holdings, Inc. Sunbelt Manufacturing, Inc. Surgical Dynamics, Inc. Surgical Service Corporation SWD Holding, Inc. I T.J. Cope Inc. T15 Acquisition Corp. TA, Inc. Techcon International Inc. Terraworx Inc. Thos. F. Hornaday, Inc. TKC Holding Corp. TKN, Inc. TME Management Corp. TPCG Holding Tracer Construction Company Tracer Field Services, Inc. Tracer Industries Finance Co., Inc. Tracer Industries International, Inc. Tracer Industries Management Co., Inc. Tracer Industries, Inc. Tracer Licensing, L.P. Transoceanic Cable Ship Company, Inc. 29 Tri-Systems, Inc. TSSL Holding Corp. TV&C GP Holding, Inc. TVC, Inc. TVM Group, Inc. TVM, Inc. Tyco (US) Holdings, Inc. Tyco Acquisition Corp. II Tyco Acquisition Corp. II (NV) Tyco Acquisition Corp. III Tyco Acquisition Corp. IV Tyco Acquisition Corp. IV (NV) Tyco Acquisition Corp. IX Tyco Acquisition Corp. IX (NV) Tyco Acquisition Corp. V Tyco Acquisition Corp. VI Tyco Acquisition Corp. VI (NV) Tyco Acquisition Corp. VII Tyco Acquisition Corp. VII (NV) Tyco Acquisition Corp. X Tyco Acquisition Corp. X (NV) Tyco Acquisition Corp. XI (NV) Tyco Acquisition Corp. XII Tyco Acquisition Corp. XII (NV) Tyco Acquisition Corp. XIII Tyco Acquisition Corp. XIV Tyco Acquisition Corp. XIV (NV) Tyco Acquisition Corp. XIX Tyco Acquisition Corp. XV Tyco Acquisition Corp. XV (NV) Tyco Acquisition Corp. XVI Tyco Acquisition Corp. XVII Tyco Acquisition Corp. XVIII Tyco Acquisition Corp. XX Tyco Acquisition Corp. XXI Tyco Adhesives GP Holding, Inc. Tyco Adhesives LP Tyco Adhesives, Inc. Tyco Electronics Corporation Tyco Electronics Puerto Rico Inc. Tyco Finance Corp. Tyco Flow Control Company LLC Tyco Flow Control, Inc. Tyco Healthcare Group LP Tyco Holding Corp. Tyco Holdings of Nevada, Inc. Tyco Holdings, Inc. Tyco International (NV) Inc. Tyco International (PA) Inc. Tyco International (US) Inc. Tyco International (US) Inc. Employment Trust Tyco International Asia, Inc. Tyco Merger Sub (NJ) Inc. Tyco Printed Circuit Group LP Tyco Receivables Corp. Tyco Receivables Funding LLC 30 Tyco Sailing, Inc. Tyco SPC, Inc. Tyco Submarine Systems Projects, Inc. Tyco Technology Resources, Inc. Tyco Telecom Cable Systems, Inc. Tyco Telecom OSP Group LP Tyco Telecom OSP Holding Corp. Tyco Telecom OSP, Inc. Tyco Valves & Controls LP Tyco Valves & Controls, Inc. Tyco Worldwide Services, Inc. TyCom (US) Holdings, Inc. TyCom (US) Inc. TyCom (US) Inc. TyCom Integrated Cable Systems Inc. TyCom Simplex Holdings Inc. U.S. Capital Corporation U.S.S.C. Puerto Rico, Inc. Unistrut Corporation United States Construction Co. United States Surgical Corporation USS Acquisition Corp. USSC Acquisition Corporation USSC Cal Med, Inc. USSC Tex Med, Inc. Valleylab Holding Corporation Valleylab Inc. Varec Vapor Control, Inc. VLMS, Inc. W.A.F. Group, Inc. Walter Rose Company Water Holdings Corp. Waverly Group LLC, The Westec Business Security, Inc. Westlock Controls Corporation Whitaker Corporation, The Wormald Americas, Inc. WPFY, Inc. Yarway Corporation URUGUAY: Bethany Trading Company VENEZUELA: Ansul de Venezuela C.A. Grinnell Sistemas de Proteccion Contra Incendio, S.A. (Venezuela) Grupo Rust International Di Venezuela C.A. Kendall de Venezuela, C.A. Raychem de Venezuela, SA Tyco Flow Control de Venezuela, CA Tyco Submarine Systems, C.A.[Venezuela] VIET NAM: Tyco Engineering (Vietnam) Ltd. 31 EX-23.1 6 a2030822zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-21425, 333-44100, 333,44100-01, 333-44102, 333-44106, 333-49662, 333-73223, 333-83087 and 333-51548), on Form S-4 (File Nos. 333-42128, 333-42128-01 and 333-48180) and on Form S-8 (File Nos. 333-33999, 333-34001, 333-48476, 333-69323, 333-74397, 333-75037, 333-75713, 333-80391, 333-90345, 333-93261 and 333-95595) of Tyco International Ltd. of our report dated October 24, 2000, except as to Note 25 which is as of December 4, 2000, relating to the Consolidated Financial Statements and Financial Statement Schedule, which appears in this Form 10-K. PRICEWATERHOUSECOOPERS Hamilton, Bermuda December 19, 2000 EX-23.2 7 a2030822zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Annual Report on Form 10-K and to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-21425, 333-44100, 333-44100-01, 333-44102, 333-44106, 333-49662, 333-51548, 333-73223 and 333-83087), on Form S-4 (File Nos. 333-42128, 333-42128-01 and 333-48180) and on Form S-8 (File Nos. 333-33999, 333-34001, 333-48476, 333-69323, 333-74397, 333-75037, 333-75713, 333-80391, 333-90345, 333-93261 and 333-95595) of Tyco International Ltd. of our report dated February 12, 1999 (except with respect to the matter disclosed in Note 18--Merger with Tyco International Ltd., as to which the date is April 2, 1999) on our audit of the consolidated balance sheet of AMP Incorporated and subsidiaries as of September 30, 1998, and the related consolidated statements of income, shareholders' equity and cash flows for the year ended September 30, 1998, which financial statements are not included herein. ARTHUR ANDERSEN LLP December 19, 2000 Philadelphia, Pennsylvania EX-27 8 a2030822zex-27.txt FDS
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT OF TYCO INTERNATIONAL LTD. AS OF AND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-2000 OCT-01-1999 SEP-30-2000 1,265 0 6,014 442 3,845 12,816 14,269 6,050 40,404 11,679 9,462 0 0 337 16,696 40,404 28,932 28,932 17,931 17,931 0 226 770 6,465 1,926 4,520 0 0 0 4,520 2.68 2.64
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