-----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, QE7F6Fz9CGGLbIqdM3xqAejOrTbDRRAuDF3yNqZ6DD6sW1kOv4WDjXkkRirWxbyP Ct2dw3Q2f79lThHw9m/kRQ== 0000950135-98-006202.txt : 19981211 0000950135-98-006202.hdr.sgml : 19981211 ACCESSION NUMBER: 0000950135-98-006202 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981210 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: 98767728 BUSINESS ADDRESS: STREET 1: THE GIBBONS BUILDING STREET 2: 10 QUEENS STREET SUITE 301 CITY: HAMILTON HM 12 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 TYCO INTERNATIONAL LTD. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 0-16979 (COMMISSION FILE NUMBER) TYCO INTERNATIONAL LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BERMUDA NOT APPLICABLE (JURISDICTION OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NUMBER)
THE GIBBONS BUILDING, 10 QUEEN STREET, SUITE 301, HAMILTON, HM 11, 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: Name of each exchange Title of each class on which registered COMMON STOCK, PAR VALUE $0.20 NEW YORK STOCK EXCHANGE SERIES A FIRST PREFERENCE SHARE PURCHASE RIGHTS 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 stock held by nonaffiliates of registrant was $39,636,878,846 as of November 6, 1998. The number of shares of common stock outstanding as of November 6, 1998 was 647,323,419. DOCUMENTS INCORPORATED BY REFERENCE See pages 18 to 21 for the exhibit index. ------------------------ * The executive offices of registrant's principal United States subsidiary, Tyco International (US) Inc., are located at One Tyco Park, Exeter, New Hampshire 03833. The telephone number there is (603) 778-9700. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS INTRODUCTION Tyco International Ltd. ("Tyco" or the "Company") is a diversified manufacturing and service company that, through its subsidiaries, operates in four segments: (i) the design, manufacture and distribution of disposable medical supplies and other specialty products, and the conduct of vehicle auctions and related services; (ii) the design, manufacture, installation and service of fire detection and suppression systems, and the installation, monitoring and maintenance of electronic security systems; (iii) the design, manufacture and distribution of flow control products; and (iv) the design, manufacture and distribution of electrical and electronic components, and the design, manufacture, installation and service of undersea cable communication systems. See Notes 18 and 19 to the Consolidated Financial Statements for certain segment and geographic financial data, respectively, relating to the Company's business. Tyco's strategy is to be the low-cost, high quality producer and provider in each of its markets. It promotes its leadership position by investing in existing businesses, developing new markets and acquiring complementary businesses and products. Combining the strengths of its existing operations and its business acquisitions, Tyco seeks to enhance shareholder value through increased earnings per share and strong cash flows. I. DISPOSABLE AND SPECIALTY PRODUCTS The principal divisions in the Disposable and Specialty Products group are the Tyco Healthcare Group, ADT Automotive and Tyco Plastics and Adhesives. The Tyco Healthcare Group manufactures and distributes medical supplies, disposable medical products, personal absorbent products and other products. ADT Automotive is the second largest provider of vehicle auction services in the United States. Tyco Plastics and Adhesives manufactures polyethylene films and packaging, industrial and consumer plastic products, molded plastic garment hangers, laminated and coated products and adhesive products and tapes. Tyco Healthcare Group The principal operating company of this division is called The Kendall Company ("Kendall"). Kendall conducts its operations through two business units: Kendall Healthcare and Kendall International. In each of its business units, Kendall has numerous competitors, including a number of large, well-established companies. Kendall relies on its reputation for quality and dependable service, together with its low-cost manufacturing and innovative products, to maintain a leadership position in its markets. The Kendall Healthcare business unit is made up of five segments: Medical Surgical, Vascular Therapy, Alternate Site, Confab and Ludlow Technical Products. These units manufacture and market a broad range of wound care, needles and syringes, electrodes, specialized paper, vascular therapy, urological care, incontinence care, and other nursing care products. These are distributed to hospitals, rehabilitation centers, long-term care facilities and homes throughout the United States and Canada. Kendall Healthcare is one of the largest manufacturers of disposable healthcare products in the world. Kendall Healthcare is the industry leader in gauze products with its Kerlix(R) and Curity(R) 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.(R) brand name, sequential pneumatic compression systems sold under the SCD(R) brand name and a venous plexus foot pump. Kendall Healthcare pioneered the pneumatic compression form of treatment and continues to be the dominant participant in the pneumatic compression and elastic stocking segments of the vascular therapy market. The acquisition of Sherwood-Davis & Geck ("Sherwood") during 1998 significantly added to the range of disposable healthcare products manufactured and sold by Kendall Healthcare. Sherwood's core brands of Monoject(R) syringes and Kangaroo(R) feeding pumps are well known throughout the industry. 1 3 Kendall Healthcare has also become 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. The Confab retail unit markets incontinence and feminine care products through food and drug chains throughout the United States and Canada. Kendall Healthcare's Ludlow Technical Products segment manufactures and sells a variety of disposable medical products, specialized paper and film products. These products include medical electrodes and gels for monitoring and diagnostic tests and hydrogel wound care products and are used primarily in critical care, physical therapy and rehabilitative departments in hospitals. Also, this segment produces adhesive tapes used for business forms and in printing applications, high quality facsimile paper and recording chart papers for medical and industrial instrumentation. Kendall Healthcare distributes its products through its own sales force and through a network of more than 250 independent distributors. Kendall Healthcare's sales force is divided into five groups: vascular, medical surgical, alternate site, critical care (Ludlow) and retail (Confab). Most of the distributors in the United States also sell similar products made by Kendall's competitors, a practice common in the industry. Kendall International is responsible for the manufacturing, marketing, distribution and export of Kendall products worldwide. Kendall International markets directly to hospitals and medical professionals, as well as through independent distributors. Its operations are organized primarily into three geographic regions: Europe, Latin America and the Far East. The range of products marketed is similar to that of Kendall Healthcare, although the mix of product lines varies from country to country. On October 1, 1998, a subsidiary of the Company merged with United States Surgical Corporation ("USSC"). USSC develops, manufactures and markets a line of surgical wound closure products and advanced surgical products to hospitals throughout the world. These products include external surgical staplers, laparoscopic stapling products and needles and sutures. USSC also manufactures and distributes other specialized surgical products including spinal cages, stents, cardiovascular radiation therapy, urology, and breastcare. During 1998, USSC had previously acquired Valleylab, a division of Pfizer Inc. and a leading manufacturer of electrosurgical and ultrasound surgical products. In addition, on November 2, 1998, the Company announced the completion of its acquisition of Graphic Controls Corporation. Graphic Controls, a leading designer, manufacturer, marketer and distributor of disposable medical products, will be integrated with Ludlow Technical Products. See Note 25 to Consolidated Financial Statements for further discussion. ADT Automotive ADT Automotive operates a network of 28 large modern auction centers in the United States, providing an organized wholesale marketplace for the sale and purchase of used vehicles. A substantial majority of the vehicles sold at ADT Automotive auctions are passenger cars and light trucks. Other vehicles sold consist of heavy trucks and industrial vehicles. Sales of vehicles from specific market sources are held on a regularly scheduled basis and additional specialized sales are scheduled as necessary. ADT Automotive operates almost exclusively in the wholesale marketplace and, in general, the public is not permitted to attend its auctions. It acts solely as an agent in auction transactions and does not purchase vehicles for its own account. The principal sources of vehicles for sale at auction are consignments by new and used vehicle dealers, vehicle manufacturers, corporate owners of vehicles such as fleet operators, rental companies, leasing companies, banks and other financial institutions, manufacturers' credit subsidiaries and government agencies. The vehicles consigned by dealers consist of vehicles of all types and ages and include vehicles that have been traded in against new car sales. Vehicles consigned by corporate and financial owners include both repossessed and off-lease vehicles and, as a result, are normally in the range of one to four years old. The principal purchasers of vehicles at auction are new and used vehicle dealers and distributors. In addition to the sale process, ADT Automotive provides a comprehensive range of vehicle redistribution services, including transportation, reconditioning, title transfer assistance, vehicle repossession and fleet management services. Vehicle reconditioning is carried out on-site and principally consists of appearance reconditioning and paint and body work to bring vehicles up to retail ready condition. More extensive body 2 4 work services, including body panel painting and repair of minor collision damage, are also carried out. Reconditioning services are also provided for vehicles other than those going through the auction process, principally for fleet owners and insurance companies. ADT Automotive competes with two other significant auction chains and a large number of independently owned local auctions, which are members of the National Auto Auction Association. Competition is based primarily on price in relation to the quality and range of services offered to sellers and buyers of vehicles and ease of accessibility of auction locations. Relative to the size of Tyco's other businesses, ADT Automotive does not qualify as a seperately identifiable segment under external accounting and reporting rules. As such, it is most appropriately grouped with the Company's other "specialty products" businesses for purposes of segment reporting. Tyco Plastics and Adhesives Tyco Plastics and Adhesives consists of Armin Plastics, Carlisle Plastics, A&E Products, Tyco Adhesives and Ludlow Coated Products. Armin Plastics Armin manufactures polyethylene film and packaging products in a wide range of size, gauge, construction strength, stretch capacity, clarity and color. Armin extrudes low density, high density and linear low density polyethylene film from resin purchased in pellet form, incorporating such additives as coloring, slip and anti-block chemicals. Armin's products include plastic supermarket packaging, greenhouse sheeting, shipping covers and liners and a variety of other packaging configurations for the aerospace, agricultural, automotive, construction, cosmetics, electronics, food processing, healthcare, pharmaceutical and shipping industries. Armin also manufactures a number of other polyethylene products such as reusable plastic pallets, transformer pads for electric utilities and a large variety of disposable gloves for the cosmetic, medical, food handling and pharmaceutical industries. Armin generates the majority of its sales through its own internal sales force and services more than 6,000 customers in the United States. Armin competes with a wide range of manufacturers, including some vertically integrated companies and companies that manufacture polyethylene resins for their own use. Armin competes in many market segments by emphasizing product innovation, specialization and customer service. Carlisle Plastics Carlisle is a leading producer of industrial and consumer plastic products, including trash bags, flexible packaging and sheeting. Carlisle supplies plastic trash bags to mass merchants, grocery chains, and institutional customers primarily in North America. Carlisle manufactures Ruffies(R), a national brand consumer trash bag, for mass merchants and other retail stores. Carlisle also provides heavy duty trash can liners for institutional customers, such as food service distributors, janitorial supply houses, restaurants, hotels and hospitals. In the consumer trash bag market, Carlisle competes primarily with two nationally advertised brands. Carlisle has historically concentrated on mass merchants as the primary market for its branded Ruffies(R) trash bags, while the other major national brands are marketed primarily through food retailers. Film-Gard(R), Carlisle's leading plastic sheeting product, is sold to consumers and professional contractors through do-it-yourself outlets, home improvement centers and hardware stores. A wide range of Film-Gard(R) products are sold for various uses, including painting, renovation, construction, landscaping and agriculture. A&E Products A&E Products sells molded plastic garment hangers to garment manufacturers, national, regional and local retailers and mass merchants. Garment manufacturers put their products on A&E Products hangers before shipping to retail outlets. National retailers purchase customized hanger designs created and manufactured by A&E Products. Regional and local retailers buy standard A&E Products hanger lines for retail clothing displays, and A&E Products also supplies mass merchants with consumer plastic hangers for sale to the general public. 3 5 A&E Products operates in a competitive marketplace where success is dependent upon price, service and quality. Tyco Adhesives The Tyco Adhesives division, formerly known as Kendall-Polyken, manufactures and markets specialty adhesive products and tapes for industrial applications, including external corrosion protection tape products for oil, gas and water pipelines. Other industrial applications include tapes used in the automotive industry for wire harness wraps, sealing and other purposes, and tapes used in the aerospace and heating, ventilation and air conditioning (HVAC) industries. Tyco Adhesives also produces duct, foil, strapping, packaging and electrical tapes and spray adhesives for industrial and consumer markets worldwide and manufactures cloth and medical tapes for Kendall Healthcare and others. Tyco Adhesives' Betham division develops and markets pressure sensitive adhesives and coatings, principally for the automotive, medical and specialty markets. Tyco Adhesives generally markets its pipeline products directly, working with local manufacturers' representatives, 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. 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 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. There are various specialized competitors in different markets. II. FIRE AND SECURITY SERVICES The Company, through its subsidiaries, is the largest company in the world for the design, manufacture, installation and service of fire detection, suppression and sprinkler systems and is the largest provider of electronic security services in the world. Fire Protection Contracting and Services Operating under several trade names including Grinnell, Wormald, Mather & Platt, Total Walther, O'Donnell Griffin and Tyco, the Company designs, fabricates, installs and services automatic fire sprinkler systems, fire alarm and detection systems and special hazard suppression systems in buildings and other installations. The Company's fire protection contracting and services business operates through a network of offices in the United States, Canada, Mexico, Central America, Puerto Rico, the United Kingdom, continental Europe, Saudi Arabia, United Arab Emirates, Australia, New Zealand, Asia and South America. The Company installs 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 for structures with automatic sprinkler systems. 4 6 The majority of the fire suppression systems installed by the Company are water-based. However, the Company is also the world's leading provider of custom designed special 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. The Company holds exclusive manufacturing and distribution rights in several regions of the world for INERGEN(R) fire suppression products. INERGEN(R) 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, the Company 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. Substantially all of the mechanical components (and, in North America, a high proportion of the pipe) used in the fire protection systems installed by the Company are manufactured by the Company. The Company also has fabrication plants worldwide that cut, thread and weld pipe, which is then shipped with other prefabricated components to job sites for installation. The Company has developed its 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. The Company's fire protection contracting business employs both non-union and union employees in North America, Europe and Asia-Pacific. Many of the union employees are employed on an hourly basis for particular jobs. In North America, the largest number of union employees is represented by a number of local unions affiliated with the United Association of Plumbers and Pipefitters ("UA"). In April 1994, following lengthy negotiations, contracts between the Company's Grinnell Corporation ("Grinnell") subsidiary and a number of locals of the UA were not renewed. Employees in those locations, representing 64 percent of those employees represented by the UA unions, went on strike. Grinnell has continued to operate with former union members who have crossed over and with replacement workers. The labor action has not had, and is not expected to have, any material adverse effect on the Company's business or results of operations. Generally, competition in the fire protection business varies by geographic location. In North America, the Company 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, the Company competes with many regional or local contractors on a country by country basis. In Australia, New Zealand and Asia, the Company competes with a few large fire protection contractors as well as with many smaller regional or local companies. The Company competes for fire protection contracts primarily on the basis of price, service and quality. Electronic Security Services The Company provides electronic security services principally under the ADT trade name and also under other trade names including Modern, Thorn Security, Holmes Protection, CIPE, Zettler, Sonitrol, Securesys, Securiville and Armourguard Security. Security services are provided in the United States, Canada, the United Kingdom, Spain, France, Belgium, Greece, The Netherlands, Germany, The Republic of Ireland, Malaysia, Singapore, Hong Kong, New Zealand and Australia. 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 5 7 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. The Company provides electronic security services to both commercial and residential customers. 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. Residential electronic security services are provided primarily in North America. Customers are often prompted to install 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. The Company's systems and products are tailored to 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 systems. Systems may be monitored by the customer at its premises or connected to one of the Company's monitoring centers. In either case, the Company usually provides support and maintenance through service contracts. It has been the Company's experience 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 the Company or by the customer. The Company usually retains ownership of standard residential systems, but more sophisticated residential systems are usually purchased by the customer. The Company markets its electronic security services to commercial and residential customers through a direct sales force and an authorized dealer network. Commercial customers which have multiple locations in North America are serviced by a separate national accounts sales force. The Company also utilizes advertising, telemarketing and direct mail to market its 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. The Company also competes with several national companies and several thousand regional and local companies in the United Kingdom, continental Europe, Asia, New Zealand and Australia. Competition is based primarily on price in relation to quality of service. The Company believes that the quality of its services is higher than that of many of its competitors and, therefore, the Company's prices may be higher than those charged by its competitors. Manufacturing The Company manufactures most of the components which are used in its own fire protection contracting business, as well as a variety of products for sale to other fire protection contractors. In North America, the Company manufactures pipe and pipe fittings, fire hydrants, sprinkler heads and substantially all of the mechanical sprinkler components used in automatic fire suppression systems. In the United Kingdom, France, Germany and the Asia-Pacific region, the Company manufactures and sells sprinkler heads, specialty valves, fire doors and electronic panels for use in fire detection systems. In Mexico, the Company manufactures fire extinguishers, fire hose and related equipment. The Company's 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. Thorn Security manufactures certain alarm, detection and activation devices and central monitoring station equipment which is both installed by the Company's own units and sold to other installers of alarm and detection devices. Otherwise, the Company does not manufacture the electronic security system components which it installs, although it does provide its own specifications to manufacturers for certain security system components and undertakes some final assembly work in respect of more sophisticated systems. 6 8 Fire protection products are sold through the Company's flow control products distribution network, discussed under "Flow Control Products" below, and through independent distributors. III. FLOW CONTROL PRODUCTS The Company, through its subsidiaries, manufactures and distributes flow control products in North America, Latin America, Europe, Asia and the Pacific region. Flow control products include pipe, fittings, valves, meters and related products which are used to transport, control and measure the flow of liquids and gases. The principal subsidiaries in the Flow Control Products group are Grinnell Corporation ("Grinnell"), Allied Tube & Conduit ("Allied"), Mueller Co. ("Mueller") and Keystone International ("Keystone"), as well as a number of other specialized manufacturers of valves, fittings and couplings. The group also includes Earth Technology Corporation ("Earth Tech"), which provides a broad range of environmental, consulting and engineering services. Manufacturing The Company manufactures and distributes a wide range of flow control products, including pipe and pipe fittings, tubing, valves, meters, couplings, pipe hangers, strut and related components. These products are used in plumbing, heating, ventilation and air conditioning (HVAC) systems, mechanical contracting, power generation, food and beverage products, water and gas utilities, wastewater treatment, oil and gas exploration, pulp and paper, petrochemical and numerous other industrial applications. The Company also manufactures certain related products such as steel tubing, custom iron castings, malleable iron pipe fittings and fencing materials. Allied is the leading North American manufacturer of pipe and other tubular products. Allied manufactures a full line of steel pipe for the fire protection and construction industries and for commercial, residential and institutional markets. Its mechanical tube division offers steel tubing in a wide assortment of shapes and sizes for a variety of industrial and commercial applications. Allied's fence division is a leader in the manufacture of products for the residential, industrial and commercial fence markets. Allied also manufactures metal framing systems used in the construction, industrial and original equipment manufacturer markets. In November 1996, the Company acquired Unistrut Europe, a manufacturer and distributor of metal framing, cable ladder and safety systems and, in January 1997, acquired American Tube and Pipe Co., Inc., a manufacturer and distributor of steel pipe for the fire protection and fence markets and steel products for the housing market. Mueller, a manufacturer of water and gas distribution products, manufactures fire hydrants, iron butterfly and gate valves, service-line brass valves and fittings, gas valves and meter bars, water meters, backflow preventers and related products for sale to independent distributors and, to a lesser extent, directly to waterworks contractors, municipalities and gas companies throughout the United States and Canada. Keystone, one of the world's leading manufacturers of valves and flow control products, operates on a worldwide basis through two groups, Industrial Valves and Controls and Engineered Products, manufacturing valves and other industrial products that control the flow of liquids, gases and fibrous and slurry materials. The Flow Control Products group, operating under several trade names including Grinnell, Mueller, Hersey, Keystone, Anderson-Greenwood, Yarway, Crosby Valve, Gimpel, Henry Pratt Co., James Jones Company, Edward Barber & Co., Neotecha, Belgicast, Hindle Cockburns, Charles Winn (Valves) Ltd., Sempell, Smith Valve, Anvil, Canvil, Unistrut, T.J. Cope, and others, supplies a wide range of valves and flow control devices to the chemical, power, food and beverage, oil and gas, processing, water utility, wastewater treatment, power generation and other industries. Products are manufactured and assembled at facilities in the United States, Canada, the United Kingdom, France, Italy, Spain, Germany, The Netherlands, Switzerland, South Korea, China, India, Malaysia, Australia, New Zealand, Mexico, Brazil and Argentina. 7 9 Distribution The Company's Grinnell subsidiary sells flow control and fire protection products in North America through a distribution network of five regional distribution centers, strategically located in Georgia, Illinois, California, Pennsylvania and Texas, that support local branches' product needs and ship directly to customers. Each center stocks more than 8,500 products. The Company's worldwide flow control operations stock and sell products through distribution centers in Europe, Australia, New Zealand, the Middle East and Asia. In Europe, the Company distributes fire protection products, industrial valves and products for mechanical markets through warehouses located in The Netherlands, the United Kingdom, Germany, France, Italy, Spain and Scandinavia. Products are sold principally to fire protection contractors and in some instances to mechanical and industrial contractors and original equipment manufacturers. In Asia, the Pacific region and the Middle East, the Company distributes fire protection and flow control products through warehouses located in Australia, New Zealand, Dubai and Singapore. Products are sold directly to fire protection and other contractors as well as to mechanical and industrial contractors and independent distributors. While distribution patterns vary, most centers stock an extensive line of valves, fittings, pipe and other products for fire protection systems, components for HVAC installations and water and gas distribution and specialized valves and piping for the chemical, food, power and beverage processing industries. Grinnell's North American distribution network competes with independent manufacturers' representatives and other manufacturers and, to a lesser extent, with local and regional supply houses all of which carry lines from other United States and non-United States manufacturers. Grinnell competes on the basis of price, the breadth of its product line, service and quality. Grinnell competes for the sale of gray iron pipe fittings, malleable and ductile iron fittings and other flow control products and fire protection sprinklers and devices principally with other United States producers as well as with non-United States manufacturers of fittings. Grinnell uses an internal sales force for the sale of certain other iron castings sold directly to original equipment manufacturers and other end users. Allied competes for the sale of steel pipe, some of which is sold through Grinnell's distribution network, with pipe from other United States and non-United States producers. Competition for the sale of pipe is based on price, service and breadth of product line. Fence and other specialized industrial tubing is sold to wholesalers, original equipment manufacturers and other distributors. Competition for the sale of 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 sales of specialized industrial tubing on the basis of price and breadth of product line. Mueller's water and natural gas distribution flow control products are sold through independent distributors and, to a lesser extent, directly to utilities, municipalities and gas distribution companies. Certain of its gas distribution products are also sold through the Grinnell distribution network. Mueller competes for the sale of these products on the basis of product quality, service, price, breadth of product line and conformity with municipal codes and other engineering standards. Mueller competes with several other manufacturers in the United States and Canada for the sale of iron and brass flow control devices for water and natural gas distribution systems. Keystone's products are sold both in the United States and internationally. Keystone has numerous competitors in these markets, which, in some instances, are divisions of larger corporations and, in some instances, are companies with limited product lines. Advanced technology, global presence, experienced personnel and price are the primary factors in competition. Environmental Services Through its Earth Tech subsidiary, the Company provides a broad range of environmental, consulting and engineering services. Earth Tech's principal services consist of full-spectrum environmental and hazardous waste management services. These include contract operations and management services for water and wastewater treatment facilities operated by municipal and industrial clients, infrastructure design and 8 10 construction services and facilities engineering and construction management services for institutional, civic, commercial and industrial clients. Earth Tech has a network of offices located throughout North America. It competes with a number of national, regional and local companies on the basis of price and breadth and quality of services. IV. ELECTRICAL AND ELECTRONIC COMPONENTS The Electrical and Electronic Components group consists of Tyco Submarine Systems Ltd. ("TSSL"), Allied's Electrical Conduit division and the Tyco Printed Circuit Group ("TPCG"). TSSL designs, manufactures, installs and services undersea communications cable systems. Allied's Electrical Conduit division manufactures and distributes electrical conduit and related components used in commercial electrical installations. TPCG manufactures printed circuit boards and assembles backplanes for the electronics industry. Tyco Submarine Systems Ltd. TSSL, which includes the Company's Simplex Technologies business and the submarine systems business acquired from AT&T Corp. in July 1997, is the world's only fully-integrated source for the design, engineering, manufacturing, installation and servicing of undersea cable communication systems. TSSL designs and builds both repeatered and non-repeatered cable systems. Repeatered cable systems, which use Wave Division Multiplexing, can provide 20 gigabytes per second of capacity over 10,000 kilometers. Non-repeatered systems, which allow for even greater circuit capacity and reduced transmission costs, support short haul systems of several hundred kilometers. TSSL has designed, manufactured and installed approximately 265,000 kilometers of undersea optical cable. TSSL also operates one of the world's largest fleet of ships designed to install and service undersea fiber optic transmission systems. These ships lay cable, perform upgrades and repairs, monitor transmission quality and perform system tests. TSSL also uses a variety of other undersea tools, including robotic vehicles for undersea cable burial and retrieval operations. Simplex Technologies has been the primary supplier of cable and cable assemblies to the United States Navy for use in data-gathering systems for more than thirty years. It also manufactures underwater electric power cable and optical ground wire for use by power authorities and utilities, and electro-mechanical cable for unique field operations. Through its Rochester Corporation subsidiary, the Company manufactures wire rope, wirelines, electro-optical products and subsea products. TSSL competes on a worldwide basis primarily against two other entities: Alcatel-Alsthom, headquartered in France, and KDD, located in Japan. Alcatel-Alsthom, like TSSL, is vertically integrated and produces its own cable, whereas KDD utilizes a Japanese cable manufacturer. Allied Electrical Conduit Allied's Electrical Conduit division is one of the leading producers of steel electrical conduit in the United States. Electrical conduit is galvanized steel tubing designed to contain current-carrying electrical wires both inside and outside building structures. The conduit also serves as an electrical ground, which ensures proper operation of circuit interrupters, and provides a channel into which additional wires can be inserted as requirements change. The division manufactures a full line of electrical conduit as well as metal framing and other products. The division's electrical conduit and related products are sold to wholesale electrical distributors through Allied's distribution facilities by an internal sales force and a network of commissioned sales agents. The division competes for the sale of electrical products primarily with several other large United States manufacturers. Competition in the electrical conduit industry is primarily based upon price, quality, delivery and breadth of product line. 9 11 Tyco Printed Circuit Group TPCG is one of the largest independent manufacturers of complex multi-layer printed circuit boards and backplane assemblies in the United States. Printed circuit boards are used in the electronics industry to mount and interconnect components to create electronic systems. They are categorized by the number of layers and can be single-sided, double-sided or multi-layer. In general, single and double-sided boards are less advanced. Multi-layer boards provide greater interconnection density, while decreasing the number of separate printed circuit boards that are required to accommodate powerful and sophisticated components. Backplane assemblies are comprised of printed circuit boards, connectors and other electronic components, and they serve as an electrical and mechanical interconnect device. TPCG manufactures double-sided and 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 also 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 original equipment manufacturers and contract manufacturers in the communications, computer, aircraft, military and other industrial and consumer electronics industries. The Company competes with several other large independent and captive companies that manufacture printed circuit board products primarily in the United States. Competition is on the basis of quality, reliability, price and timeliness of delivery. The Company believes that fewer competitors manufacture the more complex, high-density multi-layer printed circuit board products. Subsequent Event Subsequent to year end, an indirect subsidiary of the Company entered into a definitive merger agreement for the acquisition of AMP Incorporated ("AMP"), which is the world's leading manufacturer of electrical, electronic, fiber-optic and wireless interconnective devices and systems. Its products have uses wherever an electronic, electrical, computer or telecommunication system is involved. AMP, with annual revenues of approximately $5.5 billion, sells to customers in the consumer and industrial, communications, automotive, computer and power industries. The merger is subject to the approval of AMP's shareholders, approval by the Company's shareholders of the issuance of Tyco common shares in connection with the merger and customary regulatory approvals. See Note 25 to the Consolidated Financial Statements for further discussion. BACKLOG At September 30, 1998, the Company had a backlog of unfilled orders of approximately $4.1 billion, compared to a backlog of approximately $2.4 billion at September 30, 1997. The Company expects that approximately 73 percent of its backlog at September 30, 1998 will be filled during the year ending September 30, 1999. Backlog by industry segment is as follows (in millions of dollars):
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- Disposable and Specialty Products................. $ 65.5 $ 81.7 Fire and Security Services........................ 969.8 901.6 Flow Control Products............................. 1,119.3 585.6 Electrical and Electronic Components.............. 1,989.2 798.3 -------- -------- $4,143.8 $2,367.2 ======== ========
The increase in backlog within the Fire and Security Services group is primarily due to an increase in backlog at the Company's worldwide security and North American fire protection businesses. Within the Flow 10 12 Control Products group, the increase is principally due to an increase in backlog at Earth Tech, including backlog related to acquisitions, and in the Company's European flow control operations. Within the Electrical and Electronic Components group, the increase is principally due to contracts awarded to TSSL. PROPERTIES The Company's operations are conducted in facilities throughout the world aggregating some 39.5 million square feet of floor space, of which approximately 22.0 million square feet are owned and approximately 17.5 million square feet are leased. These facilities house manufacturing and warehousing operations as well as sales, engineering and administrative offices. Within the Fire and Security Services group, the fire protection contracting and services business operates through a network of offices located in North America, South America, Europe, Australia, New Zealand, the Middle East and Asia. Fire protection components are manufactured at locations in North America, the United Kingdom, Germany, Australia, New Zealand and Malaysia. The electronic security services business operates through a network of monitoring centers and sales and service offices and other properties in North America, Europe, Australia, New Zealand, Argentina, Chile, Hong Kong, China and Malaysia. The group occupies some 7.7 million square feet, of which 2.3 million square feet are owned and 5.4 million square feet are leased. The Disposable and Specialty Products group has manufacturing facilities in North America, the United Kingdom, Germany, France, Spain, China, Thailand and Malaysia. There are 28 vehicle auction facilities located in the United States. The group occupies some 13.3 million square feet, of which 10.4 million square feet are owned and 2.9 million square feet are leased. The Flow Control Products group has manufacturing facilities in North America, the United Kingdom, Germany, Switzerland, France, Spain, Scotland, The Netherlands, Italy, China, Malaysia, Australia, Brazil, Argentina, and Mexico. Products are distributed in North America through a branch distribution network and through five regional distribution centers. The group also stocks and sells products through warehouse and distribution centers in The Netherlands, the United Kingdom, Germany, France, Spain, Italy, Scandinavia, Australia, New Zealand, Singapore and the Middle East. The environmental services business operates through a network of offices throughout North America. The group occupies some 15.5 million square feet, of which 7.4 million square feet are owned and 8.1 million square feet are leased. All of the Electrical and Electronic Components group manufacturing locations are in the United States. The group occupies some 2.9 million square feet, of which 1.8 million square feet are owned and 1.1 million square feet are leased. In the opinion of management, the Company's properties and equipment generally are in good operating condition and are adequate for its present needs. The Company does not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. See Note 16 to Consolidated Financial Statements for a description of the Company's rental obligations. RESEARCH AND DEVELOPMENT The amounts expended for Company-sponsored research and development during Fiscal 1998, Fiscal 1997 and 1996 were $93.3 million, $45.0 million and $39.8 million, respectively. The increase in Fiscal 1998 is principally due to the inclusion of TSSL, which was acquired in July 1997, as well as the inclusion of Sherwood acquired in 1998. Customer-funded research and development expenditures were $3.7 million, $0.5 million and $0.6 million, respectively. Approximately 678 full-time scientists, engineers and other technical personnel are engaged in product research and development activities. Research activity at TSSL involves the continuing design and development of processes for the next generation of undersea fiber optic cable, while Allied and the printed circuit companies are principally involved with process development. Kendall focuses on acquiring rights to new products and technologies to complement existing product lines and applying expertise to refine and successfully commercialize such 11 13 products and technologies. Research activity in fire and security services and flow control products 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 The Company is one of the largest buyers of steel and of plastic resin in the United States. Other principal materials include scrap iron of various types and grades, copper, brass, plastic, 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 group and the Flow Control Products group, principally certain valves and fittings and security systems, are purchased for installation in fire protection systems or for distribution. Materials are purchased both in 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 the Company's businesses. PATENTS AND TRADEMARKS The Company owns a number of patents which principally relate to healthcare and specialty products, fire protection devices, electronic security systems, flow control products, pipe and tubing manufacture, and cable manufacture. The Company also owns a number of trademarks and is 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 the Company's segments. The patents and licenses have remaining lives of from two to twenty years. Kendall sells certain products under trade names owned by its suppliers and packages certain products under customer trademarks and labels. EMPLOYEES The Company employed approximately 87,000 persons at September 30, 1998, of which approximately 50,700 are employed in the United States and 36,300 outside the United States. The Company has collective bargaining agreements with labor unions covering approximately 18,100 employees at certain of its North American, European and Asia-Pacific businesses. While the Company believes that its relations with the labor unions and with its employees are generally satisfactory, a number of local unions affiliated with the United Association of Plumbers and Pipefitters, representing 64 percent of Grinnell Fire Protection's North American union employees, are on strike. See discussion under "Fire and Security Services" above. ENVIRONMENTAL MATTERS The Company makes a substantial effort to operate its 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 the capital expenditures, earnings or competitive position of the Company. The Company believes that, consistent with applicable laws and regulations, it exercises due care and takes appropriate precautions in the management of wastes. The Company has received notification from the United States Environmental Protection Agency, and from certain state environmental agencies, that conditions at a number of sites where hazardous wastes were disposed of by the Company and other persons require cleanup and other possible remedial action. The Company also has a number of projects underway at several of its manufacturing facilities in order to comply with environmental laws. These projects relate to a variety of activities, including solvent and metal contamination clean up and oil spill equipment upgrades and replacement. Some of the projects are voluntary while others are required under applicable law. The projects involve both remediation expenses and capital improvements. In addition, the Company remains responsible for certain environmental issues at manufacturing locations sold by the Company. 12 14 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 the foregoing environmental matters, the Company has concluded that there is at least a reasonable possibility that remedial costs will be incurred with respect to these issues in an aggregate amount in the range of $16.5 million to $44.6 million. As of September 30, 1998, the Company has concluded that the most probable amount which will be incurred within this range is $21.0 million and such amount is included in the caption "accrued expenses and other current liabilities" in the accompanying 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 apportioned 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 environmental matters of $21.0 million, the Company has concluded that its payment of such estimated amounts will not have a material adverse effect on its 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 property. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings. 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 In July 1997, a wholly-owned subsidiary of what was formerly called ADT Limited ("ADT") merged with Tyco International Ltd ("Former Tyco"). Upon consummation of the merger, ADT (the surviving 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"). The executive officers of the Company and executive officers of certain subsidiaries are as follows: L. Dennis Kozlowski, age 52, Chairman of the Board 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 December 1989, and Chief Operating Officer of Former Tyco from 1989 to 1992; President of Grinnell since 1984; President of Ludlow Corporation from 1981 to 1984; associated with Former Tyco since 1975. Mark A. Belnick, age 52, 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 54, President of Tyco Fire and Security Services since August 1993. Vice President of Former Tyco since February 1996; Executive Vice President of Grinnell from 1989 to 1993; associated with Former Tyco since 1968. Neil R. Garvey, age 43, President of Tyco Submarine Systems Ltd. since July 1997. President of Simplex Technologies from July 1995 to June 1997; Vice President of Sales and Marketing of Simplex Technologies from June 1992 to July 1995; associated with Former Tyco since 1979. 13 15 Richard A. Gilleland, age 54, President of Tyco Healthcare Group since October 1998. Director of the Company since July 1997; Director of Former Tyco from 1994 to November 1997. Chairman, President and Chief Executive Officer of Physician's Resource Group, Inc. from December 1997 to September 1998; President and Chief Executive Officer of AMSCO International, Inc. from July 1995 to July 1996; Senior Vice President of Former Tyco from October 1994 to July 1995; Chairman, President and Chief Executive Officer of The Kendall Company from July 1990 to July 1995. Robert P. Mead, age 47, President of the Flow Control Products group since May 1993. Vice President of Former Tyco since August 1993; Executive Vice President of Allied Tube and Conduit Corp. from July 1992 to May 1993; Managing Director of Asia-Pacific region from April 1991 to July 1992; Executive Vice President -- Manufacturing Division of Grinnell from January 1989 to April 1991; Vice President -- Finance of Grinnell from February 1985 to January 1989; associated with Former Tyco since 1973. Mark H. Swartz, age 38, Executive Vice President and Chief Financial Officer since July 1997. Vice President and Chief Financial Officer of Former Tyco since February 1995; Director of Mergers and Acquisitions of Former Tyco from 1993 to 1995; associated with Former Tyco since 1991. 14 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS The approximate number of registered holders of the Company's common shares at November 18, 1998 was 40,400. 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 share of Tyco common shares as reported in the NYSE Composite Transaction Tape, and the dividends paid on such Tyco common shares, for the quarterly periods presented below. The price for Tyco common shares have been restated to reflect the 0.48133 reverse stock split related to the merger between ADT and Former Tyco in July 1997. In addition, the price and dividends for Tyco common shares have been restated to reflect a two-for-one stock split effected in the form of a stock dividend which was distributed on October 22, 1997. The prices per Tyco common shares listed in the table for periods prior to the merger of ADT and Former Tyco on July 2, 1997 are for common shares of ADT.
FISCAL 1998 FISCAL 1997(1) --------------------------------------- --------------------------------------- MARKET PRICE RANGE MARKET PRICE RANGE -------------------- DIVIDEND PER -------------------- DIVIDEND PER QUARTER HIGH LOW COMMON SHARE(2) HIGH LOW COMMON SHARE(2) - ------- ---- --- --------------- ---- --- --------------- First $45.5000 $34.0000 $.025 $28.6965 $22.0743 $-- Second 57.4375 42.3750 .025 35.4487 25.4503 -- Third 63.0625 51.4375 .025 43.0000 34.4099 .025 Fourth 69.0000 50.0000 .025 ----- ----- $ .10 $.025 ===== =====
- --------------- (1) Fiscal 1997 represents the transitional nine month fiscal year ended September 30, 1997. (2) Tyco declared aggregate dividends of $ 0.10 per common share in Fiscal 1998 and $0.025 per common share in the third quarter of Fiscal 1997. Prior to the merger with Former Tyco, ADT had not declared any dividends on its common shares since April 1991. Former Tyco declared quarterly dividends of $0.025 per common share in the first two quarters of Fiscal 1997. The payment of dividends by Tyco in the future will depend on business conditions, Tyco's financial condition and earnings and other factors. 15 17 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial information of the Company for the fiscal year ended September 30, 1998, the nine month fiscal period ended September 30, 1997 and the three years in the period ended December 31, 1996. This selected financial information should be read in conjunction with the Company's Consolidated Financial Statements and related notes. The selected financial data reflect the combined results of operations and financial position of Tyco International Ltd., Former Tyco and Keystone 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. The combinations are collectively referred to as the "Mergers". See Notes 1 and 2 to the Consolidated Financial Statements.
YEAR NINE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, ------------------------------ 1998 1997(1) 1996 1995(5) 1994(5) ------------- ------------- ---- ------- ------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Consolidated Statements of Operations Data: Net sales.......................... $12,311.3 $ 7,588.2 $8,103.7 $6,915.6 $6,240.9 Operating income (loss)(2)(3)(4)... 1,923.7 (476.5) (18.8) 649.6 653.6 Income (loss) before extraordinary items........................... 1,177.1 (776.8) (296.7) 267.5 304.8 Income (loss) before extraordinary items per common share:(6) Basic........................... 2.07 (1.50) (.62) .58 .65 Diluted......................... 2.02 (1.50) (.62) .57 .63 Cash dividends per common share.... .10 See (7) below Consolidated Balance Sheet Data: Total assets....................... $16,526.6 $10,447.0 $8,471.3 $7,357.8 $7,053.2 Long-term debt..................... 4,652.6 2,480.6 1,878.4 1,760.7 1,755.3 Shareholders' equity............... 6,136.9 3,429.4 3,288.6 3,342.7 3,030.0
- --------------- (1) In September 1997, the Company changed its fiscal year end from December 31 to September 30. Accordingly, the nine month transition period ended September 30, 1997 is presented. (2) Operating loss in Fiscal 1997 includes 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. See Notes 11 and 15 to the Consolidated Financial Statements. Fiscal 1997 also includes 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. (3) Operating loss 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 and $8.8 million of fees and expenses related to the ASH merger. See Notes 11 and 15 to Consolidated Financial Statements. (4) Operating income in 1995 includes a loss of $65.8 million on the disposal of the European auto auction business and a gain of $31.4 million from the disposal of the European electronic article surveillance business. See Note 3 to the Consolidated Financial Statements. Operating income also includes non-recurring charges of $97.1 million for restructuring charges at ADT and at Keystone and for the fees and expenses related to the Kendall merger, as well as a charge of $8.2 million relating to the divestiture of certain assets by Keystone. See Notes 11 and 15 to Consolidated Financial Statements. 16 18 (5) Prior to the mergers in Fiscal 1997, ADT and Keystone had a calendar year end and the Former Tyco had a June 30 fiscal year end. The historical results have been combined using a calendar year end for ADT, Keystone and the Former Tyco for the year ended December 31, 1996. For 1995 and 1994, the results of operations and financial position reflect the combination of ADT and Keystone with a calendar year end and the Former Tyco with a June 30 fiscal year end. Net sales and net income for the Former Tyco for the period July 1, 1995 through December 31, 1995 (which results are not included in the historical combined results) were $2.46 billion and $136.4 million, respectively. (6) Per share amounts for all periods presented have been restated to give effect to the mergers between ADT, Former Tyco, Keystone and INBRAND in Fiscal 1997 (See Notes 1 and 2 to the Consolidated Financial Statements), including the 0.48133 reverse stock split, and a two-for-one stock split distributed on October 22, 1997 effected in the form of a stock dividend. (7) The Company has declared a quarterly cash dividend of $0.025 per common share since July 1997. Prior to the merger with Former Tyco, ADT had not declared any dividends on its common shares since April 1991. Former Tyco declared quarterly dividends of $0.025 per share in the first two quarters of Fiscal 1997 and in fiscal years 1996, 1995 and 1994. Keystone declared quarterly dividends of $0.19 per share in each of the three quarters of Fiscal 1997 and in fiscal years 1996, 1995 and 1994. 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 OPERATING RESULTS See Management's Discussion and Analysis of Financial Condition and Operating Results which appears on pages 62 to 67 of this Form 10-K. ITEM 7A. FINANCIAL INSTRUMENT DISCLOSURE See Management's Discussion and Analysis of Financial Condition and Operating Results which appears on pages 62 to 67 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and schedules are filed as part of this Annual Report: Financial Statements: Reports of Independent Accountants Consolidated Balance Sheets -- September 30, 1998 and September 30, 1997 Consolidated Statements of Operations for the fiscal year ended September 30, 1998, the nine month fiscal period ended September 30, 1997 and the year ended December 31, 1996 Consolidated Statements of Shareholders' Equity for the fiscal year ended September 30, 1998, the nine month fiscal period ended September 30, 1997 and the year ended December 31, 1996 Consolidated Statements of Cash Flows for the fiscal year ended September 30, 1998, the nine month fiscal period ended September 30, 1997 and the year ended December 31, 1996 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). 17 19 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 or an Amendment to this Form 10-K 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 or an Amendment to this Form 10-K 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 or an Amendment to this Form 10-K 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 or an Amendment to this Form 10-K which will be filed with the Commission within 120 days after the close of the fiscal year. 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 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.(6) 3.3 Bye-Laws (incorporating all amendments to March 27, 1998).(11) 3.4 Articles of Association.(11) 4.1 Indenture relating to the senior notes dated August 4, 1993 among ADT Operations, Inc., as issuer, and ADT Limited and certain subsidiaries of ADT Operations, Inc., as guarantors, and The Chase Manhattan Bank (National Association), as trustee, and the form of senior note included therein.(2) 4.2 First Supplemental Indenture to the Indenture, dated as of August 4, 1993, among ADT Operations, Inc., the Guarantors Named Therein and The Chase Manhattan Bank, as Trustee, dated as of July 1, 1997, in respect of the $250,000,000 8 1/4% Senior Notes due 2000.(7) 4.3 Amended and Restated Indenture dated as of July 2, 1997, in respect of the $250,000,000 8 1/4% Senior Notes due 2000.(7) 4.4 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.(3) 4.5 Rights Agreement between ADT Limited and Citibank, N.A. dated as of November 6, 1996.(5)
18 20 4.6 First Amendment between ADT Limited and Citibank, N.A. dated as of March 3, 1997 to Rights Agreement between ADT Limited and Citibank, N.A. dated as of November 6, 1996.(5) 4.7 Second Amendment between ADT Limited and Citibank, N.A. dated as of July 2, 1997 to the Rights Agreement (Incorporated by reference to Form 8-A/A dated July 2, 1997.) 4.8 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.) 4.9 First Supplemental Indenture dated April 30, 1992 between Former Tyco and Security Pacific National Trust Company (New York). (Incorporated by reference to Former Tyco Form 10-Q for the period ended March 31, 1992.) 4.10 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.) 4.11 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.(12) 4.12 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).(12) 4.13 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).(12) 4.14 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).(12) 4.15 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.(tm)) due 2013 of the Company (including the form of Drs.).(12) 4.16 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. (Filed Herewith). 4.17 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 2004 of TIG. (Filed Herewith). 4.18 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). 4.19 Officers 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. (Filed Herewith). 4.20 Indenture, dated as of September 15, 1995, between Graphic Controls Corporation and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Graphic Controls Corporation's Registration Statement on Form S-4 (File No. 33-99094). 4.21 Form of 12% Senior Subordinated Notes due 2005 of Graphic Controls Corporation (incorporated by reference to Exhibit 4.3 to the Graphic Controls Corporation's Registration Statement on Form S-4 (Filed No. 33-99094). 4.22 364-Day Credit Agreement, Five-Year Credit Agreement and Bridge Credit Agreement, each dated as of June 27, 1997 (Incorporated by reference to Tyco International (US) Inc.'s Form 10-K for the fiscal year ended June 30, 1997.) 4.23 Parent Guarantee Agreement dated as of July 2, 1997 (Incorporated by reference into Tyco International (US) Inc.'s Form 10-K for the fiscal year ended June 30, 1997.)
19 21 4.24 $1.75 billion 364-day Credit Agreement dated February 13, 1998 held by Tyco International Group S.A. (TIG).(8) 4.25 $500 million Extendible Credit Agreement dated February 13, 1998 held by TIG.(8) 4.26 Parent Guarantee Agreement dated as of February 13, 1998.(8) 10.1 Agreement and Plan of Merger, dated as of March 17, 1997, by and among ADT Limited, Limited Apache, Inc. and Former Tyco.(4) 10.2 Agreement and Plan of Merger, dated as of May 20, 1997, by and among Former Tyco, T6 Acquisition Corp. and Keystone International, Inc. (Incorporated by reference as an Exhibit to Former Tyco's Registration Statement No. 333-31631 on Form S-4 filed on July 18, 1997.) 10.3 Purchase Agreement dated December 20, 1997 by and among American Cyanamid Company, American Home Products Corporation, AHP Subsidiary Holding Corporation and Tyco International (US) Inc.(9) 10.4 Parent Guarantee of obligations dated December 20, 1997.(9) 10.5 First Amendment to Purchase Agreement dated February 27, 1998 by and among American Cyanamid Company, American Home Products Corporation, AHP Subsidiary Holding Corporation and Tyco International (US) Inc.(9) 10.6 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.(10) 10.7 Rules of the ADT UK Executive Share Option Scheme (1984), amended to reflect the reverse split of Common Shares effective June 17, 1991.(1)* 10.8 Rules of the ADT International Executive Share Option Plan, amended to reflect the reverse split of Common Shares effective June 17, 1991.(1)* 10.9 Rules of the ADT UK and International Executive Share Option Schemes (1984) New Section, amended to reflect the reverse split of Common Shares effective June 17, 1991.(1)* 10.10 Rules of the ADT Senior Executive Share Option Plan, amended to reflect the reverse split of Common Shares effective June 17, 1991.(1)* 10.11 US (1990) Stock Option Plan of ADT Limited, amended to reflect the reverse split of Common Shares effective June 17, 1991.(1)* 10.12 Agreement between ADT Automotive Holdings, Inc. and Michael J. Richardson dated as of January 29, 1997.(5)* 10.13 Incentive Compensation Agreement between ADT, Inc. and Michael J. Richardson dated as of February 10, 1997.(5)* 10.14 Severance Agreement between ADT Security Services, Inc. and Raymond Gross dated as of February 26, 1997.(5)* 10.15 Consulting Agreement between ADT, Inc. and John E. Danneberg dated as of August 28, 1996.(5)* 10.16 Form of Indemnification Agreement.(5)* 10.17 The Tyco International Ltd. Long Term Incentive Plan (formerly known as the ADT 1993 Long-Term Incentive Plan) (as amended July 2, 1997). (Incorporated by reference as an Exhibit to the Proxy Statement dated June 3, 1997 on Amendment No. 3 to Form S-4 dated June 3, 1997.)* 10.18 1978 Restricted Stock Ownership Plan for Key Employees. (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on November 21, 1978.)* 10.19 1981 Key Employee Loan Program. (Incorporated by reference to Former Tyco's Form 10-K for the year ended May 31 1982.)* 10.20 1983 Key Employee Loan Program. (Incorporated by reference to Former Tyco's Form 10-K for the year ended May 31, 1983.)*
20 22 10.21 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.)* 10.22 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.)* 10.23 Tyco Incentive Compensation Plan. (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1994.)* 10.24 1994 Restricted Stock Ownership Plan for Key Employees. (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on October 19, 1994.) 10.25 Tyco International Ltd. Supplemental Executive Retirement Plan (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1995).* 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.)
- --------------- (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, 1993. (3) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (4) Incorporated by reference to an Exhibit to the Former Tyco's Current Report dated March 17, 1997 on Form 8-K filed March 25, 1997. (5) Incorporated by reference to an Exhibit to the Registrant's Schedule 14D-9 dated March 3, 1997. (6) Incorporated by reference to an Exhibit to the Registrant's Current Report dated July 2, 1997 on Form 8-K filed July 10, 1997. (7) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (8) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997. (9) Incorporated by reference to an Exhibit to the Registrant's Current Report dated February 27, 1998 on Form 8-K filed March 11, 1998. (10) Incorporated by reference to an Exhibit to the Registrant's Current Report dated May 25, 1998 on Form 8-K filed June 24, 1998. (11) Incorporated by reference to an Exhibit to the Registrant's Form S-3 filed June 9, 1998. (12) 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. * Management contract or compensatory plan. (c) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the last quarter of Fiscal 1998. 21 23 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 10, 1998 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.
SIGNATURE TITLE DATE --------- ----- ---- /s/ L. DENNIS KOZLOWSKI Chairman of the Board, Chief - --------------------------------------------------- Executive Officer, President L. DENNIS KOZLOWSKI and Director (Principal Executive Officer) /s/ MICHAEL A. ASHCROFT Director - --------------------------------------------------- MICHAEL A. ASHCROFT /s/ JOSHUA M. BERMAN Director, Vice President - --------------------------------------------------- JOSHUA M. BERMAN /s/ RICHARD S. BODMAN Director - --------------------------------------------------- RICHARD S. BODMAN /s/ JOHN F. FORT Director December 10, 1998 - --------------------------------------------------- JOHN F. FORT /s/ STEPHEN W. FOSS Director - --------------------------------------------------- STEPHEN W. FOSS /s/ RICHARD A. GILLELAND Director - --------------------------------------------------- RICHARD A. GILLELAND /s/ PHILIP M. HAMPTON Director - --------------------------------------------------- PHILIP M. HAMPTON /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 Financial Officer MARK H. SWARTZ /s/ FRANK E. WALSH, JR. Director - --------------------------------------------------- FRANK E. WALSH, JR.
22 24 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tyco International Ltd.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Tyco International Ltd. and its subsidiaries at September 30, 1998 and 1997, and the results of their operations and their cash flows for the year ended September 30, 1998, the nine months ended September 30, 1997 and the year ended December 31, 1996, in conformity with generally accepted accounting principles in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index 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 Keystone International, Inc., a wholly owned subsidiary, for the year ended December 31, 1996, which statements reflect net sales constituting 8.4% of consolidated net sales for the year ended December 31, 1996. 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 Keystone International, Inc. is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States, 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 provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS Hamilton, Bermuda October 23, 1998 23 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors, Keystone International, Inc.: We have audited the consolidated statements of income, changes in shareholders' investment and cash flows of Keystone International, Inc. (a Texas corporation) and subsidiaries for the year ended December 31, 1996, which are not included herein. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 results of operations and cash flows of Keystone International, Inc. and subsidiaries for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP January 31, 1997 Houston, Texas 24 26 TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------ SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 (IN MILLIONS, EXCEPT SHARE DATA) 1998 1997 - ------------------------------------------------------------------------------------ CURRENT ASSETS: Cash and cash equivalents................................... $ 820.1 $ 369.8 Receivables, less allowance for doubtful accounts of $256.9 in 1998 and $107.7 in 1997................................ 2,082.5 1,600.4 Contracts in process........................................ 565.3 450.2 Inventories................................................. 1,460.0 1,124.8 Deferred income taxes....................................... 562.9 389.4 Prepaid expenses and other current assets................... 252.5 174.2 --------- --------- Total current assets........................................ 5,743.3 4,108.8 PROPERTY, PLANT AND EQUIPMENT, NET.......................... 3,710.1 2,924.0 GOODWILL AND OTHER INTANGIBLE ASSETS, NET................... 6,396.5 2,933.2 LONG-TERM INVESTMENTS....................................... 124.4 108.5 DEFERRED INCOME TAXES....................................... 147.5 144.0 OTHER ASSETS................................................ 404.8 228.5 --------- --------- TOTAL ASSETS................................................ $16,526.6 $10,447.0 ========= ========= CURRENT LIABILITIES: Loans payable and current maturities of long-term debt...... $ 350.0 $ 250.0 Accounts payable............................................ 1,279.5 1,012.0 Accrued expenses and other current liabilities.............. 2,295.4 1,853.4 Contracts in process -- billings in excess of costs......... 332.9 293.7 Deferred revenue............................................ 260.6 152.3 Income taxes................................................ 517.9 403.5 Deferred income taxes....................................... 11.9 26.9 --------- --------- Total current liabilities................................... 5,048.2 3,991.8 LONG-TERM DEBT.............................................. 4,652.6 2,480.6 OTHER LONG-TERM LIABILITIES................................. 631.8 497.5 DEFERRED INCOME TAXES....................................... 57.1 47.7 --------- --------- TOTAL LIABILITIES........................................... 10,389.7 7,017.6 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 16) SHAREHOLDERS' EQUITY: Common shares, $.20 par value, 1,503,750,000 shares authorized; 586,645,251 shares outstanding in 1998 and 536,357,498 shares outstanding in 1997, net of 3,371,003 shares owned by subsidiaries in 1998...................... 117.3 107.3 Capital in excess: Share premium............................................. 3,585.1 2,041.3 Contributed surplus, net of deferred compensation of $46.3 in 1998 and $2.2 in 1997............................... 2,376.9 2,305.7 Currency translation adjustment............................. (182.7) (161.6) Accumulated earnings (deficit).............................. 240.3 (863.3) --------- --------- Total shareholders' equity.................................. 6,136.9 3,429.4 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $16,526.6 $10,447.0 ========= =========
See Notes to Consolidated Financial Statements. 25 27 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, (IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- Net sales............................................ $12,311.3 $7,588.2 $8,103.7 Cost of sales........................................ 8,046.4 5,102.6 5,475.2 Selling, general and administrative expenses......... 2,341.2 1,534.9 1,656.5 Merger, restructuring and other non-recurring charges............................................ -- 917.8 246.1 Charge for the impairment of long-lived assets....... -- 148.4 744.7 Write off of purchased in-process research and development........................................ -- 361.0 -- --------- -------- -------- Operating income (loss).............................. 1,923.7 (476.5) (18.8) Interest income...................................... 30.9 24.2 31.5 Interest expense..................................... (236.2) (137.5) (193.3) Other income less expenses........................... -- -- 119.4 --------- -------- -------- Income (loss) before income taxes and extraordinary items.............................................. 1,718.4 (589.8) (61.2) Income taxes......................................... (541.3) (187.0) (235.5) --------- -------- -------- Income (loss) before extraordinary items............. 1,177.1 (776.8) (296.7) Extraordinary items, net of taxes.................... (2.4) (58.3) (8.4) --------- -------- -------- Net income (loss).................................... 1,174.7 (835.1) (305.1) Dividends on preference shares....................... -- -- (.3) --------- -------- -------- Net income (loss) available to common shareholders... $ 1,174.7 $ (835.1) $ (305.4) ========= ======== ======== Basic earnings (loss) per common share: Income (loss) before extraordinary items........... $ 2.07 $ (1.50) $ (.62) Extraordinary items, net of taxes.................. -- (.11) (.02) Net income (loss) per common share................. 2.07 (1.61) (.64) Diluted earnings (loss) per common share: Income (loss) before extraordinary items........... $ 2.02 $ (1.50) $ (.62) Extraordinary items, net of taxes.................. -- (.11) (.02) Net income (loss) per common share................. 2.01 (1.61) (.64) Weighted-average number of common shares outstanding: Basic.............................................. 568.6 519.5 475.6 Diluted............................................ 586.8 519.5 475.6
See Notes to Consolidated Financial Statements. 26 28 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1996, THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMMON CURRENCY ACCUMULATED AND YEAR ENDED SEPTEMBER 30, 1998 SHARES $0.20 SHARE CONTRIBUTED TRANSLATION EARNINGS (IN MILLIONS) PAR VALUE PREMIUM SURPLUS ADJUSTMENT (DEFICIT) - ------------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1996, as previously restated... $ 94.2 $1,052.5 $2,004.9 $ (31.4) $ 222.5 Effect of the Former Tyco's excluded activity (as described in Note 1).......................... 2.9 (19.6) 121.2 Exchange of Liquid Yield Option Notes........... .3 Net loss........................................ (305.1) Dividends....................................... (57.6) Restricted stock grants, cancellations, tax benefits and other..................................... .2 25.8 .5 Warrants and options exercised.................. .4 28.5 (.2) Purchase of treasury shares..................... (4.4) Amortization of deferred compensation........... 15.7 Minimum pension liability adjustment............ 3.6 Issuance of stock for acquisition............... 1.4 129.0 Other treasury stock transactions............... (4.7) Currency translation and other adjustments...... (.5) 8.5 ------ -------- -------- ------- ------- Balance at December 31, 1996...................... 96.2 1,081.0 2,168.8 (42.5) (14.9) Pooling of interests with INBRAND (as described in Note 1)....................................... 2.0 15.9 (.2) 27.6 ------ -------- -------- ------- ------- Balance at December 31, 1996, as restated......... 98.2 1,081.0 2,184.7 (42.7) 12.7 Effect of ASH's excluded activity (as described in Note 2)....................................... (.8) Liquidation of ASH's ESOP....................... 2.5 Sale of common shares........................... 4.7 639.2 10.6 Exchange of Liquid Yield Option Notes........... 1.0 82.0 Net loss........................................ (835.1) Dividends....................................... (43.4) Restricted stock grants, cancellations, tax benefits and other..................................... (18.0) Warrants and options exercised.................. 3.3 321.1 (1.5) Amortization of deferred compensation........... 48.5 Minimum pension liability adjustment............ .6 Other treasury stock transactions............... (.1) Currency translation and other adjustments...... .1 (.5) (118.9) .2 ------ -------- -------- ------- ------- Balance at September 30, 1997..................... 107.3 2,041.3 2,305.7 (161.6) (863.3) Sale of common shares........................... 5.1 1,239.9 Exchange of Liquid Yield Option Notes........... 1.8 153.5 Net income...................................... 1,174.7 Dividends....................................... (59.2) Restricted stock grants, net of surrenders, and other......................................... .1 .2 Warrants and options exercised.................. 3.7 303.9 35.9 Purchase of treasury shares..................... (.7) (221.9) Stock compensation expense, including amortization of deferred compensation...................... 42.4 Minimum pension liability adjustment............ (11.9) Issuance of common shares for acquisition....... .1 14.6 Tax benefit on stock transactions............... 47.2 Currency translation and other adjustments...... (.1) (.7) (21.1) ------ -------- -------- ------- ------- Balance at September 30, 1998..................... $117.3 $3,585.1 $2,376.9 $(182.7) $ 240.3 ====== ======== ======== ======= =======
See Notes to Consolidated Financial Statements. 27 29 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------- NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, (IN MILLIONS) 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................... $1,174.7 $ (835.1) $ (305.1) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Merger, restructuring and other non-recurring charges..... -- 207.4 217.4 Charge for the impairment of long-lived assets............ -- 148.4 744.7 Write off of purchased in-process research and development............................................. -- 361.0 -- Extraordinary items....................................... 2.4 58.3 8.4 Depreciation.............................................. 413.3 286.3 339.0 Goodwill and other intangibles amortization............... 153.0 92.3 88.3 Debt and refinancing cost amortization.................... 11.0 15.9 25.5 Interest on ITS vendor note............................... (11.5) (7.7) (8.9) Deferred income taxes..................................... 121.0 (295.7) 32.7 Gain arising from the ownership of investments............ -- -- (53.2) Settlement gain........................................... -- -- (69.7) Provisions for losses on accounts receivable and inventory............................................... 115.4 58.1 36.2 Changes in assets and liabilities: Receivables............................................. (86.2) (110.1) (99.8) Proceeds from accounts receivable sale.................. -- 75.0 -- Contracts in process.................................... (91.4) (159.7) 17.8 Inventories............................................. (53.6) (6.2) (33.3) Accounts payable, accruals and other liabilities........ (317.7) 542.8 (135.8) Income taxes payable.................................... 150.3 302.3 (13.0) Deferred revenue........................................ (12.4) 6.2 4.3 Other, net.............................................. 68.2 37.9 25.6 -------- --------- --------- Net cash provided by operating activities................. 1,636.5 777.4 821.1 -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment................... (781.3) (519.1) (532.9) Acquisition of businesses................................... (3,816.6) (1,344.8) (822.6) Disposal of other investments and other..................... (8.4) -- 62.7 -------- --------- --------- Net cash utilized by investing activities................. (4,606.3) (1,863.9) (1,292.8) -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net receipts of short-term debt............................. 202.3 918.5 232.6 Net proceeds from issuance of public debt................... 2,744.5 -- -- Repayment of long-term debt, including debt tender.......... (988.1) (961.6) (269.6) Proceeds from long-term debt................................ 219.0 234.6 386.6 Proceeds from sale of common shares......................... 1,245.0 654.5 -- Proceeds from exercise of options........................... 307.4 322.9 32.3 Dividends paid.............................................. (56.5) (37.9) (56.7) Purchase of treasury shares................................. (222.6) -- (9.7) Other....................................................... (30.9) -- (28.9) -------- --------- --------- Net cash provided by financing activities................. 3,420.1 1,131.0 286.6 -------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 450.3 44.5 (185.1) Cash and cash equivalents at beginning of year.............. 369.8 324.2 429.8 Adjustment for INBRAND's cash and cash equivalents at January 1, 1997 (as described in Note 1).................. -- 1.9 -- Effect of the excluded results of ASH and Former Tyco (as described in Notes 1 and 2)............................... -- (0.8) 79.5 -------- --------- --------- Cash and cash equivalents at end of year.................... $ 820.1 $ 369.8 $ 324.2 ======== ========= ========= SUPPLEMENTARY CASH FLOW DISCLOSURE: Interest paid............................................... $ 187.7 $ 161.0 $ 166.0 ======== ========= ========= Income taxes paid (net of refunds).......................... $ 201.0 $ 139.6 $ 152.9 ======== ========= =========
See Notes to Consolidated Financial Statements. 28 30 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, on July 2, 1997 a wholly-owned subsidiary of what was formerly called ADT Limited ("ADT") merged with Tyco International Ltd. (the "Former Tyco"). Upon consummation of the merger, ADT (the continuing public company) changed its name to Tyco International Ltd. (the "Company" or "Tyco"). Former Tyco became a wholly-owned subsidiary of the Company and changed its name to Tyco International (US) Inc. ("Tyco US"). In addition, as more fully described in Note 2, Tyco merged with INBRAND Corporation ("INBRAND") and Keystone International, Inc. ("Keystone") on August 27, 1997 and August 29, 1997, respectively. These transactions are referred to herein as the "mergers". These 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 ADT, Former Tyco and Keystone as if they had been combined for all periods presented and of INBRAND from January 1, 1997. The restated combined financial statements do not include the financial position, operating results and cash flows of INBRAND prior to January 1, 1997 due to immateriality. In accordance with the pooling of interests method of accounting, the Fiscal 1997 beginning Accumulated Earnings (Deficit) balance in the Consolidated Statement of Shareholders' Equity has been restated to record the merger with INBRAND. Prior to the mergers, ADT and Keystone had calendar year ends and the Former Tyco had a June 30 fiscal year end. The Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for the year ended December 31, 1996 reflect the combination of the calendar year end consolidated results of operations and cash flows for ADT, Keystone and the Former Tyco. The results of operations and cash flows for the Former Tyco from July 1, 1995 to December 31, 1995, which have been excluded from historical combined results, are reflected as adjustments in the 1996 Consolidated Statements of Shareholders' Equity and Cash Flows. 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 pooling of interests (see Note 2). All significant intercompany balances and transactions have been eliminated in consolidation. Change in Year End -- In September 1997 the Company changed its fiscal year end from December 31 to September 30. The change in year end resulted in a short fiscal year covering the nine month transition period from January 1 to September 30, 1997. References to Fiscal 1998, Fiscal 1997 and 1996 throughout these consolidated financial statements refer to the twelve months ended September 30, 1998, the nine months ended September 30, 1997 and the calendar year ended December 31, 1996, respectively. 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. 29 31 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Property, Plant and Equipment -- Property, plant and equipment are principally recorded at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. The straight-line method of depreciation is used over the estimated useful lives of the related assets as follows: Buildings and related improvements 2 to 50 years Leasehold improvements Remaining term of the lease Subscriber systems 10 to 14 years Other plant, machinery, equipment and 2 to 20 years furniture and fixtures
Gains and losses arising on the disposal of property, plant and equipment are included in the Consolidated Statements of Operations. Associates -- For investments in which the Company owns or controls more than twenty percent of the voting shares, or over which it exerts significant influence over operating and financial policies, the equity method of accounting is used. The Consolidated Statements of Operations include the Company's share of net income of associates less applicable goodwill amortization. Goodwill and Other Intangible Assets -- Goodwill, which is being amortized on a straight-line basis over periods ranging from 10 to 40 years, was $5,635.0 million and $2,631.7 million at September 30, 1998 and 1997, respectively. Accumulated amortization amounted to $453.8 million at September 30, 1998 and $332.5 million at September 30, 1997. Impairment of goodwill, if any, is measured periodically on the basis of whether anticipated undiscounted operating cash flows generated by the acquired businesses will recover the recorded net goodwill balances over the remaining amortization period. Other intangible assets include patents, trademarks, customer contracts and other items, which are being amortized on a straight-line basis over lives ranging from 2 to 30 years. At September 30, 1998 and September 30, 1997, accumulated amortization amounted to $108.6 million and $76.9 million, respectively. 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 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 for fire protection contracts. Retention balances of $38.7 million at September 30, 1998, which become due upon contract completion and acceptance, are expected to be substantially collected during the fiscal year ending September 30, 1999 ("Fiscal 1999"). 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 30 32 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. Advertising -- Advertising costs are expensed when incurred. Translation of Foreign Currency -- Assets and liabilities of the Company's subsidiaries operating outside of 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 separate component of 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 (loss). Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income (loss). Interest Rate Swaps, Currency Options and Other Contracts -- From time to time the Company enters into a variety of interest rate swaps, interest rate locks of future fundings, currency options and cross-currency swaps in its management of interest costs and foreign currency exposures. Interest rate swaps and interest rate locks 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 or locks are recognized over the life of the underlying agreement or indebtedness, respectively, as an adjustment to interest expense. Currency options, acquired for the purpose of hedging foreign operating income generally for periods not exceeding twelve months, are marked to market with any realized and unrealized gains or losses reflected in selling, general and administrative expenses. Under cross-currency swaps, which hedge certain net foreign investments, changes in valuation are recorded in the currency translation adjustment account. The interest differentials from swaps are recorded in interest expense. 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 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 those estimates. Accounting Pronouncements -- In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which are both effective for years beginning after December 15, 1997. Adoption of these standards is not expected to impact the financial results of the Company. 31 33 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which is effective for fiscal years beginning after December 15, 1997. This statement revises financial statement disclosure requirements for pension and other postretirement benefit plans but does not change the measurement or recognition of those plans. Adoption of this standard is not expected to impact the financial results of the Company. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company is currently analyzing this new standard. Reclassifications -- Certain prior year amounts have been reclassified to conform with current year presentation. Stock Split -- Per share amounts and share data have been retroactively adjusted to reflect the two-for-one stock split described in Note 10. 2. MERGERS Tyco's Merger with Keystone -- In August 1997, Tyco merged with Keystone International, Inc. A total of approximately 34.8 million Tyco common shares were issued to the former shareholders of Keystone. Tyco's Merger with INBRAND -- In August 1997, Tyco merged with INBRAND Corporation. A total of approximately 10.2 million Tyco common shares were issued to the former shareholders of INBRAND. ADT's Merger with the Former Tyco -- In July 1997, a wholly-owned subsidiary of ADT merged with the Former Tyco. Shareholders of ADT, through a reverse stock split, received 0.48133 shares of the Company's common stock for each share of ADT common stock outstanding, and the Former Tyco shareholders received one share of the Company's common stock for each share of the Former Tyco common stock outstanding or a total of approximately 336.8 million Tyco common shares. All historical common share and per share data of the Company have been retroactively restated to reflect the reverse stock split. Each of the three merger transactions discussed above was 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. As discussed in Note 1, the consolidated financial statements for periods prior to January 1, 1997 do not include INBRAND due to immateriality. Aggregate fees and expenses related to the three mergers discussed above and to the integration of the combined companies have been expensed in the accompanying consolidated statement of operations for the nine months ended September 30, 1997 as required under the pooling of interests accounting method. This includes transaction costs of approximately $239.8 million relating to legal, printing, accounting, financial advisory services, severance costs payable at the effective time of the merger and other direct expenses. It also includes charges of approximately $678.0 million to reflect the combination of the four companies, including severance costs, integration costs, the costs associated with the elimination of excess facilities and the satisfaction of certain liabilities. In addition, the Company recorded a charge of $148.4 million for the impairment of long-lived assets. See Notes 11 and 15. 32 34 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Combined and separate results of ADT, Former Tyco, Keystone and INBRAND for the periods preceding the mergers were as follows:
FORMER ADT TYCO KEYSTONE INBRAND(I) COMBINED --- ------ -------- ---------- -------- (IN MILLIONS) Six Months ended June 30, 1997 (unaudited) Net sales.................................. $ 923.9 $3,505.6 $331.2 $118.7 $4,879.4 Net income (loss).......................... 47.2 244.6 22.9 (28.9) 285.8 Year ended December 31, 1996 Net sales.................................. 1,704.0 5,721.8 677.9 -- 8,103.7 Extraordinary items, net of taxes.......... (8.4) -- -- -- (8.4) Net (loss) income.......................... (695.1) 348.1 41.9 -- (305.1)
- --------------- (i) The restated combined financial statements for periods prior to January 1, 1997 do not include INBRAND due to immateriality (see Note 1). ADT's Merger with Automated Security (Holdings) PLC ("ASH") In September 1996, ADT merged with and acquired the whole of the issued capital of ASH, a United Kingdom quoted company (the "ASH merger"). ASH is engaged in the provision of electronic security services in North America and Europe. The total consideration in respect of the whole of the issued capital of ASH consisted of the issue of approximately 6.8 million common shares of the Company. The consolidated financial statements of ASH have previously been presented in pounds sterling, ASH's functional currency. For the purposes of these consolidated financial statements, ASH's consolidated financial statements have been translated into United States dollars at the appropriate exchange rates. In addition, ASH's fiscal year end was November 30. ASH has been accounted for as a pooling of interests and its results have been combined with ADT's using the November year end. The results of operations and cash flows for ASH for the month of December 1996, which have been excluded from these consolidated financial statements, are reflected as adjustments in the 1997 Consolidated Statements of Shareholders' Equity and Cash Flows. Combined and separate results of ADT and ASH for the periods preceding the ADT and ASH merger were as follows:
ADT ASH ADJUSTMENTS COMBINED --- --- ----------- -------- (IN MILLIONS) Six months ended June 30, 1996 (unaudited) Net sales...................................... $ 715.6 $ 118.1 $-- $ 833.7 Extraordinary items, net of taxes.............. (1.2) -- -- (1.2) Net loss....................................... (347.7) (328.9) 0.5(i) (676.1)
- --------------- (i) Income tax adjustment arising on preference share dividends accrued by the ASH group but not payable following merger. All fees and expenses related to the ASH merger have been expensed as required under the pooling of interests accounting method. Such fees and expenses amounted to $8.8 million in 1996. 3. ACQUISITIONS AND DIVESTITURES During Fiscal 1998 the Company acquired companies in each of its business segments for an aggregate of $4.20 billion, including $3.82 billion in cash, the assumption of approximately $240 million in debt and the 33 35 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) issuance of 271,416 common shares valued at $14.7 million and 1,254 subsidiary preference shares valued at $125.4 million. The cash portions of the acquisitions were made utilizing cash on hand, borrowings under the bank credit agreements, proceeds of approximately $1.25 billion from the sale of common shares, as well as 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, approximately $3.62 billion in goodwill and other intangibles was recorded by the Company, which reflects the adjustments necessary to allocate the individual purchase prices to the fair value of assets acquired, liabilities assumed and additional purchase liabilities recorded. Additional purchase liabilities recorded during Fiscal 1998 include approximately $57.8 million for transaction and other direct costs, $151.0 million for severance and related costs and $278.9 million for costs associated with the shut down and consolidation of certain acquired facilities. At September 30, 1998, accrued liabilities for approximately $38.8 million in transaction and other costs, $121.9 million in severance costs and $264.7 million for facility related costs remained on the balance sheet. The Fiscal 1998 acquisitions discussed above include the acquisition of the Sherwood-Davis & Geck division ("Sherwood") of American Home Products Corporation, which was purchased for cash of $1.77 billion. As a result of this acquisition, approximately $1.44 billion in goodwill and other intangibles was recorded by the Company. Sherwood is a manufacturer of medical and surgical devices, such as catheters, needles and syringes, sutures, thermometers and other specialized disposable medical products, with annual revenues of approximately $1.0 billion. Sherwood is being integrated with Kendall within Tyco's Disposable and Specialty Products segment. 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 accompanying 1998 Consolidated Balance Sheet. 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, adjusted for certain increases in the value of Tyco's stock, as defined. 34 36 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following unaudited pro forma data summarize the results of operations for the periods indicated as if these acquisitions had been completed on January 1, 1997. The pro forma data give effect to actual operating results prior to the acquisitions and adjustments to interest expense, goodwill amortization and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions had occurred on January 1, 1997 or that may be obtained in the future. The pro forma data do not give effect to acquisitions completed subsequent to September 30, 1998.
TWELVE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ (IN MILLIONS, EXCEPT PER SHARE DATA) Net Sales.................................. $13,589.7 $9,285.6 Income (loss) before extraordinary items... 1,019.6 (863.2) Net income (loss).......................... 1,011.8 (923.0) Net income (loss) per common share: Basic................................. 1.78 (1.78) Diluted............................... 1.74 (1.78)
In addition to the mergers discussed in Note 2, in Fiscal 1997 the Company acquired companies in each of its business segments for an aggregate of $1.36 billion, including $1.34 billion in cash and the assumption of approximately $15.7 million in debt. The cash portions of the acquisitions were made utilizing cash on hand, funding from an equity offering of $645.2 million, as well as 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, approximately $531.7 million in goodwill and other intangibles, net of the write-off of purchased in-process research and development, was recorded by the Company, which reflects the adjustments necessary to allocate the individual purchase prices to the fair value of assets acquired, liabilities assumed and additional purchase liabilities recorded. At September 30, 1998, purchase liabilities for approximately $6.9 million in severance costs and $28.9 million for facility and other related costs remained on the balance sheet. In connection with the acquisition of AT&T's submarine systems business, the Company allocated $361.0 million of the purchase price to in-process research and development projects that had not reached technological feasibility and had no probable alternative future uses. The Company expects that the payout for employee severance and its consolidation of facilities related to these acquisitions will be substantially completed in Fiscal 1999, excluding certain leases for abandoned facilities. During 1996, the Company acquired companies in each of its business segments for an aggregate of $1.1 billion, including $822.6 million in cash, 3.5 million shares of the Company's common stock valued at $130.4 million and the assumption of approximately $155.0 million in debt. The cash acquisitions were made utilizing cash on hand, proceeds of approximately $300 million from the issuance of 6 1/2% public notes, as well as borrowings under the Company's uncommitted lines of credit. Each of the 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, approximately $859.2 million in goodwill was recorded by the Company, which reflects the adjustments necessary to allocate the individual purchase prices to the fair value of assets acquired, liabilities assumed and additional purchase liabilities recorded. At September 30, 1998, purchase liabilities for approximately $21.5 million in severance costs and facility related costs remained on the balance sheet. The Company expects to complete the payout for employee severance and its consolidation of facilities in Fiscal 1999, excluding certain leases for abandoned facilities. As a result of the sale of a business in 1995, the Company holds a subordinated, non-collateralized zero coupon loan note maturing in 2004 ("Vendor Note"), together with a 10% interest of the ordinary share 35 37 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) capital of the issuer. The Vendor Note has a $205.4 million aggregate principal amount at maturity with an issue price of $83.9 million, reflecting a yield to maturity of 10.0% per annum, and was originally valued by the Company at $74.6 million. As of September 30, 1998, the Vendor Note is included in Long-Term Investments on the accompanying Consolidated Balance Sheet and has been accounted for at its amortized cost of $111.1 million (which approximates fair value). The fair value of the Vendor Note was estimated based on the Company's calculation of an appropriate fair value interest rate discount. This discount rate was determined based on an evaluation of current UK market conditions (private placement rates, discussions with financial sources, etc.) and the continued risk margin associated with deep discount debentures. During 1996, the Company entered into a settlement agreement related to a 1990 acquisition and a lawsuit originated by the Company in 1991. After deducting legal and other settlement costs, the net gain arising on this settlement amounted to $69.7 million, of which $65.0 million was included in other income and $4.7 million was included in interest income in 1996. 4. INDEBTEDNESS Long-term debt is as follows:
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (IN MILLIONS) Bank and acceptance facilities.......................... $ 0.8 $ 56.4 Bank credit agreement(i)................................ 1,359.0 1,400.0 Uncommitted lines of credit(ii)......................... -- 38.5 Variable rate term loan due 1998(iii)................... -- 97.1 8.125% public notes due 1999(iv)........................ 10.5 10.5 8.25% senior notes due 2000(iv)......................... 9.5 9.5 6.34% senior notes due 2000............................. -- 45.0 6.5% public notes due 2001.............................. 299.0 298.7 6.125% public notes due 2001(v)......................... 747.0 -- Sterling denominated bank facility due 2002(vi)......... -- 137.5 9.25% senior subordinated notes due 2003(iv)............ 14.1 14.1 6.375% public notes due 2004............................ 104.6 104.5 6.375% public notes due 2005(v)......................... 742.6 -- Zero coupon Liquid Yield Option Notes due 2010(vii)..... 115.3 259.6 6.25% public Dealer Remarketable Securities ("Drs.") due 2013(v)............................................... 762.8 -- 9.5% public debentures due 2022(iv)..................... 49.0 49.0 8.0% public debentures due 2023......................... 50.0 50.0 7.0% public notes due 2028(v)........................... 492.1 -- Other................................................... 246.3 160.2 -------- -------- Total debt.............................................. 5,002.6 2,730.6 Less current portion.................................... 350.0 250.0 -------- -------- Long-term debt.......................................... $4,652.6 $2,480.6 ======== ========
- --------------- (i) In February 1998, Tyco US entered into a new $2.25 billion credit agreement with a group of commercial banks, giving it the right to borrow (a) up to $1.75 billion until February 12, 1999, with the option to extend to February 12, 2000, and (b) up to $0.5 billion until February 12, 2003. Interest payable on borrowings is variable based upon the borrower's option of selecting a Eurodollar rate plus 36 38 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) margins ranging from 0.17% to 0.19%, a certificate of deposit rate plus margins ranging from 0.295% to 0.315%, or a base rate, as defined. If the outstanding principal amount of loans equals or exceeds one-third of the commitments, the Eurodollar and certificate of deposit margins are increased by 0.10%. Repayments of amounts outstanding under this agreement are guaranteed by the Company. In accordance with the terms of this agreement, in June 1998 Tyco US and Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, elected that TIG become the borrower and that Tyco US cease to be the borrower under this agreement. All other terms and conditions in effect remained unchanged. Substantially all amounts outstanding under this credit agreement have been classified as long-term based on the Company's ability and intent to refinance this obligation on a long term basis. Simultaneously with the closing of the new credit agreement, Tyco US reduced aggregate commitments available under the previously existing credit agreement from $1.75 billion to $950 million. In March 1998, Tyco US terminated the $950 million credit agreement. Balances outstanding at the time of termination were repaid with net proceeds from the sale of common shares (Note 10). (ii) Uncommitted lines of credit are borrowings by Tyco US from commercial banks on an "as offered" basis. Borrowings and repayments occur daily and contain no specific terms other than due dates and interest rates. The due dates generally range from overnight to 90 days, and interest rates approximate those available under the TIG credit agreement. (iii) In May 1997, a Tyco subsidiary entered into a L60 million term loan with a bank to refinance certain intercompany loans with external debt. Interest payable on borrowings was variable based upon U.K. LIBOR plus 0.35%. In March 1998, the term loan was repaid and the facility was terminated. (iv) In July 1997, Tyco US tendered for its $145.0 million 8.125% public notes due 1999 and $200.0 million 9.5% public debentures due 2022, and ADT Operations, Inc. tendered for its $250.0 million 8.25% senior notes due 2000 and $294.1 million 9.25% senior subordinated notes due 2003. The percentage of debt tendered was 92.8% of the 8.125% notes, 75.5% of the 9.5% debentures, 96.2% of the 8.25% notes and 95.2% of the 9.25% notes. The two companies paid an aggregate amount, including accrued interest, of approximately $900.8 million to the note holders, of which $800.0 million was financed from the previously existing credit agreement discussed above. In connection with the tender, the Company recorded an after-tax charge of approximately $58.3 million, net of related income tax benefit of $33.0 million, primarily representing unamortized debt issuance fees and the premium paid, which was reported as an extraordinary loss (Note 13). The $250.0 million 8.25% senior notes due August 2000 were issued in August 1993, through a public offering, by ADT Operations, Inc. and are guaranteed on a senior basis by the Company and certain subsidiaries of ADT Operations, Inc. The senior notes are not redeemable prior to maturity. The $294.1 million 9.25% senior subordinated notes due August 2003 were issued in August 1993, through a public offering, by ADT Operations, Inc., and are guaranteed on a senior subordinated basis by the Company. The notes are redeemable in whole or in part, at the option of ADT Operations, Inc., at any time after August 1998 at the following redemption prices: during the twelve month period beginning (a) August 1998 at 103.75%, (b) August 1999 at 102.50%, (c) August 2000 at 101.25%, and thereafter at 100.00% of the principal amount. During 1996 the Company reacquired in the market $23.1 million face value of the senior subordinated notes at a purchase cost of $24.0 million, which was financed from cash on hand. The loss arising on reacquisition of $0.9 million, and related costs of $0.5 million, were included in extraordinary items (Note 13). In December 1998, ADT Operations, Inc. sent a notice of redemption to holders of these notes, calling the notes for redemption on December 31, 1998. In conjunction with the tenders described above, ADT Operations, Inc., through consent of the holders of the senior and senior subordinated notes, eliminated in the indentures pursuant to which such notes were issued (a) certain restrictive covenants and provisions and references to such restrictive covenants, 37 39 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (b) certain events of default to the extent relating to such restrictive covenants and (c) certain definitions to the extent relating to such restrictive covenants and events of default. (v) In June 1998, TIG issued $750 million 6 1/8% notes due 2001, $750 million 6 3/8% notes due 2005, $750 million 6 1/4% Dealer Remarketable Securities(SM) ("Drs.")(SM) due 2013 and $500 million 7.0% notes due 2028 under a $3.75 billion public shelf registration statement. 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 are fully and unconditionally guaranteed by Tyco (Note 24). The net proceeds of approximately $2.74 billion were ultimately used to repay borrowings under the $2.25 billion bank credit facility and uncommitted lines of credit of Tyco US. During Fiscal 1998, the effective interest rate on these instruments approximated the coupon rate. (vi) In March 1997, ADT Finance entered into a sterling denominated bank credit facility of which $137.5 million (L85 million) is a term loan facility and $8 million is a revolving credit facility. The term loan facility was fully drawn down and was used to repay in part the $26 million drawn down under another sterling denominated bank credit facility entered into in January 1997. The new facility has a term of five years and is guaranteed by the Company and certain of its subsidiaries. Interest is payable at LIBOR plus a margin. Amounts outstanding under the term loan facility were repaid as of September 30, 1998 and the facility was terminated. (vii) 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 net proceeds of the issue amounted to $287.4 million which was used to repay in full all amounts outstanding under ADT Operations Inc.'s previous bank credit agreement, which was subsequently canceled. 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 for Fiscal 1998 amounted to $11.0 million (Fiscal 1997 -- $15.9 million; 1996 -- $20.3 million). 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 27.176 common shares per LYON. During Fiscal 1998 and Fiscal 1997, respectively, 342,752 and 188,290 Notes with carrying values of $155.3 million and $83.0 million were exchanged for 9,314,599 and 5,116,923 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 this 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. The weighted-average rate of interest on all long-term debt during Fiscal 1998 was 6.5% (Fiscal 1997 -- 7.6%; 1996 -- 8.0%). The aggregate amounts of total debt maturing during the next five years are as follows (in millions): $350.0 in Fiscal 1999, $1,247.5 in Fiscal 2000, $1,092.9 in Fiscal 2001, $65.0 in Fiscal 2002 and $19.8 in Fiscal 2003. In June 1998, TIG entered into two interest rate swap agreements with a financial institution to hedge a portion of the fixed rate terms of its public notes. The agreements are for notional amounts of $650 million each and expire in June 2003 and June 2005, respectively. The Company receives payments at fixed rates of 38 40 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6.25% and 6.375%, respectively, and makes floating rate payments based on LIBOR, as defined, but not to exceed 7.0% and 7.125%, respectively. At September 30, 1998, the floating rates under these agreements were 5.58% and 5.55%, 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 $1.9 million, $0.8 million and $1.8 million for Fiscal 1998, Fiscal 1997 and 1996, respectively. Subsequent to September 30, 1998, TIG issued $800 million of debt in a private placement offering consisting of two series of Notes: $400 million of 5.875% Notes due November 2004 and $400 million of 6.125% Notes due November 2008. Interest on each series of Notes is payable on May 1 and November 1 of each year, beginning May 1, 1999. 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 $2.25 billion bank credit facility. In addition, TIG 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, as defined. 5. SALE OF ACCOUNTS RECEIVABLE The Company has an agreement under which one of its operating subsidiaries sells a defined pool of trade accounts receivable to a limited purpose subsidiary of the Company. The subsidiary, a separate corporate entity, owns all of its assets and sells participating interests in such accounts receivable to financiers who, in turn, purchase and receive ownership and security interests in those assets. As collections reduce accounts receivable included in the pool, the operating subsidiary sells new receivables. 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 on the Company's Consolidated Balance Sheets. At September 30, 1998 and 1997, the $300 million available under the program was fully utilized. The proceeds from the sales were used to reduce borrowings under uncommitted lines of credit and are reported as operating cash flows in the Company's 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 purchaser's financing costs of issuing its own commercial paper backed by these accounts receivable. The discount from the face amount is accounted for as a loss on the sale of receivables of $17.3 million, $10.4 million, and $12.1 million during Fiscal 1998, Fiscal 1997 and 1996, respectively, and has been included in selling, general and administrative expenses in the Company's Consolidated Statements of Operations. The operating subsidiary, as servicing agent for the purchaser, retains collection and administrative responsibilities for the participating interests in the defined pool. 6. FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash in banks, temporary investments, accounts receivable and debt. The Company also has currency options (notional amount of $153.6 million), as well as interest rate swaps. At September 30, 1998 and at September 30, 1997, the fair value of interest rate swaps approximated book value, and the fair value of long-term debt was approximately $5,044.7 million (book value of $4,652.6 million) and $2,482.6 million (book value of $2,480.6 million), respectively, based on current interest rates. The fair value of financial instruments included in working capital approximated book value. None of the Company's financial instruments represent a concentration of credit risk 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 off-balance sheet financial instruments would result in a significant loss to the Company if a counterparty failed to perform according to the terms of its agreement. 39 41 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The provision (benefit) for income taxes and the reconciliation between the notional United States federal income taxes at the statutory rate on consolidated income (loss) before taxes and the Company's income tax provision are as follows:
NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, ------------- ------------- ------------ 1998 1997 1996 ---- ---- ---- (IN MILLIONS) Notional U.S. federal income taxes at the statutory rate............................. $ 601.4 $(206.4) $(21.5) Adjustments to reconcile to the Company's income tax provision: U.S. state income tax provision, net....... 23.9 16.2 22.4 SFAS 121 impairment........................ -- 49.6 150.2 Non U.S. net (earnings) losses............. (71.1) 121.4 75.5 Provision for unrepatriated earnings of subsidiaries............................ -- 64.1 -- Nondeductible restructuring charges........ -- 112.9 -- Other...................................... (12.9) 29.2 8.9 ------- ------- ------ Provision for income taxes................. 541.3 187.0 235.5 Deferred provision (benefit)............... 152.1 (257.4) 38.6 ------- ------- ------ Current provision.......................... $ 389.2 $ 444.4 $196.9 ======= ======= ======
The provisions for Fiscal 1998, Fiscal 1997, and 1996 included $154.8 million, $101.1 million and $45.3 million, respectively, for non-U.S. income taxes. The non-U.S. component of income (loss) before income taxes was $627.8 million, $(183.9) million and $(117.7) million for Fiscal 1998, Fiscal 1997, and 1996, respectively. 40 42 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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:
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (IN MILLIONS) Deferred tax assets: Accrued liabilities and reserves........................ $ 773.6 $ 603.4 Accrued postretirement benefit obligation............... 65.5 59.5 Tax loss carryforwards.................................. 239.8 284.7 Interest................................................ 78.9 92.7 Other................................................... 16.5 5.1 -------- -------- 1,174.3 1,045.4 -------- -------- Deferred tax liabilities: Property, plant and equipment........................... (371.6) (433.4) Contracts............................................... (6.4) (6.1) Accrued liabilities and reserves........................ (7.1) (17.0) Other................................................... (32.4) (14.7) -------- -------- (417.5) (471.2) -------- -------- Net deferred income tax asset before valuation allowance............................................ 756.8 574.2 Valuation allowance..................................... (115.4) (115.4) -------- -------- Net deferred income tax asset........................... $ 641.4 $ 458.8 ======== ========
As of September 30, 1998, the Company had approximately $185 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, $166 million have no expiration, and the remaining $19 million will expire in future years to 2004. U.S. operating loss carryforwards at September 30, 1998 were approximately $600 million and will expire in future years to 2018. A valuation allowance has been provided for operating loss carryforwards that are not expected to be utilized. 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 1998, the maximum amount outstanding was $143.5 million. Loans receivable under this program were $22.2 million and $12.3 million at September 30, 1998 and September 30, 1997, respectively. 9. CONVERTIBLE REDEEMABLE PREFERENCE SHARES The Company has authorized 125,000,000 convertible cumulative redeemable preference shares of $1 each, of which none was outstanding at September 30, 1998 or September 30, 1997. Of the 125,000,000 convertible cumulative redeemable preference shares authorized, 7,500,000 have been classified as Series A First Preference Shares and are reserved for issuance pursuant to the Shareholder Rights Plan described below. Rights as to dividends, return of capital, redemption, conversion, voting and otherwise of the remaining 117,500,000 convertible cumulative redeemable preference shares of $1 each, none of which are issued and outstanding, may be determined by the Company on or before the time of allotment. 41 43 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In November 1996, the Board of Directors of ADT adopted a Shareholder Rights Plan, which was amended in March 1997 and July 1997 (the "Plan"). Under the Plan, each common shareholder has received a distribution of rights for each common share held. After giving effect to the exchange ratio related to the merger between ADT and Former Tyco and the two-for-one stock split distributed on October 22, 1997, the number of Rights associated with each common share is 1.03879. Each right entitles the holder to purchase from the Company shares of a new series of first preference shares at an initial purchase price of $90 per one-hundredth of a first preference share. The rights will become exercisable and will detach from the common shares a specified period of time after any person becomes the beneficial owner of 15% or more of the Company's common shares, or commences a tender or exchange offer which, if consummated, would result in any person becoming the beneficial owner of 15% or more of the Company's common shares. Once exerciseable each right will entitle the holder, other than the acquiring person, to purchase, for the rights purchase price, common shares having a market value of twice the rights purchase price. If, following an acquisition of 15% or more of the Company's common shares, the Company is involved in any mergers or other business combinations or sells or transfers more than 50% of its assets or earnings power, each right will entitle the holder to purchase, for the rights purchase price, common shares of the other party to such transaction, having a market value of twice the rights purchase price. The merger between ADT and Former Tyco (see Note 2) was specifically excluded from these provisions by an amendment to the Plan in July 1997. The Company may redeem the rights at a price of $0.01 per right at any time prior to the specified period of time after a person has become the beneficial owner of 15% or more of the Company's common shares. The rights will expire in November 2005 unless exercised or redeemed earlier. In the event of liquidation of the Company, the holders of all of the Company's convertible redeemable preference shares are together entitled to payment to them of the amount for which the preference shares were subscribed and any unpaid dividend, prior to any payment to the common shareholders. 10. SHAREHOLDERS' EQUITY During the second quarter of Fiscal 1998, the 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 shares of common stock, or any combination of the foregoing, at an aggregate initial offering price not to exceed $2.0 billion. In March 1998, the Company sold 25.3 million common shares at $50.75 per share. The net proceeds from the sale of approximately $1.25 billion were used to repay indebtedness incurred for previous acquisitions. 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. Per share amounts and share data have been retroactively adjusted to reflect the stock split. In March and April 1997, Former Tyco sold an aggregate of 23 million shares of common stock at $28.88 per share. The net proceeds from the sale of $645.2 million were used to repay indebtedness incurred for previous acquisitions. Prior to the merger of ADT with the Former Tyco, the shareholders of ADT approved the consolidating of $0.10 par value common shares into new $0.20 par value common shares and an increase in the number of authorized common shares to 750 million. Per share amounts and per share data have been retroactively adjusted to reflect the consolidation into new par value shares. Information with respect to ADT common shares and options has been retroactively restated in connection with the merger on July 2, 1997 to reflect the reverse stock split in the ratio of 0.48133 share of ADT for each share or option outstanding and the issuance 42 44 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of one share for each share of the Former Tyco outstanding (see Note 2). Information with respect to Keystone and INBRAND common shares and options have been retroactively restated in connection with their mergers with Tyco to reflect their applicable merger exchange ratios of 0.48726 and 0.43, respectively. Restricted Stock -- The Former Tyco's 1978 Restricted Stock Ownership Plan (the "1978 Plan") provided for the award of 9.6 million shares of common stock to key employees through November 30, 1988. Under the 1978 Plan, approximately 9.5 million shares were granted, net of surrenders. The 1983 Restricted Stock Ownership Plan (the "1983 Plan") provided for the award of 13.6 million shares of common stock to key employees through October 18, 1993. Under the 1983 Plan, approximately 13.5 million shares were awarded, net of surrenders. The Former Tyco's 1994 Restricted Stock Ownership Plan (the "1994 Plan"), which was assumed by the Company, provides for the award of an initial amount of shares of common stock 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, 1998, there were 8,540,055 shares available, of which 3,475,624 shares had been granted. Common shares are awarded subject to certain restrictions with vesting varying over periods of up to ten years. 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 the performance criteria are measured. 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. The total compensation cost expensed for all stock-based compensation awards was $45.1 million, $48.5 million and $15.8 million for Fiscal 1998, Fiscal 1997 and 1996, respectively, including $29.6 million in Fiscal 1997 related to accelerated vesting in connection with changes in control provisions. 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 part 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. Stock Options -- The Company has granted employee share options which were issued under five fixed share option plans and schemes 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 (formerly known as the ADT 1993 Long-Term Incentive Plan -- the "Incentive Plan"). The Incentive Plan was originally approved by shareholders of ADT in October 1993 and certain subsequent amendments to the Incentive Plan were approved by shareholders of ADT in April 1996 and July 1997. The Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company, which consists exclusively of independent non-executive directors of the Company. Options are generally granted to purchase the Company common shares at prices which equate to the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Certain options have been granted in prior years in which participants were required to pay a subscription price as a condition of vesting. Options which have been granted under the Incentive Plan to date have generally vested and become exercisable in installments over a three year period from the date of grant and have a maximum term of ten years. The Company has reserved 44.0 million common shares for issuance under the Incentive Plan. Awards which the Company becomes obligated to make through the assumption of, or in substitution 43 45 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for, outstanding awards previously granted by an acquired company do not count against the shareholder approved shares available for award under the Incentive Plan. At September 30, 1998 there were 4,557,648 shares available for future grant under the Incentive Plan. Subsequent to year end, 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 on October 21, 1998. The Company has reserved 25.0 million common shares for issuance under the LTIP II. The terms and conditions of this plan are similar to the Incentive Plan. In connection with the acquisition of Holmes Protection in Fiscal 1998, options outstanding under the Holmes' stock option plans were assumed by Tyco's Incentive Plan. In connection with the mergers occurring in Fiscal 1997 (see Note 2), all of the options outstanding under the Former Tyco, Keystone and INBRAND stock option plans were assumed by Tyco's 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. During 1995, the Former Tyco established a stock option plan under which certain employees, excluding officers and directors, have been granted options to purchase common stock at a price equal to fair market value on the date of grant. The options vest on a pro-rata basis over five years, with 50% becoming exercisable at the end of the third year and the remaining exercisable at the end of the fifth year. Grants are for periods generally not in excess of ten years. Keystone granted share options under its incentive stock option plans for the benefit of its key employees and directors. Stock options were generally issued at exercise prices which are not less than the fair market value at the date of grant. The options vest after one to five years and expire after five to ten years from the date of grant. During 1993, INBRAND adopted The INBRAND Corporation Stock Incentive Plan ("the INBRAND Incentive Plan"). Awards under the INBRAND Incentive Plan were in the form of qualified and non-qualified stock options and/or stock appreciation rights (SAR's). Grants under the INBRAND Incentive Plan could be made to any employee of INBRAND, any Director of the company, or any other person to whom the Compensation Committee determines that making such a grant is in the best interests of the company. The INBRAND Incentive Plan provides for a performance-based stock option format which governs the vesting of option awards. The INBRAND Incentive Plan provided that the exercise price shall not be less than the fair market value of the common stock as of the determination or grant date. Each option granted is exercisable only during the term fixed by the Compensation Committee, with such term ending from five to ten years after the grant date. If an option holder is still employed by the company thirty days prior to the option's expiration date, the options will fully vest. The INBRAND Incentive Plan contains provisions that restrict the transferability of grants and limit their exercise in the event of termination of employment or the disability or death of the grantee. 44 46 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Share option activity for all plans since January 1, 1996 has been as follows:
WEIGHTED AVERAGE EXERCISE OUTSTANDING PRICE ----------- -------- At January 1, 1996.......................................... 20,173,777 $12.91 Effect of Former Tyco's excluded activity................. 39,500 Assumed from acquisitions................................. 1,090,212 16.27 Granted................................................... 7,896,075 17.14 Exercised................................................. (2,765,668) 10.57 Canceled.................................................. (832,694) 16.65 ----------- At December 31, 1996........................................ 25,601,202 14.49 Adjustment for INBRAND merger (Note 1).................... 1,270,954 17.25 Granted................................................... 8,524,470 36.31 Exercised................................................. (2,111,636) 11.01 Canceled.................................................. (725,492) 18.64 ----------- At September 30, 1997....................................... 32,559,498 20.22 Assumed from acquisitions................................. 43,616 20.45 Granted................................................... 8,787,293 53.34 Exercised................................................. (17,477,625) 17.53 Canceled.................................................. (854,620) 24.86 ----------- At September 30, 1998....................................... 23,058,162 35.20 ===========
The following table summarizes information about outstanding and exercisable options at September 30, 1998:
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 $ 4.95 57,775 $ 4.26 4.9 57,775 $ 4.26 4.96 to 9.97 477,900 9.01 4.7 477,900 9.01 9.98 to 14.88 5,094,823 12.90 6.1 3,093,751 12.73 14.89 to 19.69 1,209,611 17.66 5.5 386,224 17.80 19.70 to 24.82 646,908 21.76 6.1 202,401 21.62 24.83 to 29.75 1,879,302 27.87 5.7 841,212 27.09 29.76 to 39.38 6,863,489 38.38 5.9 671,057 37.78 39.39 to 46.96 2,086,447 41.42 7.3 203,756 40.90 46.97 to 56.24 1,177,374 54.48 4.6 21,574 52.92 56.25 to 68.22 3,564,533 67.24 9.9 2,554,533 68.18 ---------- --------- Total 23,058,162 8,510,183 ========== =========
Stock-Based Compensation -- During 1996, the Company was required to adopt SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies to measure 45 47 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) compensation cost in connection with executive share option plans and schemes 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 has decided to continue to use the intrinsic value based method and no compensation cost has been recorded. Had the fair value based method been adopted consistent with the provisions of SFAS 123, the Company's proforma net income (loss) and proforma net income (loss) per common share for Fiscal 1998, Fiscal 1997 and 1996 would have been as follows:
1998 1997 1996 ---- ---- ---- Net income (loss) -- proforma (in millions)........... $1,133.4 $(854.0) $(335.0) Net income (loss) per common share -- proforma Basic............................................... 1.99 (1.64) (.70) Diluted............................................. 1.94 (1.64) (.70)
The estimated weighted average fair value of Tyco options granted during Fiscal 1998 was $16.48 on the date of grant using the option-pricing model and assumptions referred to below. The estimated weighted average fair value of Tyco, Former Tyco and INBRAND options granted during Fiscal 1997 was $12.15, $9.55 and $37.17, respectively, on the date of grant using the option-pricing model and assumptions referred to below. There were no stock option grants for Keystone in Fiscal 1997. 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 1998: Expected stock price volatility............................. 22% Risk free interest rate..................................... 5.62% Expected annual dividends................................... $0.10 Expected life of options.................................... 5 years
The following weighted average assumptions were used for Fiscal 1997:
TYCO FORMER TYCO INBRAND ---- ----------- ------- Expected stock price volatility.................... 22% 22% 55% Risk free interest rate............................ 6.07% 6.34% 6.26% Expected annual dividends.......................... $0.10 $0.10 -- Expected life of options........................... 5 years 5 years 6.4 years
The following weighted average assumptions were used for 1996:
ADT FORMER TYCO KEYSTONE --- ----------- -------- Expected stock price volatility................ 28% 22% 26% Risk free interest rate........................ 5.9% 5.8% 6.4% Expected annual dividends...................... -- $0.10 per share 3.8% Expected life of options....................... 3.7 years 3.7 years 7 years
The effects of applying SFAS 123 in this proforma disclosure are not indicative of future amounts. SFAS 123 does not apply to awards prior to 1995 and additional awards in future years are anticipated. Stock Warrants -- The Company has outstanding warrants to purchase common stock at per share exercise prices of $2.99 (the "A Warrants") and $3.98 (the "B Warrants"), respectively (together, the "Warrants"). The Warrants expire on July 7, 1999. During Fiscal 1998, 31,397 A Warrants and 14,539 B Warrants were exercised. During Fiscal 1997, 36,532 A Warrants and 25,000 B Warrants were exercised. During 1996, 30,240 A Warrants and 25,120 B Warrants were exercised. At September 30, 1998, 91,212 A Warrants and 66,566 B Warrants were outstanding. 46 48 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July 1996, as part of an agreement to combine with Republic Industries, Inc. ("Republic"), ADT granted to Republic a warrant (the "Warrant") to acquire 14,439,900 common shares of the Company at an exercise price of $20.78 per common share. Following termination of the agreement to combine with Republic, the Warrant vested and was exercisable by Republic in the six month period commencing September 27, 1996. In March 1997, the Warrant was exercised by Republic and the Company received $300 million in cash. Treasury Shares -- From time to time the Company, through its subsidiaries, purchases shares in the open market to satisfy certain stock-based compensation arrangements. During Fiscal 1998, certain executives sold approximately 2.6 million common shares to the Company at the shares' then fair market value. Dividends -- The Company has paid a quarterly cash dividend of $0.025 per common share since July 1997. Prior to the merger with ADT, Former Tyco paid a quarterly cash dividend of $0.025 in Fiscal 1997 and 1996. ADT paid no dividends on its common shares in Fiscal 1997 or 1996. Keystone paid quarterly dividends of $0.19 per share in Fiscal 1997 and 1996. 11. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS Charges for the impairment of long-lived assets are as follows:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Fire and Security Services......................... $-- $118.8 $731.7 Flow Control Products.............................. -- 29.6 -- Disposable and Specialty Products.................. -- -- 13.0 --- ------ ------ $-- $148.4 $744.7 === ====== ======
Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires the recoverability of the carrying value of long-lived assets, primarily property, plant and equipment and related goodwill and other intangible assets, to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Under SFAS 121 impairment losses are recognized when expected future 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 are adjusted if the sum of expected future cash flows is less than book value. 1997 Charges The Company recorded charges of $148.4 million for the impairment of long-lived assets in Fiscal 1997. The Fire and Security Services group recorded a charge of $118.8 million. This includes $98.8 million related to subscriber security systems installed at customers' premises in the United States and Canada, determined following a review of the carrying value of the assets. It also includes an impairment in the carrying value of goodwill of $20.0 million resulting from the combination of ADT's electronic security business with that of Former Tyco. The Flow Control Products group recorded a charge of $29.6 million reflecting an impairment in the carrying value of goodwill resulting from the combination of Keystone's valve manufacturing and distribution business with that of Former Tyco. 47 49 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1996 Charges Following the adoption of SFAS 121, in particular the change in methodology requiring the Company to evaluate assets at the lowest level of asset grouping, rather than on an aggregate basis, the Company recorded a charge of $731.7 million in the Fire and Security Services segment relating to the electronic security services business of ADT. The assets principally comprise subscriber systems installed at customers' premises, which are included in property, plant and equipment, and the related goodwill and other intangible assets. Of this charge, $397.1 million related to an impairment in the carrying value of subscriber systems, principally in the commercial sector, including the related goodwill, which principally arose on the acquisition of ADT Security Services in 1987. Since 1989, the Company's electronic security services operations in the residential sector have developed at a very rapid rate based principally on internally generated growth. As a consequence, the Company's operations in the commercial sector, which were acquired principally in 1987, have now been complemented by a significant residential electronic security services operation and operations have been reorganized along separate commercial and residential business lines, rather than on an aggregate geographic basis. When the financial projections and estimated cash flows of the commercial sector were analyzed separately, they indicated that the carrying value of the related assets may not be fully recoverable. The impairment charge amounted to $303.4 million in the United States, $56.7 million in Canada and $37.0 million in Europe. The remaining $334.6 million impairment charge relates to the electronic security services of the ASH Group, which principally arose on the acquisition of certain of the businesses of Modern Security Systems in 1989 and 1990, API Security in 1989 and the Sonitrol Group in 1992. After a review of the carrying value of subscriber systems and related goodwill and other intangibles in connection with a reorganization of both the commercial and residential business sectors to address, in part, changes in the electronic security services business environment and performance similar to those being addressed by the ADT group, an impairment charge in the carrying values of the assets was recorded. In addition, the aggregate fair value of ADT common shares issued to ASH shareholders was significantly less than ASH's consolidated net asset value. It was for all of these reasons that the Company reviewed the assets for impairment upon adoption of SFAS 121. The impairment charge amounted to $211.2 million in the United Kingdom and $123.4 million in the United States. An impairment charge of $13.0 million was recorded in the Company's vehicle auction business, included in the Disposable and Specialty Products segment, relating to an impairment in the carrying value of property and related improvements, including related goodwill, which principally arose on the acquisition of ADT Automotive in 1987. 12. OTHER INCOME LESS EXPENSES Other income less expenses in 1996 consists of a litigation settlement gain of $65.0 million (See Note 3) and gains on long-term investments of $54.4 million. During 1996 gains arising from the ownership of long-term investments comprised a net gain of $53.4 million relating to the disposal in November 1996 of ADT's entire investment in Limelight Group plc, a United Kingdom quoted company, which was previously valued and accounted for by ADT at a nominal amount, a net gain of $1.2 million relating to the disposal of ADT's equity investment in Integrated Transport Systems Limited (Note 3) and other net losses of $0.2 million principally arising from the disposal of other non-core investments. 13. EXTRAORDINARY ITEMS The extraordinary item during Fiscal 1998 of $3.6 million was the write off of unamortized deferred financing costs related to the LYONS (Note 4) and was stated net of applicable income tax benefit of $1.2 million. During Fiscal 1997 and 1996 the Company reacquired in the market certain of its long-term debt 48 50 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) which was financed from cash on hand and new credit agreements. Extraordinary items during Fiscal 1997 and 1996 included the loss arising on reacquisition of these notes of $79.7 million and $5.1 million, respectively, and the write off of unamortized deferred refinancing costs and other related fees of $11.6 million and $4.0 million, respectively, and were stated net of applicable income tax benefit of $33.0 million and $0.7 million, respectively. 14. EARNINGS (LOSS) PER COMMON SHARE During the first quarter of Fiscal 1998, the Company was required to adopt SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share and is substantially similar to the standards recently issued by the International Accounting Standards Committee entitled "International Accounting Standards Earnings Per Share". Prior period earnings per common share data have been restated in accordance with the provisions of this statement. The reconciliations between basic and diluted earnings (loss) per common share are as follows:
YEAR ENDED NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 DECEMBER 31, 1996 ----------------------------- ---------------------------- ---------------------------- PER SHARE INCOME PER SHARE INCOME PER SHARE INCOME SHARES AMOUNT (LOSS) SHARES AMOUNT (LOSS) SHARES AMOUNT ------ ------ --------- ------ ------ --------- ------ ------ --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Basic income (loss) per common share: Net income (loss) available to common shareholders............. $1,174.7 568.6 $2.07 $(835.1) 519.5 $(1.61) $(305.4) 475.6 $(.64) Stock options and warrants........ -- 8.0 -- -- -- -- Exchange of LYONs debt............ 7.2 10.2 -- -- -- -- -------- ----- ------- ----- ------- ----- Diluted income (loss) per common share: Net income (loss) available to common shareholders plus assumed conversions..................... $1,181.9 586.8 $2.01 $(835.1) 519.5 $(1.61) $(305.4) 475.6 $(.64) ======== ===== ======= ===== ======= =====
The computation of diluted income per common share in Fiscal 1998 excludes the effect of the assumed exercise of approximately 3.6 million stock options that were outstanding as of September 30, 1998 because the effect would be anti-dilutive. The effect on diluted loss per common share in Fiscal 1997 and 1996 resulting from the assumed exercise of all outstanding stock options and warrants and the exchange of outstanding LYONS is anti-dilutive. 15. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES Merger, restructuring and other non-recurring charges are as follows:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Fire and Security Services............................... $ -- $530.3 $246.1 Flow Control Products.................................... -- 256.2 -- Disposable and Specialty Products........................ -- 131.3 -- ------ ------ ------ $ -- $917.8 $246.1 ====== ====== ======
1997 Charges In connection with the mergers consummated in Fiscal 1997 (Note 2), the Company recorded merger, restructuring and other non-recurring charges of $917.8 million. Transaction costs of $239.8 million to effect 49 51 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the mergers relate to legal, accounting, financial advisory services, severance and other costs payable at the effective time of the mergers as well as other direct expenses. These were expensed as is required under the pooling of interests accounting method. Also incurred were costs required to combine ADT's electronic security business, Keystone's valve manufacturing and distribution business and INBRAND's disposable medical products business with the related businesses of Former Tyco. These costs include the cost of workforce reductions of $130.3 million including the elimination of approximately 4,000 positions, the combination of certain facilities of $194.2 million involving the closure of 18 manufacturing facilities and the consolidation of sales and service offices, electronic security system monitoring centers, warehouses and other locations, disposing of excess equipment and other assets of $133.5 million and other costs of $220.0 million relating to the consolidation of certain product lines, the satisfaction of certain liabilities and other non-recurring charges. Approximately $137.6 million of accrued merger and restructuring costs are included in other current liabilities and $49.4 million in other noncurrent liabilities at September 30, 1998. The Company currently anticipates that the restructurings will be completed during Fiscal 1999, except for certain long-term contractual obligations. 1996 Charges During 1996, a charge was recorded which was principally attributable to planned technological infrastructure enhancements to facilitate further consolidation of ADT's entire United States and Canadian monitoring center networks together with all related operations. The charge amounted to $139.5 million and included the write-off of certain property, plant and equipment of $83.9 million, provision for idle property leases of $20.7 million, the termination of certain contractual obligations and other settlement costs of $9.4 million and other integration and restructuring costs of $25.5 million. Also in 1996, ADT commenced a strategic and detailed review of the electronic security services businesses acquired as part of the acquisition of ASH in September 1996. This review was intended to integrate fully the ASH group into ADT's existing electronic security service businesses in the United Kingdom and the United States. A restructuring charge of $97.8 million was recorded which included the write-off of certain property, plant and equipment of $13.2 million, provision for idle property leases of $22.5 million, the termination of certain contractual obligations and other settlement costs of $35.2 million and other integration and restructuring costs of $26.9 million. Approximately $17.6 million of costs related to these charges are included in other current and noncurrent liabilities at September 30, 1998. These restructurings are substantially complete. The fees and expenses related to the ASH merger were expensed as required under the pooling of interests accounting method. Such fees and expenses amounted to $8.8 million in 1996. 16. COMMITMENTS AND CONTINGENCIES The Company occupies certain facilities under leases that expire at various dates through the year 2021. Rental expense under these leases and leases for equipment was $202.6 million, $153.5 million and $178.8 million for Fiscal 1998, Fiscal 1997, and 1996, respectively. At September 30, 1998, the minimum lease payment obligations under noncancelable operating leases were as follows: $147.6 million in Fiscal 1999, $121.6 million in Fiscal 2000, $78.7 million in Fiscal 2001, $62.8 million in Fiscal 2002, $46.7 million in Fiscal 2003 and an aggregate of $222.3 million in Fiscal years 2004 through 2021. 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 50 52 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 the foregoing environmental 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 $16.5 million to $44.6 million. At September 30, 1998, the Company has concluded that the most probable amount that will be incurred within this range is $21.0 million, and such amount is included in the caption "accrued expenses and other current liabilities" in the accompanying 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 apportioned 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 environmental matters of $21.0 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. 17. 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. The net periodic pension (benefit) cost for all defined benefit pension plans includes the following components:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Service cost............................................ $ 31.3 $ 21.4 $ 23.4 Interest cost........................................... 64.7 46.1 53.6 Actual return........................................... (47.7) (141.8) (68.4) Net amortization and deferral........................... (34.7) 83.9 4.4 Curtailment gain........................................ (28.4) -- -- ------ ------- ------ Net periodic pension (income) expense................... $(14.8) $ 9.6 $ 13.0 ====== ======= ======
51 53 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accrued (prepaid) pension cost at September 30, 1998 for all defined benefit plans is as follows:
ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS TOTAL ------------- ------------- ----- (IN MILLIONS) Actuarial present value of accumulated benefit obligations: Vested....................................... $717.3 $229.0 $ 946.3 Non-vested................................... 11.5 15.9 27.4 ------ ------ -------- Total.......................................... 728.8 244.9 973.7 Effect of future salary increases.............. 22.0 11.2 33.2 ------ ------ -------- Projected benefit obligations.................. 750.8 256.1 1,006.9 Plan assets at fair value...................... 801.7 145.3 947.0 ------ ------ -------- Plan assets (in excess of) less than projected benefit obligations.......................... (50.9) 110.8 59.9 Unrecognized transition asset (liability)...... 11.4 (0.1) 11.3 Unrecognized prior service cost................ (1.6) (16.6) (18.2) Additional minimum liability................... -- 35.8 35.8 Unrecognized net loss.......................... (36.2) (25.3) (61.5) ------ ------ -------- Accrued (prepaid) pension cost................. $(77.3) $104.6 $ 27.3 ====== ====== ========
Accrued (prepaid) pension cost at September 30, 1997 for defined benefit plans is as follows:
ASSETS ACCUMULATED EXCEED BENEFITS ACCUMULATED EXCEED BENEFITS ASSETS TOTAL ----------- ----------- ----- (IN MILLIONS) Actuarial present value of accumulated benefit obligations: Vested........................................... $682.0 $127.6 $809.6 Non-vested....................................... 12.1 14.1 26.2 ------ ------ ------ Total.............................................. 694.1 141.7 835.8 Effect of future salary increases and other........ 61.1 8.2 69.3 ------ ------ ------ Projected benefit obligations...................... 755.2 149.9 905.1 Plan assets at fair value.......................... 863.2 62.7 925.9 ------ ------ ------ Plan assets (in excess of) less than projected benefit obligations.............................. (108.0) 87.2 (20.8) Unrecognized transition asset (liability).......... 12.3 (0.8) 11.5 Unrecognized prior service cost.................... (4.4) (13.7) (18.1) Additional minimum liability....................... -- 11.0 11.0 Unrecognized net gain.............................. 51.7 1.7 53.4 ------ ------ ------ Accrued (prepaid) pension cost..................... $(48.4) $ 85.4 $ 37.0 ====== ====== ======
Pursuant to the provisions of SFAS 87, "Employers' Accounting for Pensions," the Company recorded, in other liabilities, an additional minimum pension liability adjustment of $35.8 million and $11.0 million as of September 30, 1998 and September 30, 1997, respectively, representing the amount by which the accumulated benefit obligation exceeded the fair value of plan assets plus accrued amounts previously recorded. The additional liability has been offset by an intangible asset, included in goodwill and other intangible assets, to 52 54 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the extent of previously unrecognized prior service cost. The amount in excess of previously unrecognized prior service cost is recorded, net of the related deferred tax benefit, as a reduction of shareholders' equity in the amount of $13.8 million at September 30, 1998 and $1.9 million at September 30, 1997, respectively. During Fiscal 1998, the Company recorded a gain of $28.4 million related to the curtailment of a subsidiary's defined benefit pension plan. In Fiscal 1998, Fiscal 1997, and 1996, the Company terminated certain defined benefit pension plans and distributed the plans' assets to the participants. Gains and losses in Fiscal 1997 and 1996 resulting from terminations were not material. In addition, the Company recognized liabilities for certain plans related to business acquisitions in each of the years presented, the amounts of which were not material. Of the total plan obligations in Fiscal 1998, 54% relate to U.S. plans and 46% relate to non-U.S. plans (in Fiscal 1997, 53% and 47%, respectively). The average discount rate used in determining the actuarial present value of the projected benefit obligation, weighted in relation to plan obligations, was 6.5% at September 30, 1998 (7.5 % at September 30, 1997). The average rate of increase in future compensation levels was 4.0% at September 30, 1998 (4.8% at September 30, 1997). The weighted average long-term rate of return on assets was 9.3% at September 30, 1998 (9.6% at September 30, 1997). Plan assets are invested principally in equity and fixed income instruments. The Former Tyco also participates in a number of multi-employer defined benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was $1.7 million, $1.5 million, and $2.0 million for Fiscal 1998, Fiscal 1997, and 1996, 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 stock bonus retirement plans. Pension expense for the defined contribution plans is computed as a percentage of participants' compensation and was $36.2 million, $28.0 million and $31.2 million for Fiscal 1998, Fiscal 1997, and 1996, 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 $3.7 million, $2.2 million and $1.7 million in Fiscal 1998, Fiscal 1997 and 1996, respectively. Post-retirement Benefit Plans -- The Company generally does not provide post-retirement 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 post-retirement plan which covers both salaried and non-salaried employees and which provides medical and other benefits. This post-retirement 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. Net periodic post-retirement benefit cost reflects the following components:
1998 1997 1996 ---- ---- ---- (IN MILLIONS) Service cost................................................ $ 1.1 $ 0.6 $ 0.9 Interest cost............................................... 7.5 5.5 6.8 Net amortization and deferral............................... (4.7) (3.6) (4.2) Curtailment gain............................................ (8.8) -- -- ----- ----- ----- Net periodic post-retirement benefit (income) cost.......... $(4.9) $ 2.5 $ 3.5 ===== ===== =====
53 55 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the accrued post-retirement benefit obligation, all of which are unfunded, are as follows:
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (IN MILLIONS) Accumulated post-retirement benefit obligation: Retirees.............................................. $ 77.8 $ 73.6 Fully eligible active plan participants............... 23.4 18.7 Other active plan participants........................ 8.0 8.3 ------ ------ 109.2 100.6 Unrecognized prior service benefit...................... 21.0 30.1 Unrecognized net gain................................... 14.2 17.6 ------ ------ Accrued post-retirement benefit cost.................... $144.4 $148.3 ====== ======
For measurement purposes, in Fiscal 1998, a 9.1% 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 4.5% 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. To illustrate, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated post-retirement benefit obligation as of September 30, 1998 by $4.2 million and the aggregate of the service and interest cost component of net periodic post-retirement benefit cost for the year then ended by $0.3 million. The weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 6.75% at September 30, 1998 (7.5% at September 30, 1997). 18. CONSOLIDATED SEGMENT DATA Selected information by industry segment is presented below.
AS AT AND AS AT AND FOR THE NINE AS AT AND FOR THE YEAR MONTHS FOR THE YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1996 ------------- ------------- ------------ (IN MILLIONS) Net sales: Disposable and Specialty Products.......... $ 3,446.5 $ 2,000.3 $2,001.0 Fire and Security Services................. 4,742.2 3,149.1 3,694.9 Flow Control Products...................... 2,341.8 1,684.1 1,928.8 Electrical and Electronic Components....... 1,780.8 754.7 479.0 --------- --------- -------- $12,311.3 $ 7,588.2 $8,103.7 ========= ========= ======== Operating income (loss): Disposable and Specialty Products.......... $ 643.7 $ 197.4(1) $ 358.9(5) Fire and Security Services................. 654.9 (312.4)(2) (621.3)(6) Flow Control Products...................... 325.9 (92.1)(3) 198.0 Electrical and Electronic Components....... 367.5 (224.6)(4) 89.0 Corporate and other expenses............... (68.3) (44.8) (43.4) --------- --------- -------- $ 1,923.7 $ (476.5) $ (18.8) ========= ========= ========
54 56 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AS AT AND AS AT AND FOR THE NINE AS AT AND FOR THE YEAR MONTHS FOR THE YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1996 ------------- ------------- ------------ (IN MILLIONS) Total Assets: Disposable and Specialty Products.......... $ 5,060.8 $ 2,270.8 $1,961.3 Fire and Security Services................. 6,822.1 4,338.2 4,343.1 Flow Control Products...................... 2,576.2 1,865.9 1,758.8 Electrical and Electronic Components....... 1,812.0 1,606.0 283.9 Corporate assets........................... 255.5 366.1 124.2 --------- --------- -------- $16,526.6 $10,447.0 $8,471.3 ========= ========= ======== Depreciation and Amortization: Disposable and Specialty Products.......... $ 112.9 $ 64.5 $ 67.8 Fire and Security Services................. 269.8 205.5 254.0 Flow Control Products...................... 120.0 63.8 78.3 Electrical and Electronic Components....... 44.7 25.2 11.7 Corporate.................................. 18.9 19.6 15.5 --------- --------- -------- $ 566.3 $ 378.6 $ 427.3 ========= ========= ======== Capital Expenditures: Disposable and Specialty Products.......... $ 138.0 $ 119.7 $ 90.5 Fire and Security Services................. 491.4 304.8 362.0 Flow Control Products...................... 92.6 58.3 69.4 Electrical and Electronic Components....... 48.9 32.8 9.7 Corporate.................................. 10.4 3.5 1.3 --------- --------- -------- $ 781.3 $ 519.1 $ 532.9 ========= ========= ========
- --------------- (1) Includes charges of $131.3 million related to merger, restructuring and other non-recurring charges in connection with the INBRAND merger. (2) Includes charges of $530.3 million related to merger, restructuring and other non-recurring charges and $118.8 million related to the impairment of long-lived assets in connection with the merger of ADT and Former Tyco. (3) Includes charges of $256.2 million related to merger, restructuring and other non-recurring charges and $29.6 million related to the impairment of long-lived assets in connection with the Keystone merger. (4) Includes a charge of $361.0 million related to the write off of purchased research and development costs in connection with an acquisition. (5) Includes a charge of $13.0 million related to the impairment of long-lived assets in ADT's vehicle auction services operations. (6) Includes charges of $731.7 million related to the impairment of long-lived assets and $237.3 million relating to restructuring and other non-recurring items in ADT's electronic security services operations and $8.8 million related to professional and other transaction costs in connection with the ASH merger. 55 57 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 19. CONSOLIDATED GEOGRAPHIC DATA Selected information by geographic area is presented below.
AS AT AND AS AT AND FOR THE NINE AS AT AND FOR THE YEAR MONTHS FOR THE YEAR ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1996 ------------- ------------- ------------ (IN MILLIONS) Net sales: Americas (primarily U.S.).................. $ 9,083.3 $ 5,447.5 $5,675.6 Europe..................................... 2,287.8 1,457.1 1,587.8 Asia-Pacific............................... 940.2 683.6 840.3 --------- --------- -------- $12,311.3 $ 7,588.2 $8,103.7 ========= ========= ======== Operating income (loss): Americas (primarily U.S.).................. $ 1,589.8 $ (371.6) $ 125.6 Europe..................................... 284.2 (104.0) (194.0) Asia-Pacific............................... 49.7 (0.9) 49.6 --------- --------- -------- $ 1,923.7 $ (476.5) $ (18.8) ========= ========= ======== Total Assets: Americas (primarily U.S.).................. $12,179.0 $ 7,498.6 $6,070.5 Europe..................................... 3,287.1 1,992.8 1,740.1 Asia-Pacific............................... 805.0 589.5 536.5 Corporate assets........................... 255.5 366.1 124.2 --------- --------- -------- $16,526.6 $10,447.0 $8,471.3 ========= ========= ========
56 58 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. SUPPLEMENTARY BALANCE SHEET INFORMATION: Selected supplementary balance sheet information is presented below.
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (IN MILLIONS) Inventories: Purchased materials and manufactured parts.............. $ 509.7 $ 262.7 Work in process......................................... 261.8 294.4 Finished goods.......................................... 688.5 567.7 --------- --------- $ 1,460.0 $ 1,124.8 ========= ========= Property, Plant and Equipment: Land.................................................... $ 171.1 $ 160.3 Buildings............................................... 845.1 679.7 Subscriber systems...................................... 2,171.5 1,737.6 Machinery and equipment................................. 2,144.7 1,860.3 Leasehold improvements.................................. 103.6 74.8 Construction in progress................................ 269.9 211.6 Accumulated depreciation................................ (1,995.8) (1,800.3) --------- --------- $ 3,710.1 $ 2,924.0 ========= ========= Accrued payroll and payroll related costs................. $ 203.0 $ 147.9 ========= =========
21. SUPPLEMENTARY INCOME STATEMENT INFORMATION: Selected supplementary income statement information is presented below.
NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1996 ------------- ------------- ------------ (IN MILLIONS) Research and development..................... $97.0 $45.0 $39.8 Advertising.................................. 95.8 71.1 94.5
57 59 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 22. COMPARATIVE RESULTS (UNAUDITED) The change in year end resulted in Fiscal 1997 covering the nine month period ended September 30, 1997. The following unaudited financial information for the twelve months ended September 30, 1997 is presented to provide comparative results to those for Fiscal 1998 included in the accompanying Consolidated Statement of Operations (in millions, except per share amounts).
TWELVE MONTHS ENDED SEPTEMBER 30, 1997 ------------------- Net sales................................................... $9,820.3 Gross profit................................................ 3,188.9 Operating loss.............................................. (455.3) Income taxes................................................ (217.5) Loss before extraordinary items............................. (708.7) Extraordinary items, net of taxes........................... (60.9) Net loss.................................................... (769.6) Basic loss per common share: Loss before extraordinary items........................... $ (1.39) Extraordinary items, net of taxes......................... (0.12) Net loss per common share................................. (1.51) Diluted loss per common share: Loss before extraordinary items........................... $ (1.39) Extraordinary items, net of taxes......................... (0.12) Net loss per common share................................. (1.51)
23. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is presented below.
YEAR ENDED SEPTEMBER 30, 1998 -------------------------------------------- 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. -------- -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales................................. $2,687.5 $2,852.0 $3,235.0 $3,536.8 Gross profit.............................. 895.8 979.4 1,116.7 1,273.0 Income before extraordinary items......... 240.8 276.2 320.2 339.9 Net income................................ 239.9 275.9 319.2 339.7 Basic income per common share: Income before extraordinary items....... $ .44 $ .49 $ .55 $ .58 Net income per common share............. .44 .49 .55 .58 Diluted income per common share: Income before extraordinary items....... $ .43 $ .48 $ .54 $ .57 Net income per common share............. .43 .48 .54 .57
58 60 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997 ----------------------------------------------- 1ST QTR.(1) 2ND QTR.(1) 3RD QTR.(1)(2)(3) ----------- ----------- ----------------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales...................................... $2,332.8 $2,546.6 $ 2,708.8 Gross profit................................... 765.2 864.8 855.6 Income (loss) before extraordinary items....... 147.3 138.5 (1,062.6) Net income (loss).............................. 147.3 138.5 (1,120.9) Basic income (loss) per common share: Income (loss) before extraordinary items..... $ .29 $ .26 $ (2.00) Net income (loss) per common share........... .29 .26 (2.11) Diluted income (loss) per common share: Income (loss) before extraordinary items..... $ .29 $ .25 $ (2.00) Net income (loss) per common share........... .29 .25 (2.11)
- --------------- (1) Includes charges of $9.6 million in the first quarter, $47.0 million in the second quarter and $861.2 million in the third quarter related to merger, restructuring and other non-recurring charges primarily in connection with the merger of ADT and Former Tyco and the Keystone and INBRAND mergers. (2) Includes a charge for the impairment of long-lived assets of $148.4 million and $361.0 million for the write-off of purchased in-process research and development costs. (3) Extraordinary items were comprised principally of losses on repayment and the write off of net unamoritized deferred refinancing costs relating to the early extinguishment of debt. 24. TYCO INTERNATIONAL GROUP S.A. As discussed in Note 4, TIG issued $2.75 billion of debt securities, which are fully and unconditionally guaranteed by Tyco. TIG, a Luxembourg holding company, is the parent company of substantially all the operating subsidiaries of the Company. The Company has not included separate financial statements and footnotes for TIG, because of the full and unconditional guarantee by Tyco and the Company's belief that such information is not material to the holders of the debt securities. The following presents consolidated summary financial information for TIG and its subsidiaries, as if TIG and its organizational structure as of September 30, 1998 were in place for all periods presented.
SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ------------- ------------- (IN MILLIONS) Total current assets...................................... $ 5,892.9 $4,018.3 Total non-current assets.................................. 10,640.6 6,236.2 Total current liabilities................................. 5,013.2 3,905.2 Total non-current liabilities............................. 5,774.5 3,998.1
59 61 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 1998 1997 1996 ------------- ----------------- ------------ (IN MILLIONS) Net sales................................ $12,309.4 $7,588.2 $8,103.7 Gross profit............................. 4,250.0 2,485.6 2,628.5 Income (loss) before extraordinary items(1)(2)............................ 905.9 (721.3) (400.5) Net income (loss)(3)..................... 903.5 (779.6) (408.9)
- --------------- (1) Loss before extraordinary items in Fiscal 1997 includes charges related to merger, restructuring and other non-recurring costs of $816.8 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. (See Notes 11 and 15). Fiscal 1997 also includes a charge of $361.0 million for the write-off of purchased in-process research and development costs. (2) Loss before extraordinary items in 1996 includes non-recurring charges of $744.7 million related to the adoption of SFAS No. 121, $237.3 million related principally to the restructuring of ADT's electronic security services business in the United States and United Kingdom and $8.8 million of fees and expenses related to the ASH merger. (See Notes 11 and 15). (3) Extraordinary items were comprised principally of losses on repayment and the write off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 25. SUBSEQUENT EVENTS On October 1, 1998, Tyco consummated a merger with United States Surgical Corporation ("USSC"), which develops, manufactures and markets a line of surgical wound closure products and advanced surgical products to hospitals throughout the world. Shareholders of USSC received 0.7606 shares of Tyco common stock in exchange for each outstanding share of USSC. A total of approximately 59.2 million shares were issued in this transaction, which will be accounted for under the pooling of interests method of accounting. The following pro forma data summarize the consolidated results of operations for the periods indicated assuming the merger with USSC had been consummated as of September 30, 1998 and all periods presented are restated for this transaction (unaudited).
NINE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 DECEMBER 31, 1996 ------------------ ------------------ ------------------ (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales........................ $13,537.2 $8,457.8 $9,216.4 Income (loss) before extraordinary items............ 965.1 (697.7) (187.6) Net income (loss)................ 962.7 (756.0) (196.0) Net income (loss) per common share: Basic.......................... 1.54 (1.33) (0.41) Diluted........................ 1.50 (1.33) (0.41)
In November 1998, the Company announced the completion of its acquisition of Graphic Controls Corporation for approximately $460 million, including the assumption of certain outstanding debt. Graphic Controls, a leading designer, manufacturer, marketer and distributor of disposable medical products, will be integrated with Ludlow Technical Products within the Tyco Healthcare Group. The Company intends to account for the acquisition as a purchase. 60 62 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In November 1998, the boards of directors of Tyco and AMP Incorporated ("AMP") approved a definitive merger agreement pursuant to which AMP will merge with an indirect subsidiary of Tyco. It is estimated that Tyco will issue up to approximately 186.0 million common shares for delivery by its subsidiary to the former shareholders of AMP in the merger. The actual number of shares will be based on Tyco's weighted average stock price for a fifteen day trading period prior to AMP's shareholder vote on the merger. AMP, with annual revenues of approximately $5.5 billion, designs, manufactures and markets a broad range of electronic, electrical, fiber-optic and wireless interconnective devices and systems. AMP serves customers in the consumer and industrial, communications, automotive, computer and power industries. The merger is subject to the approval of both companies' shareholders and customary regulatory approvals. The transaction is expected to be accounted for as a pooling of interests. 61 63 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 the Company's businesses into four business segments consisting of Disposable and Specialty Products, Fire and Security Services, Flow Control Products, and Electrical and Electronic Components. In September 1997, the Company changed its fiscal year end from December 31 to September 30. References to Fiscal 1998, Fiscal 1997 and 1996 refer to the twelve month fiscal year ended September 30, 1998, the transitional nine month fiscal year ended September 30, 1997 and the calendar year ended December 31, 1996, respectively. In the discussions below, the results of operations for Fiscal 1998 compare the fiscal year ended September 30, 1998 with the twelve months ended September 30, 1997 (unaudited), and the results of operations for Fiscal 1997 compare the nine months ended September 30, 1997 with the nine months ended September 30, 1996 (unaudited). Overview Income (loss) before extraordinary items was $1.18 billion, or $2.02 per share on a diluted basis for Fiscal 1998, as compared to ($708.7) million, or ($1.39) per share, for the twelve months ended September 30, 1997. Excluding the $1.40 billion ($2.59 per share) after-tax charge in the twelve months ended September 30, 1997 for merger and transaction costs, writeoffs and integration costs associated with acquisitions (see Notes 2 and 3 to the Consolidated Financial Statements), income (loss) before extraordinary items rose 70.2% from $691.4 million, or $1.30 per diluted share. The increase was attributable to margin improvements, increased sales and results of acquired companies in each of the Company's business segments. After each acquisition, acquired companies are immediately integrated and Tyco does not separately track post-acquisition financial results. Accordingly, amounts in the following analysis related to the impact of acquired companies are estimates based on pre-acquisition results. Sales Sales increased 25% during Fiscal 1998 to $12.31 billion from $9.82 billion in the twelve months ended September 30, 1997. Sales of the Disposable and Specialty Products group increased $865.2 million to $3.45 billion, or 34%, principally due to increased sales at Kendall, and to a lesser extent ADT Automotive and Tyco Plastics and Adhesives. The increase at Kendall was primarily due to the inclusion of Sherwood-Davis & Geck ("Sherwood") and CONFAB, which were acquired in February 1998 and April 1998, respectively. Excluding the impact of these acquisitions, sales increased an estimated $213.0 million, or 6%. Sales of the Fire and Security Services group increased $574.1 million, or 14%, to $4.74 billion primarily due to increased sales in the Company's electronic security services business in the United States. This increase relates to increased volume of recurring service revenues and to a lesser extent, the inclusion of the results of companies acquired during Fiscal 1998. Additionally, sales increased in the European security and fire protection businesses due to an increase in service and recurring revenues and the inclusion of the results of acquired companies. Sales of the Flow Control Products group increased $146.2 million to $2.34 billion, or 7%, reflecting increased demand for the Company's valve products in North America and Europe, higher volume at existing businesses at Allied Tube & Conduit and Mueller and the inclusion of companies acquired in Fiscal 1998. Sales of the Electrical and Electronic Components group increased $905.5 million to $1.78 billion, or 103%, principally due to increased sales at Tyco Submarine Systems Ltd. ("TSSL"), as well as increased sales at Tyco Printed Circuit Group, offset slightly by decreased sales at Allied Electrical Conduit. The increased sales at TSSL resulted principally from the acquisition of AT&T's submarine systems business in July 1997. Excluding the impact of this acquisition, sales increased an estimated $273.9 million, or 18%. Sales increased 29% during the nine month fiscal period ended September 30, 1997 to $7.59 billion from $5.87 billion in the nine months ended September 30, 1996. Sales of the Disposable and Specialty Products group increased $580.3 million to $2.0 billion, or 41%, due to increased sales at Kendall, Tyco Plastics and ADT Automotive. At Kendall and Tyco Plastics, the increase in sales resulted principally from the INBRAND and Carlisle acquisitions, respectively, as well as internal growth at Kendall's Healthcare and 62 64 Polyken businesses. Sales of the Fire and Security Services group increased $473.2 million, or 18%, to $3.15 billion due to increased sales in each geographic region of the Company's fire protection operations, primarily as a result of an increase in the volume of service business, as well as increases in the Company's electronic security services businesses. Additionally, the results include Thorn Security ("Thorn") which was acquired in July 1996. Sales of the Flow Control Products group increased $266.8 million to $1.68 billion, or 19%, reflecting higher volume at European Flow Control, including businesses acquired in the last quarter of 1996 and first quarter of Fiscal 1997, from Mueller, including businesses acquired in the third quarter of 1996, as well as increased volume in existing businesses at Allied, including businesses acquired in the first quarter of Fiscal 1997, and Grinnell's distribution operations, where sales increased due to price increases. Sales were relatively unchanged at Keystone, where growth in international operations was offset by reduced U.S. dollar equivalents due to currency fluctuations. Sales of the Electrical and Electronic Components group increased $396.4 million to $754.7 million, or 111%, resulting principally from the acquisition of AT&T's submarine systems business in July 1997 and increased sales at Simplex. Increased sales at the Printed Circuit Group businesses were largely due to the acquisition of ElectroStar in January 1997, and increased unit volume. Allied's electrical conduit operations also increased sales. Income (Loss) Before Income Taxes and Extraordinary Items Pre-tax income (loss) before extraordinary items was $1.72 billion in Fiscal 1998, as compared to ($491.2) million in the twelve months ended September 30, 1997. Pre-tax income for the twelve months ended September 30, 1997 included charges of $1.54 billion for merger, restructuring and other non-recurring charges. See Notes 11 and 15 to the Consolidated Financial Statements. Excluding these non-recurring charges, pre-tax income (loss) increased $667.3 million, or 63%, from $1.05 billion in the twelve months ended September 30, 1997. Amortization expense for goodwill and other intangible assets was $153.0 million for Fiscal 1998 and $115.8 million for the twelve months ended September 30, 1997. The following analysis is presented exclusive of these non-recurring charges to better portray the comparability of recurring operations. Operating profits of the Disposable and Specialty Products group increased $218.6 million to $643.7 million in Fiscal 1998, or 51%. Operating profits were 18.7% of sales in Fiscal 1998 and 16.5% in the twelve months ended September 30, 1997. The increase was principally due to the increased sales at Kendall, including the effect of the acquisition of Sherwood, fixed cost reductions due to the integration of Sherwood and increased volume and better margins at Tyco Plastics and Adhesives. Operating profits of the Fire and Security Services group increased $217.5 million to $654.9 million, or 50%. Operating profits as a percentage of sales were 13.8% in Fiscal 1998, as compared to 10.5% in the twelve months ended September 30, 1997. The overall increase was principally due to increases in service volume, including recurring monitoring revenue, in the security and fire protection businesses and higher margins in each geographic region of the Company's security services business. The operating profits of the Flow Control Products group increased $80.3 million to $325.9 million, or 33%. Operating profits were 13.9% of sales in Fiscal 1998, as compared to 11.2% in the twelve months ended September 30, 1997. The increase was due to increased volume and margins in the Company's North American and European Flow Control Products operations, including Keystone's valve products, which have been integrated into the Company's operations. In addition, there were higher sales and margins at Allied Tube & Conduit. Operating profits of the Electrical and Electronic Components group increased $208.6 million to $367.5 million, or 131%, principally due to the acquisition of AT&T's submarine systems business in July 1997. Operating profits as a percentage of sales were 20.6% in Fiscal 1998, as compared to 18.2% in the twelve months ended September 30, 1997. Operating margins increased due to sales increasing at a higher rate than expenses at Tyco Printed Circuit Group and improved operating efficiencies at Allied Electrical Conduit, offset by slightly decreased margins at Tyco Submarine Systems Ltd. The effect of changes in foreign exchange rates during Fiscal 1998, as compared to the twelve months ended September 30, 1997, was not material to the Company's sales and operating profits. Operating profits of the Disposable and Specialty Products group increased $52.4 million to $328.7 million in Fiscal 1997, or 19%, reflecting higher earnings at Kendall, including improved manufacturing efficiencies and the earnings of INBRAND, Tyco Plastics, which, in addition to internal growth in volume and 63 65 prices, includes the results of Carlisle from September 1996, and ADT Automotive. Operating profits of the Fire and Security Services group increased $77.9 million to $336.7 million, or 30%, due to higher margins in each geographic region of the Company's fire protection operations and electronic security businesses as well as the inclusion of Thorn. The higher margins in fire protection were the result of a higher mix of service work within the contracting business. The operating profits of the Flow Control Products group increased $47.2 million to $193.7 million, or 32%, resulting principally from increases in each of Company's operations, and the results of businesses acquired in Fiscal 1997. Increases in the Company's European Flow Control businesses were primarily due to increased margins as well as the inclusion of acquisitions. Increases at Allied and Mueller were a combination of stronger operating profits resulting from improved operating efficiencies as well as the inclusion of acquisitions. Operating profits of the Electrical and Electronic Components group increased $69.9 million to $136.4 million, or 105%, due to increased earnings at TSSL, principally due to the acquisition of AT&T's submarine systems business and increased operating levels. Earnings were also up at the Printed Circuit Group businesses, including ElectroStar, and at Allied's Electrical Conduit operations. The effect of changes in foreign exchange rates during Fiscal 1997, as compared to the nine months ended September 30, 1996 was not material to the Company's sales and operating profits. Corporate and other expenses were $68.3 million in Fiscal 1998 compared to $56.8 million in the twelve months ended September 30, 1997. Corporate and other expenses were $44.8 million in Fiscal 1997 and $31.4 million in the nine months ended September 30, 1996. These increases were due principally to higher compensation expense under the Company's performance-related, incentive compensation plans. Selling, General and Administrative Expenses Total selling, general and administrative expenses were 19.0% of sales in Fiscal 1998, 20.2% in the twelve months and nine months ended September 30, 1997 and 20.6% during the nine months ended September 30, 1996. The reductions in selling, general and administrative costs as a percentage of sales is principally due to the effect of higher sales and the termination of employees and consolidation of facilities associated with the Fiscal 1997 acquisitions. Interest Expense Interest expense increased $47.4 million to $236.2 million in Fiscal 1998, as compared to the twelve months ended September 30, 1997, due to higher average debt balances, as a result of monies borrowed to pay for acquisitions, partially offset by lower average interest rates. The weighted average rate of interest on all long-term debt during Fiscal 1998, Fiscal 1997 and 1996 was 6.5%, 7.6% and 8.0%, respectively. Interest expense decreased $4.5 million to $137.5 million during Fiscal 1997, as compared to the nine months ended September 30, 1996, due to lower average interest rates partially offset by higher average debt balances, as a result of monies borrowed to make acquisitions. Extraordinary Items Extraordinary items in Fiscal 1998, Fiscal 1997 and 1996 included net losses amounting to $2.4 million, $58.3 million and $8.4 million, respectively, arising on the reacquisition of certain of the Company's senior, senior subordinated and public notes 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 was 31.5% during Fiscal 1998, 34.2% in the twelve months ended September 30, 1997, 35.2% in the nine months ended September 30, 1997 and 36.4% in the nine months ended September 30, 1996. The decreases in the effective income tax rates were due to higher earnings in domiciles with lower income tax rates. The effective income tax rates for 1997 and 1996 exclude the impact of non-recurring charges. Management believes that the Company will generate sufficient future income to realize the tax benefits related to its deferred tax asset. A valuation allowance has been maintained due to continued uncertainties of realization of certain tax attributes, primarily tax loss carryforwards. See Note 7 to the Consolidated Financial Statements. 64 66 LIQUIDITY AND CAPITAL RESOURCES As presented in the Consolidated Statement of Cash Flows, net cash provided by operating activities was $1.64 billion in Fiscal 1998. The significant changes in working capital were a $317.7 million decrease in accounts payable, accruals and other liabilities resulting principally from spending for merger, restructuring and other non-recurring costs, a $150.3 million increase in income taxes payable, a $91.4 million increase in contracts in process and a $86.2 million increase in accounts receivable. The impact of changes in foreign exchange rates during Fiscal 1998 did not materially affect net working capital. Working capital requirements are not anticipated to increase substantially in Fiscal 1999. During Fiscal 1998, the Company used cash of $3.82 billion to acquire companies in its four business segments, $781.3 million to purchase property, plant and equipment, $222.6 million to purchase treasury shares and $56.5 million to pay dividends to shareholders. The level of capital expenditures is expected to increase moderately in Fiscal 1999, and the primary source of funds for such expenditures is expected to be cash from operations. Expenditures for environmental matters are not expected to have a material effect on the Company in Fiscal 1999. See Note 16 to the Consolidated Financial Statements. The source of the cash used for acquisitions was an increase in total debt, proceeds from the sale of common shares and cash flows from operations. At September 30, 1998, the Company's total debt was $5.00 billion, as compared to $2.73 billion at September 30, 1997. The increase resulted principally from net proceeds received of approximately $2.74 billion from the issuance of public debt discussed below, partially offset by the repayment of amounts outstanding under the sterling denominated bank facility and the exchange of $155.3 million principal balance of LYON's for common shares. Goodwill and other intangible assets were $6.40 billion at September 30, 1998, compared to $2.93 billion at September 30, 1997. Shareholder's equity was $6.14 billion, or $10.46 per share, at September 30, 1998, compared to $3.43 billion, or $6.39 per share, at September 30, 1997. The increase in shareholders' equity was due primarily to net proceeds of approximately $1.25 billion from the sale of 25.3 million common shares, net income of $1.17 billion and proceeds of $307.4 million from the exercise of options. Total debt as a percent of total capitalization (total debt and shareholders' equity) was 45% at September 30, 1998 and 44% at September 30, 1997. In February 1998, Tyco US entered into a new $2.25 billion credit agreement with a group of commercial banks, giving it the right to borrow (a) up to $1.75 billion until February 12, 1999, with the ability to extend, at the option of Tyco US, to February 12, 2000, and (b) up to $0.5 billion until February 12, 2003. Interest payable on borrowings is variable based upon the borrower's option of selecting a Eurodollar rate plus margins ranging from 0.17% to 0.19%, a certificate of deposit rate plus margins ranging from 0.295% to 0.315%, or a base rate, as defined. If the outstanding principal amount of loans equals or exceeds one-third of the commitments, the Eurodollar and certificate of deposit margins are increased by 0.10%. Repayments of amounts outstanding under this agreement are guaranteed by the Company. In accordance with the terms of this agreement, in June 1998 Tyco US and Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, elected that TIG become the borrower and that Tyco US cease to be the borrower under this agreement. All other terms and conditions in effect remained unchanged. Substantially all amounts outstanding under this credit agreement have been classified as long-term, based on the Company's ability and intent to refinance this obligation on a long term basis. Simultaneous with the closing of the new credit agreement, Tyco US reduced aggregate commitments available under the previously existing credit agreement from $1.75 billion to $950 million. In March 1998, Tyco US terminated the $950 million credit agreement. Balances outstanding at the time of termination were repaid with net proceeds from the sale of common shares, discussed below. In March 1998, the Company sold 25.3 million common shares for approximately $1.25 billion under a $2.0 billion public shelf registration statement. The net proceeds from the sale were used to repay indebtedness incurred for previous acquisitions. 65 67 In June 1998, TIG issued $750 million 6 1/8% notes due 2001, $750 million 6 3/8% notes due 2005, $750 million 6 1/4% Dealer Remarketable Securities(sm)("Drs.")(sm) due 2013 and $500 million 7.0% notes due 2028 under a $3.75 billion public shelf registration statement. 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 are fully and unconditionally guaranteed by Tyco. The net proceeds of approximately $2.74 billion were used to repay borrowings under the $2.25 billion bank credit facility and uncommitted lines of credit of Tyco US. In connection with the offering of these debt securities, TIG has entered into two interest rate swap agreements to hedge a portion of the fixed interest rate terms. These two swap agreements are each based on a notional amount of $650 million and are for a five and seven year term, respectively. Under the terms of the agreements, TIG receives payments based on fixed interest rates and pays variable rates, based on LIBOR, not to exceed a specified maximum. Interest is received or paid semi-annually in June and December. During Fiscal 1998, the effective interest rate on these instruments approximated the coupon rate. In October 1998, TIG issued $800 million of debt in a private placement offering consisting of two series of 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 $2.25 billion bank credit facility. In addition, TIG entered into an interest rate swap agreement to hedge the fixed rate terms of the $400 million 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, as defined. See Note 4 to Consolidated Financial Statements. The Company believes that its funding sources are adequate for its anticipated requirements through expected cash flow from operations. Backlog Backlog at September 30, 1998 amounted to $4.1 billion, compared to $2.4 billion at September 30, 1997. Backlog increased in the Company's Electrical and Electronic Components, Flow Control Products and Fire and Security Services segments. Within the Electrical and Electronic Components group, backlog increased principally due to contracts awarded to the Company's submarine systems business. Within the Flow Control Products group, backlog increased principally due to an increase in backlog at Earth Tech, including backlog related to acquisitions, and in the Company's European flow control operations. Within the Fire and Security Services group, backlog increased principally due to an increase in backlog at the Company's worldwide security and North American fire protection businesses. YEAR 2000 COMPLIANCE Year 2000 compliance programs and systems modifications were initiated by the Company in Fiscal 1997 in an attempt to ensure that these systems and key processes will remain functional. The Company is continuing its assessment of the potential impact of the Year 2000 on date-sensitive information in computer software programs and operating systems in its product development, financial business systems and administrative functions, and has begun implementing strategies to avoid adverse implications. This objective is expected to be achieved either by modifying present systems using existing internal and external programming resources or by installing new systems, and by monitoring supplier, customer and other third-party readiness. Review of the systems affecting the Company is progressing. The costs of the Company's Year 2000 program to date have not been material and the Company does not anticipate that the costs of any required modifications to its information technology or embedded technology systems will have a material adverse effect on its financial position, results of operations or liquidity. In the event that the Company or material third parties fail to complete their Year 2000 compliance programs successfully and on time, the Company's ability to operate its businesses, service customers, bill or 66 68 collect its revenues or purchase products in a timely manner could be adversely affected. Although there can be no assurance that the conversion of the Company's systems will be successful or that the Company's key third-party relationships will have successful conversion programs, management does not expect that any such failure would have a material adverse effect on the financial position, results of operations or liquidity of the Company. The Company has day-to-day operational contingency plans, and management is in the process of updating these plans for possible Year 2000 specific operational requirements. ACCOUNTING AND TECHNICAL PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is effective for fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company is 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 the Company'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, operating efficiencies and product expansion, are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, 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 the Company's goods and services; competitive factors in the industries in which the Company competes; changes in government regulation; changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); 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 ability to achieve anticipated synergies and other cost savings in connection with acquisitions; the timing, impact and other uncertainties of future acquisitions; and the Company's ability and its customers' and suppliers' ability to replace, modify or upgrade computer programs in order to adequately address the Year 2000 issue. 67 69 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(2) END OF YEAR - ---------------------------------------------------------------------------------------------------------- Year Ended December 31, 1996: Allowances for doubtful $ 52.6 $47.2 $ (.5) $(15.1) $ 84.2 accounts(1)..................... Nine Months Ended September 30, 1997: Allowances for doubtful 84.2 31.0 23.5 (31.0) 107.7 accounts(1)..................... Fiscal Year Ended September 30, 1998: Allowances for doubtful 107.7 81.7 108.4 (40.9) 256.9 accounts(1).....................
- --------------- (1) Deducted from assets. (2) Write-off of accounts receivable considered uncollectible. 68 EX-4.16 2 SUPPLEMENTAL INDENTURE # 5 1 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 5 $400,000,000 5.875% Notes due 2004 THIS SUPPLEMENTAL INDENTURE NO. 5, dated as of November 2, 1998, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H : WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 5 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 5, the following terms shall have the respective meanings set forth below: "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to 2 maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "AGENT" means any Registrar, Paying Agent or co-registrar. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedel Bank, SA. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury dealer Quotations. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A-1 hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System. "EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant to Section 2.9(f) hereof; following the exchange of interests in the Rule 144A Global Note, the Regulation S Global Note and the Restricted Definitive Note for Exchange Notes pursuant to an effective registration statement, the defined term -2- 3 "Exchange Notes" and "Notes" shall have the same meaning and be entitled to the same rights under the Indenture. "EXCHANGE OFFER" means the exchange offer by the Company of the Exchange Notes for the Notes issued in reliance upon an exemption from registration under the Securities Act on the date hereof in accordance with the provisions of the Registration Rights Agreement. "EXCHANGE OFFER REGISTRATION STATEMENT" means an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein filed by the Company and Tyco in accordance with the Registration Rights Agreement in connection with the Exchange Offer. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(g)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means each of Lehman Brothers Inc., J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who is not also a QIB. "LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PARTICIPATING BROKER DEALER" means the Initial Purchasers and any other broker-dealer which makes a market in the Notes and exchanges Notes in the -3- 4 Exchange Offer for Exchange Notes. "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(g)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of November 2, 1998, by and among the Company, Tyco and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the legend in Section 2.9(g)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of (x) a written certificate from the Depositary, together with copies of certificates required by Rule 903(b)(3)(ii)(B) under the Securities Act and (y) an Officers' Certificate from the Company certifying as to the end of the end of the 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures. "RULE 144" means Rule 144 promulgated under the Securities Act, any -4- 5 successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means a "shelf" registration statement of the Company and Tyco filed pursuant to the provisions of the Registration Rights Agreement on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A-1 attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 5: -5- 6 (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 5; and (c) the terms "HEREIN", "HEREOF", "HEREUNDER" and other words of similar import refer to this Supplemental Indenture No. 5. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "5.875% Notes due 2004" (the "Notes"). SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A-1 or A-2, as applicable, hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 5, and the Company, Tyco and the Trustee, by their execution and delivery of the Indenture Supplement No. 5, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 5, the provisions of the Indenture Supplement No. 5 shall govern and be controlling. (b) RULE 144A GLOBAL NOTES; DEFINITIVE NOTES. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon). The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Notes. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global -6- 7 Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. Notes offered and sold to Institutional Accredited Investors shall be issued in definitive form in substantially the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon). (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are participants in such systems, or indirectly through organizations that are participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel Bank. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed $400,000,000. SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on November 1, 2004. SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable semiannually on May 1 and November 1 of each year beginning on May 1, 1999 (each, an "INTEREST PAYMENT DATE"); PROVIDED, HOWEVER, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The interest rate borne by the Notes will be 5.875% per annum until the Notes are paid in full subject, however, to the following provisions. In the event that (i) the Exchange Offer Registration -7- 8 Statement is not filed with the SEC on or prior to the 90th calendar day following the original issue of the Notes, (ii) the Exchange Offer Registration Statement has not been declared effective by the SEC on or prior to the 150th calendar day following the original issue of the Notes or (iii) the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective, in either case, on or prior to the 180th calendar day following the original issue of the Notes (each such event in clauses (i) through (iii) above, a "REGISTRATION DEFAULT"), the interest rate borne by the Notes shall be increased by an amount ("ADDITIONAL INTEREST") equal to an additional one quarter of one percent (0.25%) per annum upon the occurrence of each Registration Default, which rate will increase by an additional one quarter of one percent (0.25%) per annum each 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum; PROVIDED, HOWEVER, that no Additional Interest shall be payable if the Exchange Offer Registration Statement is not filed or declared effective or the Exchange Offer is not consummated as set forth above because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC (it being understood that in any such circumstance the Company shall be required to file a Shelf Registration Statement and Additional Interest shall be payable if such Shelf Registration Statement is not declared effective as provided in clause (iii) above); and PROVIDED FURTHER that Additional Interest shall only be payable in the case a Shelf Registration Statement is not declared effective as aforesaid with respect to notes that have the right to be included, and whose inclusion has been requested, in the Shelf Registration Statement. Following the cure of all Registration Defaults applicable to the respective Notes, the accrual of Additional Interest will cease and the interest rate will revert to 5.875% per annum. If a Shelf Registration Statement is declared effective but shall thereafter become unusable by the Holder of Notes for any reason (whether or not the Company had the right to prevent the Holders from distributing Notes during the 30 day period described in the Indenture), and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days, the interest rate borne by the Notes included in such Shelf Registration Statement will be increased by an amount ("ADDITIONAL INTEREST") equal to 0.25% per annum for the first 90-day period (or portion thereof) beginning on the 31st such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period, provided the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Notes included therein will be reduced to the original interest rate if the Company is otherwise in compliance with the Registration Rights Agreement with respect to such Notes at that time. Additional Interest in accordance with this paragraph shall be computed based upon the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. For all purposes of this Indenture Supplement No. 5, the term interest shall include "Additional Amounts" and "Additional Interest". The interest payable on each Interest Payment Date shall be the amount of interest accrued from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, until the principal amount of the Notes has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. -8- 9 The interest payable on any Note which is punctually paid or duly provided for on any Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), respectively, immediately preceding such Interest Payment Date (each, a "Regular Record Date"). Interest payable on any Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. The Company and Tyco shall notify the Trustee within five Business Days after each and every date (an "EVENT DATE") on which an event occurs in respect of which Additional Interest is required to be paid. The obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. Additional Interest shall be paid by depositing with the Trustee for the benefit of the Holders of the Notes entitled to receive such Additional Interest, on or before the applicable Interest Payment Date, immediately available funds in sums sufficient to pay the Additional interest then due. Additional Interest shall be payable to the Person otherwise entitled to be paid the interest payable on the Notes on such Interest Payment Date. SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7 REDEMPTION. The Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of such Notes, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payment of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 15 basis points plus, in each case, accrued interest thereon to the date of redemption. -9- 10 The Notes are also subject to redemption to the extent described in Article Twelve of the Indenture. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY. Principal and interest on the Notes shall be payable in United States dollars. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes (x) upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days or (y) in connection with any transfer of an interest in the Global Note to an Institutional Accredited Investor. Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. -10- 11 Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(h) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE OR A REGULATION S GLOBAL NOTES FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y): (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee that it is not (1) a broker-dealer, (2) a -11- 12 Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company, and such Letter of Transmittal or book-entry system certification shall satisfy the requirements of Section 2.9(ii); (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker- Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) TRANSFER AND EXCHANGE OF INTERESTS TO AND FROM REGULATION S GLOBAL NOTES (OTHER THAN AS PROVIDED IN CLAUSE (iii) ABOVE). (A) TRANSFER AND EXCHANGE OF INTERESTS IN A REGULATION S GLOBAL NOTE PRIOR TO THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE. A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (B) TRANSFER AND EXCHANGE OF INTERESTS IN A REGULATION S GLOBAL NOTE FOLLOWING THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Regulation S Global Note following the termination of the -12- 13 Restricted Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1(a), as applicable, completed. (C) TRANSFER AND EXCHANGE OF INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of the following documentation: (A) if the holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, Exhibit C with the certification set forth in paragraph (2)(a) completed; (B) if such beneficial interest is being transferred in accordance with Rule 144A under the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 1 completed; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; or -13- 14 (D) if any such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 3(d) completed. (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if such exchange or transfer is in accordance with the Applicable Procedures and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker- Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note or transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal -14- 15 amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee, that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker- Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or -15- 16 (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). -16- 17 (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of Exhibit B with the appropriate certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee, that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel -17- 18 to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) EXCHANGE OFFER; SHELF REGISTRATION STATEMENT (i) Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate (x) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Rule 144A Global Notes and Regulation S Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (A) they are not broker-dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (y) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of the Restricted Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. -18- 19 (ii) Following the effectiveness of a Shelf Registration Statement the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5, of the Indenture the Trustee shall authenticate from time to time (x) one or more Unrestricted Global Notes, or, if there shall be at the time one or more Unrestricted Global Notes outstanding and such increase can be effected in accordance with Applicable Procedures, the Trustee shall increase or cause to be increased the aggregate principal amount thereof, in each case in an aggregate principal amount equal to the principal amount of the beneficial interests in the Global Notes sold by Persons that certify as to the consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company and (y) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes sold by Persons that certify as to the consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company. Concurrently with the issuance of such Unrestricted Global Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or the Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of Restricted Definitive Notes so sold Unrestricted Definitive Notes in the appropriate principal amount. (g) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE -19- 20 TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (A FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), (ii) a Note which has been exchanged or transferred pursuant to the Exchange -20- 21 Offer Registration Statement or the Shelf Registration Statement, or (iii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES IN THE SUPPLEMENTAL INDENTURE NO. 5, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) REGULATION S GLOBAL NOTE LEGEND. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal -21- 22 amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 5, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 5 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 5 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE NO. 5 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. -22- 23 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 5 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: _________________________ Name: Title: TYCO INTERNATIONAL LTD. By: _________________________ Name: Title: THE BANK OF NEW YORK, Trustee By: _________________________ Name: Title: -23- 24 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Tyco International Group S.A. [__________________] The Bank of New York [__________________] Re: 5.875% Notes due 2004 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 5 dated November 2, 1998 (collectively, the "Indenture") among Tyco International Group S.A., Tyco International Ltd. and The Bank of New York as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [___] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any -1- 25 applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [___] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE, OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [__] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RESTRICTED DEFINITIVE NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [__] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [__] such Transfer is being effected to the Company or a subsidiary thereof; or -2- 26 (c) [__] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [__] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by a certificate executed by the Transferee in the form of Exhibit D to the Indenture. 4. [ ] Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the -3- 27 Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _______________________________ [Insert Name of Transferor] By: _______________________________ Name: Title: Dated: ______________ __, ____. -4- 28 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _____), or (ii) [ ] Regulation S Global Note (CUSIP _____). (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _____), or (ii) [ ] Regulation S Global Note (CUSIP _____), or (iii) [ ] Unrestricted Global Note (CUSIP _____); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. -5- 29 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Tyco International Group S.A. [_________________] The Bank of New York [_________________] Re: 5.875% Notes due 2004 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 5 dated November 2, 1998 (collectively, the "Indenture") among Tyco International Group S.A., Tyco International Ltd. and the Bank of New York. ____________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE OR REGULATION S GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities -1- 30 Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Rule 144A Global Note or a Regulation S Global Notes for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS TO BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTE OR A REGULATION S GLOBAL NOTE. In connection with the Exchange of the Owner's Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Rule 144A Global Notes or Regulation S Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Rule 144A Global Note or Regulation S Global Notes and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Owner] By: ___________________________________ Name: Title: Dated: __________________ __, ____. -2- 31 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Tyco International Group S.A. [_________________] The Bank of New York [_________________] Re: 5.875% Notes due 2004 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 5 dated November 2, 1998 (collectively, the Indenture") among Tyco International Group S.A., Tyco International Ltd. And The Bank of New York as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1993, as amended (the "Securities Act")), -3- 32 purchasing for our own account or for the account of such an institutional "accredited investor," and we are acquiring the Notes for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or other applicable securities laws and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand and acknowledge that the Notes have not been registered under the Securities Act, or any other applicable securities law and may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, or pursuant to an exemption therefrom, and in each case in compliance with the conditions for transfer set forth below. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a "Qualified Institutional Buyer" within the meaning of Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) or Rule 501 under the Securities Act that is acquiring the Notes for its own account or for the account of such an institutional "accredited investor" for the investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver to the trustee (the "Trustee") under the Indenture pursuant to which the Notes are issued a letter from the transferee substantially in the form of this letter or as acceptable to the Trustee, which shall provide, among other things, that the transferee is a person or entity as defined in paragraph 1 of this letter and that is acquiring such Notes for investment purposes and not for distribution violation of the Securities Act. We acknowledge that the Company and the Trustee reserve the right prior to any offer, sale or other transfer of the Notes pursuant to clauses (d), (e) and (f) above prior to the Resale Restriction Termination Date to require the delivery of any opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. 3. We are acquiring the Notes purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion. -4- 33 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: (Name of Purchaser) Date: ____________________________________ [Insert Name of Accredited Investor] By: ____________________________________ Name: Title: Dated: _________________ __, ____. -5- 34 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES DESCRIBED IN THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT 1 35 WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 2 36 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 No. 1 $200,000,000 CUSIP: 902118 AE 8 TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on November 1, 2004, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 3 37 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additional Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 4 38 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 5 39 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 6 40 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: ______________________________________ Title: 7 41 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 5.875% NOTES DUE 2004 1. Indenture. (a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 5.875% Notes due 2004 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 5, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the 8 42 rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of 9 43 its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant Defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration 10 44 shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 7. Defeasance. The Indenture contains provisions for Defeasance and covenant Defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11 45 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 12 46 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: --------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 13 47 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 14 48 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES DESCRIBED IN THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO 1 49 AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 2 50 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 No. 2 $200,000,000 CUSIP: 902118 AE 8 TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on November 1, 2004, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 3 51 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additonal Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 4 52 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 5 53 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 6 54 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: ______________________________________ Title: 7 55 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 5.875% NOTES DUE 2004 1. Indenture. (a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 5.875% Notes due 2004 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 5, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the 8 56 rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of 9 57 its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant Defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration 10 58 shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 7. Defeasance. The Indenture contains provisions for Defeasance and covenant Defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11 59 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 12 60 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: --------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 13 61 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 14 62 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.9 OF SUPPLEMENTAL INDENTURE NO. 5, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. 1 63 TYCO INTERNATIONAL GROUP S.A. 5.875% NOTE DUE 2004 No. 3 $0 CUSIP: L93727AAO TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Zero Dollars on November 1, 2004, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 2 64 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additional Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 3 65 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 4 66 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 5 67 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: _______________________________________ Title: 6 68 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 5.875% NOTES DUE 2004 1. Indenture. (a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 5.875% Notes due 2004 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 5, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to 7 69 Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. 8 70 "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 9 71 7. Defeasance. The Indenture contains provisions for defeasance and covenant defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of 10 72 November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 11 73 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: --------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 12 74 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 13 EX-4.17 3 SUPPLEMENTAL INDENTURE # 6 1 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 6 $400,000,000 6.125% Notes due 2008 THIS SUPPLEMENTAL INDENTURE NO. 6, dated as of November 2, 1998, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 6 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 6, the following terms shall have the respective meanings set forth below: "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to 2 maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "AGENT" means any Registrar, Paying Agent or co-registrar. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedel Bank, SA. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A-1 hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System. "EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant to Section 2.9(f) hereof; following the exchange of interests in the Rule 144A Global Note, the Regulation S Global Note and the Restricted Definitive Note for Exchange Notes pursuant to an effective registration statement, the defined term 2 3 "Exchange Notes" and "Notes" shall have the same meaning and be entitled to the same rights under the Indenture. "EXCHANGE OFFER" means the exchange offer by the Company of the Exchange Notes for the Notes issued in reliance upon an exemption from registration under the Securities Act on the date hereof in accordance with the provisions of the Registration Rights Agreement. "EXCHANGE OFFER REGISTRATION STATEMENT" means an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein filed by the Company and Tyco in accordance with the Registration Rights Agreement in connection with the Exchange Offer. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(g)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means each of Lehman Brothers Inc., J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who is not also a QIB. "LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PARTICIPATING BROKER DEALER" means the Initial Purchasers and any other broker-dealer which makes a market in the Notes and exchanges Notes in the 3 4 Exchange Offer for Exchange Notes. "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(g)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of November 2, 1998, by and among the Company, Tyco and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the legend in Section 2.9(g)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of (x) a written certificate from the Depositary, together with copies of certificates required by Rule 903(b)(3)(ii)(B) under the Securities Act and (y) an Officers' Certificate from the Company certifying as to the end of the end of the 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures. "RULE 144" means Rule 144 promulgated under the Securities Act, any 4 5 successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means a "shelf" registration statement of the Company and Tyco filed pursuant to the provisions of the Registration Rights Agreement on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A-1 attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 6: 5 6 (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 6; and (c) the terms "HEREIN", "HEREOF", "HEREUNDER" and other words of similar import refer to this Supplemental Indenture No. 6. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "6.125% Notes due 2008" (the "Notes"). SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibits A-1 or A-2, as applicable, hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 6, and the Company, Tyco and the Trustee, by their execution and delivery of the Indenture Supplement No. 6, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 6, the provisions of the Indenture Supplement No. 6 shall govern and be controlling. (b) RULE 144A GLOBAL NOTES; DEFINITIVE NOTES. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon). The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Notes. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global 6 7 Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. Notes offered and sold to Institutional Accredited Investors shall be issued in definitive form in substantially the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon). (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are participants in such systems, or indirectly through organizations that are participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel Bank. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed $400,000,000. SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on November 1, 2008. SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable semiannually on May 1 and November 1 of each year beginning on May 1, 1999 (each, an "INTEREST PAYMENT DATE"); PROVIDED, HOWEVER, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The interest rate borne by the Notes will be 6.125% per annum until the Notes are paid in full subject, 7 8 however, to the following provisions. In the event that (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 90th calendar day following the original issue of the Notes, (ii) the Exchange Offer Registration Statement has not been declared effective by the SEC on or prior to the 150th calendar day following the original issue of the Notes or (iii) the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective, in either case, on or prior to the 180th calendar day following the original issue of the Notes (each such event in clauses (i) through (iii) above, a "REGISTRATION DEFAULT"), the interest rate borne by the Notes shall be increased by an amount ("ADDITIONAL INTEREST") equal to an additional one quarter of one percent (0.25%) per annum upon the occurrence of each Registration Default, which rate will increase by an additional one quarter of one percent (0.25%) per annum each 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum; PROVIDED, HOWEVER, that no Additional Interest shall be payable if the Exchange Offer Registration Statement is not filed or declared effective or the Exchange Offer is not consummated as set forth above because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC (it being understood that in any such circumstance the Company shall be required to file a Shelf Registration Statement and Additional Interest shall be payable if such Shelf Registration Statement is not declared effective as provided in clause (iii) above); and PROVIDED FURTHER that Additional Interest shall only be payable in the case a Shelf Registration Statement is not declared effective as aforesaid with respect to notes that have the right to be included, and whose inclusion has been requested, in the Shelf Registration Statement. Following the cure of all Registration Defaults applicable to the respective Notes, the accrual of Additional Interest will cease and the interest rate will revert to 6.125% per annum. If a Shelf Registration Statement is declared effective but shall thereafter become unusable by the Holder of Notes for any reason (whether or not the Company had the right to prevent the Holders from distributing Notes during the 30 day period described in the Indenture), and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days, the interest rate borne by the Notes included in such Shelf Registration Statement will be increased by an amount ("ADDITIONAL INTEREST") equal to 0.25% per annum for the first 90-day period (or portion thereof) beginning on the 31st such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period, provided the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Notes included therein will be reduced to the original interest rate if the Company is otherwise in compliance with the Registration Rights Agreement with respect to such Notes at that time. Additional Interest in accordance with this paragraph shall be computed based upon the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. For all purposes of this Indenture Supplement No. 6, the term interest shall include "Additional Amounts" and "Additional Interest". The interest payable on each Interest Payment Date shall be the amount of interest accrued from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, until the principal amount of the Notes has 8 9 been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The interest payable on any Note which is punctually paid or duly provided for on any Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), respectively, immediately preceding such Interest Payment Date (each, a "Regular Record Date"). Interest payable on any Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. The Company and Tyco shall notify the Trustee within five Business Days after each and every date (an "EVENT DATE") on which an event occurs in respect of which Additional Interest is required to be paid. The obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. Additional Interest shall be paid by depositing with the Trustee for the benefit of the Holders of the Notes entitled to receive such Additional Interest, on or before the applicable Interest Payment Date, immediately available funds in sums sufficient to pay the Additional interest then due. Additional Interest shall be payable to the Person otherwise entitled to be paid the interest payable on the Notes on such Interest Payment Date. SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7 REDEMPTION. The Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of such Notes, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payment of interest accrued as of the date of redemption) 9 10 discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. The Notes are also subject to redemption to the extent described in Article Twelve of the Indenture. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY. Principal and interest on the Notes shall be payable in United States dollars. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes (x) upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days or (y) in connection with any transfer of an interest in the Global Note to an Institutional Accredited Investor. Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require 10 11 compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(h) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE OR A REGULATION S GLOBAL NOTES FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person 11 12 who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y): (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company, and such Letter of Transmittal or book-entry system certification shall satisfy the requirements of Section 2.9(ii); (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) TRANSFER AND EXCHANGE OF INTERESTS TO AND FROM REGULATION S GLOBAL NOTES (OTHER THAN AS PROVIDED IN CLAUSE (III) ABOVE). (A) TRANSFER AND EXCHANGE OF INTERESTS IN A REGULATION S GLOBAL NOTE PRIOR TO THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE. A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a 12 13 Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (B) TRANSFER AND EXCHANGE OF INTERESTS IN A REGULATION S GLOBAL NOTE FOLLOWING THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Regulation S Global Note following the termination of the Restricted Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1(a), as applicable, completed. (C) TRANSFER AND EXCHANGE OF INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of the following documentation: 13 14 (A) if the holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, Exhibit C with the certification set forth in paragraph (2)(a) completed; (B) if such beneficial interest is being transferred in accordance with Rule 144A under the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 1 completed; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; or (D) if any such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 3(d) completed. (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if such exchange or transfer is in accordance with the Applicable Procedures and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or 14 15 (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note or transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted 15 16 Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee, that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form 16 17 reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of Exhibit B with the appropriate certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take 17 18 delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee, that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) EXCHANGE OFFER; SHELF REGISTRATION STATEMENT (i) Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate (x) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Rule 144A Global Notes and Regulation S Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (A) they are not broker-dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer 18 19 and (y) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of the Restricted Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (ii) Following the effectiveness of a Shelf Registration Statement the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5, of the Indenture the Trustee shall authenticate from time to time (x) one or more Unrestricted Global Notes, or, if there shall be at the time one or more Unrestricted Global Notes outstanding and such increase can be effected in accordance with Applicable Procedures, the Trustee shall increase or cause to be increased the aggregate principal amount thereof, in each case in an aggregate principal amount equal to the principal amount of the beneficial interests in the Global Notes sold by Persons that certify as to the consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company and (y) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes sold by Persons that certify as to the consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company. Concurrently with the issuance of such Unrestricted Global Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or the Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of Restricted Definitive Notes so sold Unrestricted Definitive Notes in the appropriate principal amount. (g) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE 19 20 "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (A FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), 20 21 SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), (ii) a Note which has been exchanged or transferred pursuant to the Exchange Offer Registration Statement or the Shelf Registration Statement, or (iii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES IN THE SUPPLEMENTAL INDENTURE NO. 6, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) REGULATION S GLOBAL NOTE LEGEND. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S 21 22 GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 6, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 6 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 6 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the 22 23 Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE NO. 6 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 23 24 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 6 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: _________________________ Name: Title: TYCO INTERNATIONAL LTD. By: _________________________ Name: Title: THE BANK OF NEW YORK, Trustee By: _________________________ Name: Title: 24 25 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Tyco International Group S.A. [_________________________] The Bank of New York [_________________________] Re: 6.125% Notes due 2008 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 6 dated November 2, 1998 (collectively, the "Indenture") among Tyco International Group S.A., Tyco International Ltd. and The Bank of New York as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ______________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to __________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [___] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any 26 applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [___] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE, OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [__] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RESTRICTED DEFINITIVE NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [__] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [__] such Transfer is being effected to the Company or a subsidiary thereof; or 27 (c) [__] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [__] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by a certificate executed by the Transferee in the form of Exhibit D to the Indenture. 4. [ ] Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the 28 Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _______________________________ [Insert Name of Transferor] By: _______________________________ Name: Title: Dated: ______________ __, ____. 29 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _____), or (ii) [ ] Regulation S Global Note (CUSIP _____). (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _____), or (ii) [ ] Regulation S Global Note (CUSIP _____), or (iii) [ ] Unrestricted Global Note (CUSIP _____); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. 30 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Tyco International Group S.A. [_________________________] The Bank of New York [_________________________] Re: 6.125% Notes due 2008 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 6 dated November 2, 1998 (collectively, the "Indenture") among Tyco International Group S.A., Tyco International Ltd. and the Bank of New York. ____________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE OR REGULATION S GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities -1- 31 Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Rule 144A Global Note or a Regulation S Global Notes for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS TO BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTE OR A REGULATION S GLOBAL NOTE. In connection with the Exchange of the Owner's Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Rule 144A Global Notes or Regulation S Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Rule 144A Global Note or Regulation S Global Notes and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ___________________________________ [Insert Name of Owner] By: ___________________________________ -2- 32 Name: Title: Dated: __________________ __, ____. -3- 33 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Tyco International Group S.A. [_________________________] The Bank of New York [_________________________] Re: 6.125% Notes due 2008 (CUSIP ______________) Reference is hereby made to the Indenture, dated as of June 9, 1998, and the Supplemental Indenture No. 6 dated November 2, 1998 (collectively, the Indenture") among Tyco International Group S.A., Tyco International Ltd. And The Bank of New York as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act of 1993, as amended (the "Securities Act")), -4- 34 purchasing for our own account or for the account of such an institutional "accredited investor," and we are acquiring the Notes for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or other applicable securities laws and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand and acknowledge that the Notes have not been registered under the Securities Act, or any other applicable securities law and may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the Securities Act or any other applicable securities law, or pursuant to an exemption therefrom, and in each case in compliance with the conditions for transfer set forth below. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a "Qualified Institutional Buyer" within the meaning of Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales to non-U.S. persons that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) or Rule 501 under the Securities Act that is acquiring the Notes for its own account or for the account of such an institutional "accredited investor" for the investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver to the trustee (the "Trustee") under the Indenture pursuant to which the Notes are issued a letter from the transferee substantially in the form of this letter or as acceptable to the Trustee, which shall provide, among other things, that the transferee is a person or entity as defined in paragraph 1 of this letter and that is acquiring such Notes for investment purposes and not for distribution violation of the Securities Act. We acknowledge that the Company and the Trustee reserve the right prior to any offer, sale or other transfer of the Notes pursuant to clauses (d), (e) and (f) above prior to the Resale Restriction Termination Date to require the delivery of any opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. 3. We are acquiring the Notes purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion. -5- 35 4. You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: (Name of Purchaser) Date: __________________________________ [Insert Name of Accredited Investor] By: __________________________________ Name: Title: Dated: _________________ __, ____. -6- 36 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES DESCRIBED IN THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT 1 37 WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 2 38 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 No. 1 $200,000,000 CUSIP: 902118 AG 3 TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on November 1, 2008, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 3 39 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additional Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 4 40 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 5 41 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 6 42 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: _______________________________ Title: 7 43 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 6.125% NOTES DUE 2008 1. Indent(a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 6.125% Notes due 2008 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 6, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the 8 44 rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of 9 45 its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant Defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration 10 46 shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 7. Defeasance. The Indenture contains provisions for Defeasance and covenant Defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11 47 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 12 48 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: ----------------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 13 49 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 14 50 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES DESCRIBED IN THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT 1 51 WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. 2 52 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 No. 2 $200,000,000 CUSIP: 902118 AG 3 TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Two Hundred Million Dollars on November 1, 2008, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 3 53 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additional Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 4 54 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 5 55 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 6 56 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: ______________________________________ Title: 7 57 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 6.125% NOTES DUE 2008 1. Indenture. (a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 6.125% Notes due 2008 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 6, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the 8 58 rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of 9 59 its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant Defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration 10 60 shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 7. Defeasance. The Indenture contains provisions for Defeasance and covenant Defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11 61 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 12 62 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: --------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 13 63 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 14 64 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THE NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.9 OF SUPPLEMENTAL INDENTURE NO. 6, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. 1 65 TYCO INTERNATIONAL GROUP S.A. 6.125% NOTE DUE 2008 No. 3 $0 CUSIP: L93727AB8 TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or registered assigns, the principal sum of Zero Dollars on November 1, 2008, at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay semiannually on May 1 and November 1 of each year (each, an "Interest Payment Date"; provided, however, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day but no additional interest shall be paid in respect of such intervening period), commencing May 1, 1999, the amount of interest on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from November 2, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for until said principal sum has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. For purposes of this Note, "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. The interest payable on any Interest Payment Date which is punctually paid or duly provided for on such Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the April 15 or October 15 (in each case, whether or not a Business Day), as the case may be (each, a "Regular Record Date"), immediately preceding such Interest Payment Date. Interest payable on this Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name this Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to the Person in whose name this Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Issuer to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. At the option of the Issuer, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Issuer, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date of the Notes. 2 66 All references in the Notes (and related Guarantees) to interest shall include any Additional Interest or Additional Amounts. Reference is made to the further provisions of this Note set forth on the reverse hereof. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture referred to on the reverse hereof. 3 67 IN WITNESS WHEREOF, TYCO INTERNATIONAL GROUP S.A. has caused this instrument to be signed by its duly authorized officers. Dated: November 2, 1998 TYCO INTERNATIONAL GROUP S.A. By:________________________________ Title: By:________________________________ Title: 4 68 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: __________________________ Authorized Signatory 5 69 GUARANTEE For value received, TYCO INTERNATIONAL LTD. hereby absolutely, unconditionally and irrevocably guarantees to the holder of this Note the payment of principal of, and interest on, the Security upon which this Guarantee is endorsed in the amounts and at the time when due and payable whether by declaration thereof, or otherwise, and interest on the overdue principal and interest on, if any, of such Note, if lawful, and the payment or performance of all other obligations of the Issuer under the Indenture or the Notes, to the holder of such Note and the Trustee, all in accordance with and subject to the terms and limitations of such Note and Article Thirteen of the Indenture. This Guarantee will not become effective until the Trustee duly executes the certificate of authentication on this Note. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles thereof. All references in this Guarantee to interest shall include any Additional Amounts or Additional Interest. Dated: November 2, 1998 TYCO INTERNATIONAL LTD. By: _________________________________ Title: 6 70 REVERSE OF NOTE TYCO INTERNATIONAL GROUP S.A. 6.125% NOTES DUE 2008 1. Indenture. (a) This Note is one of a duly authorized issue of notes of the Issuer (hereinafter called the "Notes") of a series designated as the 6.125% Notes due 2008 of the Issuer, initially limited in aggregate principal amount to $400,000,000, all issued or to be issued under and pursuant to an indenture, dated as of June 9, 1998, as amended and supplemented by Supplemental Indenture No. 6, dated as of November 2, 1998 (as so amended and supplemented, the "Indenture"), among the Issuer, Tyco International Ltd. ("Tyco") and The Bank of New York, as Trustee (herein called the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Issuer, Tyco, the Trustee and the Holders of the Notes. (b) Other debentures, notes, bonds or other evidences of indebtedness (together with the Notes, hereinafter called the "Securities") may be issued under the Indenture in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any) and may otherwise vary from the Notes and each other, as in the Indenture provided. (c) All capitalized terms used in this Note (or the related Guarantee) which are defined in the Indenture and not otherwise defined herein shall have the meanings assigned to them in the Indenture. 2. Amendments and Waivers. (a) The Indenture contains provisions permitting the Issuer and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of all series to be affected (voting as one class), evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the Holders of the Securities of each such series; PROVIDED, that no such supplemental indenture shall (i) extend the final maturity of any Security, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof pursuant to 7 71 Section 4.1 of the Indenture or the amount thereof provable in bankruptcy pursuant to Section 4.2 of the Indenture, or impair or affect the rights of any Holder to institute suit for the payment thereof, without the consent of the Holder of each Security so affected, or (ii) reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holder of each Security affected. (b) It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, prior to any declaration accelerating the maturity of such Securities, the Holders of a majority in aggregate principal amount Outstanding of the Securities of such series (or, in the case of certain defaults or Events of Default, all or certain series of the Securities) may on behalf of the Holders of all the Securities of such series (or all or certain series of the Securities, as the case may be) waive any such past default or Event of Default and its consequences. The preceding sentence shall not, however, apply to a default in the payment of the principal of or premium, if any, or interest on any of the Securities. Any such consent or waiver by the Holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Note and any Notes which may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. 3. Obligation to Pay Principal, Premium, if Any, and Interest. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Issuer, Tyco or any other obligor on the Notes, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note in the manner, at the respective times, at the rate, at the place and in the coin or currency herein prescribed. 4. Redemption. This Note may be redeemed, in whole or in part, at the option of the Issuer at any time at a redemption price equal to the greater of (i) 100% of the principal amount of this Note, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 25 basis points plus, in each case, accrued interest thereon to the date of redemption. This Note is also subject to redemption to the extent provided in Article Twelve of the Indenture. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the Comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. 8 72 "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury Dealer Quotations. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Lehman Brothers Inc. and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. 5. Certain Covenants. The Indenture restricts the Issuer's ability to merge, consolidate or sell substantially all of its assets. In addition, the Issuer is obliged to abide by certain covenants, including covenants limiting the amount of liens it may incur, as well as its ability to enter into sale and leaseback transactions, a covenant limiting the ability of its subsidiaries to incur indebtedness, and a covenant requiring it to pay or discharge all taxes, all as more fully described in the Indenture. All of such covenants are subject to the covenant defeasance procedures outlined in the Indenture. 6. Effect of Event of Default. If an Event of Default shall have occurred and be continuing under the Indenture, the principal hereof may be declared, and upon such declaration shall become, due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. 9 73 7. Defeasance. The Indenture contains provisions for defeasance and covenant defeasance at any time of the indebtedness on this Note upon compliance by the Issuer with certain conditions set forth therein. 8. Denominations; Transfer. (a) The Notes are issuable in registered form without coupons in denominations of $1,000 and any multiple of $1,000 at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, and in the manner and subject to the limitations provided in the Indenture. (b) Upon due presentment for registration of transfer of this Note at the office or agency of the Issuer in the Borough of Manhattan, The City of New York, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange therefor, subject to the limitations provided in the Indenture. This Note may also be surrendered for exchange at the aforesaid office or agency for Notes in other authorized denominations in an equal aggregate principal amount. No service charge shall be made for any registration of transfer or any exchange of the Notes, except that the Issuer may require payment of any tax or other governmental charge imposed in connection therewith. (c) A certificate in global form representing all of a portion of the Notes may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or any such nominee to a successor Depositary for such Notes or a nominee of such successor Depositary. 9. Holder as Owner. The Issuer, Tyco, the Trustee and any authorized agent of the Issuer, Tyco or the Trustee may deem and treat the registered Holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon), for the purpose of receiving payment of, or on account of, the principal hereof and, subject to the provisions on the face hereof, interest hereon, and for all other purposes, and none of the Issuer, Tyco or the Trustee or any authorized agent of the Issuer, Tyco or the Trustee shall be affected by any notice to the contrary. 10. No Liability of Certain Persons. No recourse under or upon any obligation, covenant or agreement of the Issuer or Tyco in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, or any past, present or future shareholder, officer or director, as such, of the Issuer, Tyco or of any successor corporation of either of them, either directly or through the Issuer, Tyco or any successor corporation, under any rule of law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration for the issue hereof. 11. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Notes other than Holders of Unrestricted Global Notes and Holders of Unrestricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, dated as of 10 74 November 2, 1998, among the Issuer, Tyco International Ltd. and the parties named on the signature pages thereof. 12. Governing Law. The laws of the State of New York govern the Indenture and this Note. 11 75 FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto: PLEASE INSERT TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE - --------------------------------- - --------------------------------- - --------------------------------- PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- the within Note of Tyco International Group S.A. and all rights thereunder and hereby irrevocably constitutes and appoints such person attorney to transfer such Note on the books of Tyco International Group S.A., with full power of substitution in the premises. Dated: --------------------------------------- Signature NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WITHIN INSTRUMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE SHOULD BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY, A MEMBER ORGANIZATION OF A NATIONAL STOCK EXCHANGE OR BY SUCH OTHER ENTITY WHOSE SIGNATURE IS ON FILE WITH AND ACCEPTABLE TO THE TRANSFER AGENT. 12 76 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in the Global Note, have been made:
Amount of Amount of decrease in increase in Principal Amount of this Global Signature of Authorized Date of Principal Amount Principal Amount Note following such decrease (or Officer of Trustee or Note Exchange of this Global Note of this Global Note increase) Custodian - -------- ------------------- ------------------- -------------------------------- -------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
* This Schedule may be used by the Trustee in respect of a Global Note, and, if so used, shall be deemed a part thereof for all purposes. 13 EX-4.19 4 $800 MILLION PRIVATE PLACEMENT OFFERING 1 EXHIBIT 4.19 UNITED STATES SURGICAL CORPORATION Officer's Certificate March 17, 1998 Each of the undersigned, in his capacity as an officer of United States Surgical Corporation, a Delaware corporation (the "Company"), hereby certifies, pursuant to resolutions of the Board of Directors of the Company adopted on February 3, 1998 and resolutions of the Transaction and Finance Committee of the Board of Directors of the Company adopted on March 16, 1998, that: A. APPROVAL OF SENIOR INDENTURE AND APPOINTMENT OF SENIOR TRUSTEE The Indenture relating to senior debt securities of the Company (the "Senior Indenture") to be entered into by the Company, substantially in the form attached hereto as Annex A, is hereby approved and the Bank of New York is hereby appointed trustee thereunder. B. AUTHORIZATION OF 7-1/4% SENIOR NOTES DUE MARCH 15, 2008 There is hereby established a series of senior debt securities of the Company to be issued under the Senior Indenture having the following terms: 1. Title of securities: 7-1/4% Senior Notes due March 15, 1998 (the "Notes") 2. Aggregate principal amount of Notes: $300,000,000 3. Maturity date: March 15, 2008 4. Interest rate: 7-1/4% per annum 5. Issue price: 99.097% of principal amount plus accrued interest, if any, from March 20, 1998 (Reflects an underwriting discount of .750% from the initial public offering price of 99.847%) 6. Date from which interest accrues: From March 20, 1998 7. Interest payment dates: March 15 and September 15, commencing September 15, 1998 2 8. Regular record dates: The March 1 or September 1, as the case may be, next preceding the applicable interest payment date. 9. Redemption provisions: None 10. Sinking fund provisions: None 11. Conversion or exchange features: None 12. Defeasance and discharge: Sections 4.4 and 4.5 of the Senior Indenture are applicable 13. Covenants: Covenants: The covenants provided for in Article X of the Senior Indenture will be applicable to the Notes, except as set forth in the immediately following sentences. The percentage reference in clause (11) of the "Limitation on Liens" covenant contained in Section 10.7 of the Senior Indenture to 10.0% shall be 5.0% provided, however, that if and for so long as the Notes are assigned a rating of Baa1 (or the equivalent) or higher by Moody's Investors Service, Inc. or its successors ("Moody's") and a rating of BBB+ (or the equivalent) or higher by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. or its successors ("S&P"), such percentage shall be 10.0%; provided further, that in the event Moody's or S&P is no longer in existence or issuing ratings, for purposes of determining whether such percentage shall be 5.0% or 10.0%, such organization may be replaced by a nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act of 1933, as amended) designated by the Company with notice to the Trustee and the provisions of the foregoing proviso shall apply to the rating issued by such replacement rating agency. 2 3 14. Date of delivery: March 20, 1998 15. Form of the Notes: A. BOOK ENTRY SECURITIES: The Notes will initially be issued in the form of one or more book-entry securities deposited with, or on behalf of, The Depository Trust Company (the "Depositary"), and registered in the name of the Depositary or its nominee (each, a "Book-Entry Note"), and the transfer of the Notes will be restricted in accordance with the existing operating procedures of the Depositary. The Company will make payments of principal, premium, if any, and interest due on the Notes represented by one or more Book-Entry Notes to the Depositary or its nominee, as the case may be, as the registered owner of the related Book-Entry Note or Notes. The Depositary will credit the accounts of the related participants in accordance with its existing operating procedures. B. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES: Upon the occurrence of any of the events described in the last paragraph of Section 3.5 of the Senior Indenture, an owner of a beneficial interest in a Book-Entry Note will be entitled to physical delivery in certificated form of Notes equal in principal amount to such beneficial interest and to have such Notes registered in its name. Notes so issued in certificated form will be issued in denominations of $1,000 or any amount in excess thereof that is an integral multiple of $1,000 and will be issued in registered form only, without coupons. 16. Payment of principal, premium, if any, and interest: So long as the Notes are represented by one or more Book-Entry Notes, payments shall be made as provided above; for certificated Notes, if any, payments shall be made at the office or agency of the Company maintained in the Borough of Manhattan, The City of New York, which initially is at the Corporate Trust Office of the Trustee, 101 Barclay Street, New York, New York 10286; PROVIDED, HOWEVER, that at the option of the Company payment of interest for certificated Notes may be made by check mailed to the address of the person entitled thereto as such address shall appear in the register of holders of the Notes. The following additional matters pertain to the Notes: 1. The Notes are being issued specifically for the purpose of reducing outstanding indebtedness under the Company's $450,000,000 Credit Agreement (the "$450,000,000 Credit Facility") dated as of January 30, 1998 among the Company, the lenders party thereto, Bank of America National Trust and Savings Association, as Syndication Agent, The Bank of New York, as Administrative Agent, and Morgan Guaranty Trust 3 4 Company of New York, as Documentation Agent. The Notes contain terms and conditions substantially similar to or more favorable to the Company and the lenders under each of (i) the $450,000,000 Credit Facility, (ii) the Company's $325,000,000 Credit Agreement (the "$325,000,000 Credit Facility") dated as of December 20, 1995 among the Company, the eligible subsidiaries of the Company referred to therein, the banks and issuing banks party thereto, NationsBank, N.A., as Administrative Agent, the yen lenders party thereto, The Bank of New York, as Yen Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent, and (iii) the Company's $175,000,000 Credit Agreement (the "$175,000,000 Credit Facility") dated as of September 16, 1996 among the Company, the lenders party thereto, The Bank of New York, as Administrative Agent, and Morgan Guaranty Trust Company of New York, as Documentation Agent, within the meaning of Section 5.17 of the $450,000,000 Credit Facility, Section 6.17 of the $325,000,000 Credit Facility and Section 5.17 of the $175,000,000 Credit Facility, respectively. 2. The Notes shall be in substantially the form of the Note attached hereto as Annex B. C. APPROVAL OF UNDERWRITING AGREEMENT The underwriting agreement ("Underwriting Agreement") to be entered into by the Company with Salomon Brothers Inc, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., BancAmerica Robertson Stephens, BNY Capital Markets, Inc., Chase Securities Inc. and NationsBanc Montgomery Securities LLC, as underwriters, substantially in the form attached hereto as Annex C, is hereby approved. 4 5 IN WITNESS WHEREOF, each of the undersigned has hereunto executed this Officers' Certificate as of the 17th day of March, 1998. /s/ Howard M. Rosenkrantz ----------------------------------------- Howard M. Rosenkrantz President and Chief Operating Officer /s/ Richard A. Douville ----------------------------------------- Richard A. Douville Senior Vice President and Chief Financial Officer /s/ Jeffrey B. Scialllo ----------------------------------------- Jeffrey B. Scialllo Vice President, Information Services and Treasurer 5 EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 LIST OF ALL TYCO COMPANIES BY COUNTRY OF ORGANIZATION ARGENTINA A&E Argentina, S.A. Grinnell Sistemas de Proteccion Contra Incedio S.A. de C.V. Intecva Sudamericana S.R.L. AUSTRALIA ACN 000 233 536 Pty. Limited (1) ACN 007 664 253 Pty. Limited (2) ACN 069 907 384 Pty. Limited ADT Security Systems Limited Command Investments Pty. Limited Complete Engineering Group Pty. Limited Complete Engineering Service Division Pty. Ltd. Environ Pty. Limited Fire Control Pty Limited Fire Guard A.F.S. Pty Ltd. Firefair Pty Limited Firmagroup Operations Holdings Pty Limited G.F.P.S. Pty Limited (3) GAAM Engineering Pty. Ltd. Gold Energy (Aust) Pty. Limited Grinnell Asia Pacific Pty Limited (4) Kendall Australasia Pty Ltd. Keystone Asia Pacific Pty. Ltd. MB John Limited Mather & Platt Pty. Ltd. Newmac Building Products Pty. Limited Panmedica Pty. Ltd. Sherwood Medical Industries Pty. Limited Silan Pty Limited Super Nominees Pty Limited - ---------------------------- (1) Also doing business under the following name: GAAM Fire & Rescue (2) Also doing business under the following name: Firegard (Australia) Company (3) Also doing business under the following name: Guardian Fire Protection Co. (4) Also doing business under the following names: Fire Guard A.F.S., Grinnell ACT, Grinnell Controlled Atmospheres, Grinnell Flow Control, Grinnell Supply Sales, Jefferson Electrical Services, O'Donnell Griffin, Planned Communications Australia, WF Energy Controls 1 2 TESP Pty. Limited TISP Pty Limited Tyco Australia Pty Ltd. (ACN 008 399 004) (5) Tyco Building Products Pty Limited (6) Tyco Engineering and Construction (Asia) Pty. Ltd. Tyco Flow Control Pacific Pty. Limited Tyco Grinnell Asia Pacific Pty Limited Tyco International Pty Limited Viking Fire Systems Pty Limited (7) Yarway Australia Pty. Ltd. AUSTRIA Total Walther Feuerschutz und Sicherheit GmbH BAHAMAS Newington Limited World Services Inc. BARBADOS Exeter Holdings Limited INBRAND FSC Inc. Kendall International FSC, Inc. Keystone FSC Ltd. SWD Foreign Sales Corporation TSSL Foreign Sales Corporation BELGIUM 1991 CIPE Benelux 1994 WHICH 1997 AIRVANS ADT Security Services S.A. BVBA Alarmcentrale AC N.V. ADT Security Services S.A. Sherwood Benelux S.A. - -------------------------- (5) Also doing business under the following names: ACT Plumbing & Maintenance, Advanced Systems Engineering, Building Asset Maintenance, E.P.S. Electrical & Plubming Services, Fire Control Services, FHD Airconditioning, Goldfields Fire Services, Masterbilt Industries, Olsen Engineering Company, Quintrix Communications, safeguard Fire Systems, Simplex Fire Protection Company, Tyco Fire Monitoring, Viking Fire Sprinklers, Williams Extinguisher Service, Wormald Advanced Systems Engineering, Wormald Building Products, Wormald Control Systems, Wormald Electronics, Wormald Fire & Safety, Wormald Fire Engineering, Wormald Technology (6) Also doing business under the following names: Cecon Fire Doors (NSW only), Fire Systems Engineering, Metalbilt, Padde, Sealeck Doors & Windows (7) Also doing business under the following name: Viking Fire Sprinklers (SA and NT only) 2 3 Wormald S.A. Zettler Belgique S.A. BERMUDA Camron (Bermuda) Insurance Ltd. Camron Finance (Bermuda) Limited Cawich Limited Electro-Protective Limited Kral Steel, Ltd. Tyco Holdings Limited Tyco International Ltd. BORNEO Wormald Borneo Sdn. Bhd. BRAZIL Ansul do Brasil Ltda. Grinnell Sistemas de Protecao contra Incendio Ltda. Keystone do Brasil Ltda. BRITISH VIRGIN ISLANDS A-G Casualty Ltd. Somerset Holdings Ltd. CANADA 495649 Ontario Limited 919551 Ontario, Inc. 921150 Ontario, Inc. ADT Canada Holdings Limited (72.84%) ADT Finance, Inc. ADT Security Services Canada, Inc. Cantech Corporation Extincto Ltee Forward Safety Systems, Inc. Hawley Group Canada Limited Hygieia Holdings (Canada) Inc. Inbrand Canada Inc. Jenteck Controls Ltd. Kendall Canada, Inc. Keystone Canada, Co. 3 4 Ludlow Canada, Inc. Rust Environment & Infrastructure of Canada Inc. Sherwood Medical Industries (Canada) Inc. Tyco International of Canada Ltd. (8) Unistrut of Canada Limited Pony Express Residential Security Ltd. Wells Fargo Alarm Services of Canada Limited Century Industries Company CAYMAN ISLANDS Anderson-Greenwood Overseas Ltd. Davis & Geck Caribe Limited Davis & Geck Limited CHANNEL ISLANDS ASH Capital Finance Driftwood Limited Exbury Limited Itoba Limited Labyrinth Investments Limited Linksview Limited Tinwald Limited CHILE Comercial Kendall (Chile) Limitada Interco Alarmas De Chile, S.A. Santex, S.A. Unistrut Chile Comercial E. Industrial Limitada COLOMBIA Kendall Colombia, S.A. COSTA RICA - ---------------------- (8) Also doing business under the following names: Canvil, Mueller Canada, Grinnell Fire Protection, Grinnell Supply Sales, Wormald Canada, Scotia Sprinklers, Wormald Fire Systems 4 5 Carlisle Costa Rica S.A. Kendall Innovadores en Cuidados al Paciente S.A. CZECH REPUBLIC Stabilni Hasici Zarizeni spol s.r.o. Zettler C.R. Spol. s.r.o. DENMARK Thorn Security Danmark A/S Wormald A/S ECUADOR Grinnell Sistemas de Proteccion Contra Incedio, S.A. FRANCE ADT Securite Services S.A. ADT Security Services S.A. Acheroise de Participations Acroba S.A. Bon & Naga S.A. CEDI Securite CEMOS S.A. CIPE France SA COFILION DSI (34%) Euroville FINASUR FIRENT Gachot, SCA Grinnell Distribution France Sarl Gubri SA INBRAND France SA Kendall S.A. Laboratoires Sherwood Davis & Geck S.A. Labrotoire Alaune Mather & Platt Wormald S.A. Nomos Holding S.A. Nomos SA Omnium de Prevention et de Protection Incendie PREFI Sherwood-Davis & Geck Needles S.A. Societe Europeene de Protection Control L'Incendie S.A. Societe Industrial de Rosheim - S.I.R.ROS S.C.A. TELESIX TEP TSA Gap (34%) Tyco Europe S.A. 5 6 Tyco Flow Control Holding S.A. VISAGEST WHICH GERMANY 1994 CIPE Deutschland 1997 TEP Deutschland 1996 WHICH Deutschland 1998 JALEX ARBO Medizin-Technologie GmbH ARBO-tec Sensor-Technologie GmbH AZ Elektroanlagenbau GmbH AZ Immobilien GbR B. Braun-Dexon GmbH (50%) Babcock Sempell AG Babcock Sempell Armaturen-Service GmbH CDK Holding Deutschland GmbH CDK Holding GmbH Chemat GmbH Erichs Armatur AB GH Montage GmbH Grinnell Flow Control GmbH Grinnell Flow Control GmbH & Co. Distribution OHG H&H Med. GmbH Helmut Geissler Glasinstrumente GmbH Kendall Medizinische Erzeugnisse GmbH Keystone GmbH Med. Holding GmbH Medolas Gesellschaft Fur Medizintechnik MBH NARVIK Armaturen Vertriebsgesellschaft mbH Otto Fankhanel & Sohn GmbH Pirna Copitz Rathgeber BIOFORM GmbH Raumschutzanlagenbau GmbH SABO-Armaturen Service GmbH Sempell Valves (Pvt) Ltd. Sherwood Medical GmbH Thorn Sicherheits GmbH Total Walther Feuerschutz Loschmittel GmbH Total Walther GmbH Triangle Controls Ltd. Tyco Holding GmbH Tyco International Armaturen Holding GmbH i Gr. Vonk Enschede BV Zettler Hilfe e.V. 6 7 GIBRALTAR Stralen Investments Limited Valera Holdings Limited Velum 1998 Limited Verdana Holdings Limited GREECE ADT Greece S.A. (82.5%) Greene Insurance Limited GUATEMALA Grinnell Sistemas de Proteccion Contra Incendio, S.A. de C.V. (Guatamala) Tyco Ingenieria y Construccion S.A. HONG KONG A&E Products (Far East) Limited Crown Nation International Limited (50%) Dawson Engineering Limited (50%) Kendall (Asia) Medical Products Limited Kendall Medical (Hong Kong) Limited Keystone Valve Hong Kong, Ltd. Modern China Giant Limited ODG-Energy Controls Limited Pioneer Faith International Limited (50%) Sherwood Medical (Hong Kong) Limited Thorn Security (Hong Kong) Limited Tyco Engineering & Construction (HK) Limited Tyco/Tudawe Trading Cooperation Wormald Engineering Services Ltd. HUNGARY Total Walther Contractor and Engineering INDIA Keystone Valves (India) Pvt. Ltd. Modern Alarms & Electronics Pvt Ltd. Stenco Engineering Co. Pvt. Ltd. 7 8 INDONESIA P.T. ODG Wormald Indonesia (80%) IRELAND A.E.L. Video (Ireland) Limited ABA Electronics Ltd. ACE Alarm Systems Ltd. ADT Limited ADT Ltd. Abel Alarms Ireland Ltd. Allied Alarms & Safes Ltd. Allied Alarms Ltd. Allied Metal Products Ltd. Allied Security Products Ltd. Brangate Limited Exeter Insurance Company Limited Huet Security Ltd. IAMASCO Plc Kendall Medical Limited Knightline Ltd. Knightlock Ltd. Knightvision Ltd. Knightwatch Alarms, Ltd. Mather & Platt (Ireland) Limited Mather & Platt Ireland (Manufacturing) Limited Modern Security Systems Limited Sandalwood Limited Securitag Ltd. Security Control Risk & Monitoring Ltd. Sherwood Medical Industries of Ireland Limited Tyco Ireland Limited ITALY Biffi Italia S.r.l. Kendall Medical S.R.L. Meditec s.r.l. Sherwood Medical Italia S.r.l. Vanessa S.r.l. Wormald Italiana S.P.A. Zettler App. Eletricci S.p.A. Zettler S.R.L. 8 9 JAPAN Nihon Kendall K.K. Nippon Keystone Corporation Nippon Sherwood Medical Industries Ltd. (58%) KINGDOM OF SAUDI ARABIA Abahsain-Cope, S.A. Ltd. KOREA Kendall Medical Ltd. Keystone Valve (Korea) Limited LUXEMBOURG 1997 CIPE Luxembourg ADT Finance S.A. ADT Luxembourg S.A. Ocarina S.A. Tyco Group S.a.r.l. Tyco International Group S.A. MALAYSIA Brunsfield Holdings Sdn. Bhd. Brunsfield Thorn Technology Sdn. Bhd. (50%) Grinnell Supply Sales (Malaysia) Sdn. Bhd. (50%) Innodouble (M) Sdn. Bhd. (51%) Keystone Valve (M) Sdn. Bhd. Kijang Merger Sdn Bhd Kumpulan Injap Kebesan (M) Sdn. Bhd. Mediquip Sdn. Bhd. Thorn Security Services (Malaysia) Sdn. Bhd. (30%) Tyco Engineering & Construction (Malaysia) Sdn. Bhd. Tyco Flow Control (Malaysia) Sdn. Bhd. Tyco Grinnell KM Sdn. Bhd. (30%) MARSHALL ISLANDS C.S. Tyco Provider, Inc. 9 10 Coastal Cable Ship Co. Inc. MAURITIUS Tyco Asia Investments Limited MEXICO Ansul Mexico, S.A. de C.V. Carlisle Recycling de Mexico S.A. de C.V. Cima de Acuna S.A. de C.V. Euro-Flex de Mexico, S.A. de C.V. Especialidades Medicas Kenmex, S.A. Grinnell Sistemas de Proteccion Contra Incendio Mexico S.A. de C.V. 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. Productos de Atencion de Salud de Mexico, S.A. Rust Servicos Ambientales E Infrastructura, S.A. de C.V. Tyco Engineering and Construction S.A. De C.V. Valvulas Keystone de Mexico S.A. de C.V. NETHERLANDS 1994 CIPE Nederland 1997 TEP Nederland ADT Canada B.V. ADT Canada Holdings B.V. ADT Finance B.V. ADT Holdings B.V. ADT Security Services B.V. ADT Security Services Holdings B.V. Automated Loss Prevention Systems BV Automated Security Intl. BV Grinnell Sales & Distribution B.V. Inbrand Benelux B.V. Inbrand Europe BV Keystone Valve (Europa) B.V. Nieuwkerk BV Pritchard Services Group BV Sherwood Medical Nederland B.V. Thorn Security Nederland BV Thuiszorg Direct BV (90%) 10 11 Total Walther B.V. Tyco Labs Holland I B.V. Tyco Waterworks B.V. Unistrut (Benelux) B.V. Vital Disposables BV Vital Medical BV Walther Brandbeveiliging B.V. Wormald B.V. Zettler Netherlands N.V. NETHERLANDS ANTILLES ADT Finance NV DE20 N.V. NEW ZEALAND A.F.A. Monitoring Limited ADT Holding Co. No. 3 Limited ADT Holdings Co. No. 1 Limited ADT Holdings Co. No. 2 Limited Armourguard Security Limited Associated Fire Alarms Ltd. (39%) Command Nominees Limited Danks Bros. Limited Enlist Consulting Limited Fire Protection Inspection Services Ltd. 19%) Holyhead Holdings Limited Kendall New Zealand Limited Key Contact Limited Keystone New Zealand Limited New Zealand Valve Company Limited Nortrac Engineering Limited Securacopy Services (1992) Limited Seekers Communications Limited Tyco New Zealand Limited NORWAY Ergoform AS (75.1%) Wormald Control Systems A/S Wormald Signalco A/S 11 12 PANAMA Kendall, S.A. (Panama) PEOPLE'S REPUBLIC OF CHINA Beijing Keystone Valve Co. Ltd. Kendall-Yantai Medical Products Company, Ltd. Keystone (Jingmen) Valve Co. Ltd. (80%) Keystone Valve (China) Ltd. Shenyang OYT-Grinnell Fire Door Manufacturing Company Limited Shenyang Yarway Valve Co. Ltd. PHILIPPINES Tyco-PIECO Corporation, Inc. (80%) Carlisle Philippines, Inc. PORTUGAL B. Braun-Dexon (Portugal) Produtos Hospitalares Ltda. (50%) SINGAPORE Grinnell Supply Sales Asia Pte. Ltd. INBRAND Asia Pte. Ltd. (40%) Kendall Medical Far East Pte. Ltd. Keystone Southeast Asia Pte. Ltd. Thorn Security Pte. Limited Tyco Engineering and Construction (SEA) Pte. Ltd. Tyco Laboratories International (1993) Pte. Ltd. SLOVAK REPUBLIC Total Walther - Stabilne hasiace zariadenia s.r.o. SOUTH AFRICA Intervalve (Pty) Ltd. Kendall Medical (Proprietary) Limited Kendall South Africa (50%) 12 13 SPAIN 1990 CIPE Espana ADT-Prosegur Sistemas de Seguridad S.A. (50%) B. Braun-Dexon, S.A. (50%) Belgicast Internacional S.L. Division 7 Hygienical Absorbents, S.A. INBRAND Espana, S.L. Kendall Espana S.A. Kendall Proclinics, S.L. Wormald Mather & Platt Espana S.A. (9) SWEDEN Kendall Medical AB Modern Prefabspecialisten Sprinkler i Lammhult AB Wormald CZ s.r.o. Wormald Fire Systems A.B. SWITZERLAND 1993 CIPE Suisse 1997 TEP Suisse ADT Franchising AG ADT Monitoring Services AG ADT Services AG Confab Services AG Kendall Medical AG (Kendall Medical Ltd.) Neotecha A.G. Sherwood Services AG Total Walther Feuerschutz A.G. Zettler AG TAIWAN Carlisle Taiwan, Inc. Kendall Medical Ltd. Keystone Valve (Taiwan) Ltd. Wormald Engineering Systems Taiwan Ltd. THAILAND Kendall Gammatron Limited (85%) Kendall Medical Ltd. - ---------------------- (9) Also doing business under the following name: Wormald Espania 13 14 Keystone Valve (Thailand) Ltd. (50%) Tyco International (Thailand) Ltd. (50%) TURKS AND CAICOS Waveney Investments Limited US VIRGIN ISLANDS Ferrari Medical International, Inc. Rochester Cable and Rope (FSC) Co., Inc. Tyco International Sales Corp. UNITED ARAB EMIRATES Anderson-Greenwood Middle East (50%) UNITED KINGDOM A.R.C. Fire Protection Ltd. A.S. (Overseas) Ltd. ADT ADT (UK) Holdings plc ADT (UK) Limited ADT Aviation Limited ADT Finance PLC ADT Fire & 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 ADT Travel Limited ADT Trustees Limited ADT UK Investments Limited AFA-MINERVA Limited ATG Manufacturing Ltd. Abbey Security International Ltd. Abbey Security Management Ltd. Access Control Systems Limited Advanced Absorbent Products Holdings Ltd. Advanced Alarm Systems Limited American District Telegraph Services International Limited 14 15 Applied Maintenance Systems Limited Argyle Medical Industries (U.K.) Limited Ariel Burglary and Fire Protection Company Limited Ash Group Services Ltd. Ash Rentals Limited Atlas Fire Engineering Limited Audio Education Limited Auto Auctions (Scotland) Limited Auto Auctions Limited Automated Loss Prevention Systems International Ltd. 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 Technology Limited Automated Security Limited Avalon Emergency Systems Limited BCA (Auctions) Limited BCA (Mobile Homes) Limited BCA Sports Management Limited BCA Vehicle Preparation Limited Basingkirk Estates 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 Brocks Alarms Limited CDK U.K. Limited Camp Limited Camp Pension Trustees Limited Campeire Limited Capitol Alarms Limited Cellularm Limited Charles Winn (Valves) Limited Cheshire Alarm Services Ltd. Chiltern Security Limited 15 16 Cleaners (South West) Limited Cleaners Limited Coin Machine Sales Limited Combat Alarms Limited Comforta Healthcare Ltd. (UK) Communication & Tracking Services Limited Confab International Limited Constable's Alarm Company Limited Countrywide Leisure Holdings Limited D.C.S. Alarms Limited D.J. Security Alarms (Whales) Limited D.J. Security Alarms Limited Dicerule Limited Discreet Disposables Ltd. Donald Campbell Associates Limited Dong Bang Minerva (UK) Limited EMOS Rentals Limited Edward Barber & Company Limited Edward Barber (U.K.) Limited Ellis Son & Paramore Limited Emos Information Systems Limited Excelsior Security Services Limited Eyelevel Electronics Limited Farnham Limited Finesnatch Limited Fire Defender (U.K.) Ltd. (50%) Ford Electronic Services Limited Freedom Systems Ltd. Frome Motor Auction Sales Limited Gailey Caravan and Leisure Limited Ganmill Limited General Cleaning Contractors Limited Grinnell (U.K.) Ltd. (10) Grinnell Manufacturing (U.K.) Limited (11) Grinnell Sales & Distribution (U.K.) Ltd. Group Sonitrol Security Systems Limited HMC Factors Limited Hawley International Finance Limited Hertfordshire Security Systems Limited Hindle Cockburns Limited Home Improvement Holdings Limited Huddersfield Motor Auctions Limited Inbrand Ltd. Inbrand UK Holdings Ltd. - ---------------------------------------- 10 Also doing business under the following names: Grinnell Firekil, GEM Consultants 11 Also doing business under the following names: The Ansul Fabrication, Debro Engineering & Presswork 16 17 Inbrand UK Ltd. Industrial Cleaners (UK) Limited Intergrated Transport Systems Limited JEL Building Management Limited JEL Building Management Systems Limited JMC Rehab Limited James Deacon Security Limited Johnson and Sons Limited KS Lift Services Limited Kaldistone Limited Kean & Scott Limited Kendall Company (U.K.) Limited, The Keystone Valve (U.K.) Ltd. Lander Urban Renewal Limited Lastonet Products Limited Leprodux Limited Lesters Health Care Services Limited Libas International Limited Litepeel Limited Live-In-Style Furniture Limited Loss Prevention Ltd. M1 Car Auctions Limited M1 Motor Car Auctions Limited M25 Motor Auctions Limited M3 Car Auctions Limited Markden No. 1 Limited Markden No. 2 Limited Markden No. 3 Limited Markden No. 4 Limited Markden No. 5 Limited Markden No. 6 Limited Mather & Platt (Exports) Ltd. Mather & Platt Fire Protection Limited Mather and Platt Alarms Limited Measham Motor Auctions Limited Meridian Fire Protection Limited Midland Counties Motor Auctions Limited Minerva Fire Defence Limited Mobile Pressure Cleaning Limited Modern Alarms (Scotland) Limited Modern Alarms Limited Modern Alarms Limited Modern Automated Security Limited Modern Automatic Alarms (N.I.) Limited Modern Automatic Alarms Limited Modern Carecall Limited 17 18 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 ODL Limited OKD Limited OMK Limited PPR Alarms Limited Phoenix Security Services Limited Photovision Rentals Limited Priory Security Services Limited Pritchard Insurance Services Limited Pritchard Laundries Limited Pritchard Services Group Investments Limited Progressive Securities Investment Trust Limited Prospect Cleaning Supplies Limited Prospect House Investments Limited Prospect House No. 11 Limited Prospect House No. 5 Limited Prospect House No. 7 Limited Provincial Limited Pryor & Howard (1988) Limited Redhill Security Services Limited Region Protection (Notts) Limited Renalarms Ltd. S&W Bedrooms Limited Screentone Limited Securis Products Ltd. Securitag International Limited Security Alarms Limited Security Centres (Scotland) Limited Security Centres (UK) Holdings Limited Security Centres (UK) Limited Security Centres Holdings Intl. 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 Sky Signs Limited Snap Printing Limited 18 19 Sonitrol Limited Sovereign Security Systems Limited Spensall Engineering Limited Splendour Cleaning Services Limited Stapp Limited Steel Support Systems Limited Steeplock Limited Streets Machine Operating Company Limited Stretford Security Services Limited TSG Trustees Limited TVX Ltd. Taskman Security Services Limited Telecom Security Limited Ten Acre Securities Ltd. Thameside Lock and Safe Company Limited The British Car Auction Group Limited The British Security Consortium Limited The City Laundry (Norwich) Limited The Commercial Motor Auctions Limited The Expedier Development Company Limited The G B Auction Group Limited The Mirror Laundries Limited The Motor Auctions (Derby) Limited The Motor Auctions (London) Limited The Motor Auctions (Scotland) Limited The Motor Auctions Group Limited Thorn Security Group Limited Thorn Security International Limited Thorn Security Limited Thornfire Limited Total Lift Services Limited Trade Fire Limited Tunite Limited Tustin Machine Tools Limited Tyco Holdings (UK) Ltd. Tyco Valves Limited Tyne CarAuction 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 Vernon-Carus Limited 19 20 Vic Engineering Limited Vital Communications International Ltd. W&S Freeman Limited Wealdpoint Limited White Group Electronics Limited Wholematch Limited Willow (Whales) Limited Wormald Ansul (U.K.) Ltd. 12 Wormald Engineering Ltd. Wormald Fire Systems Ltd. Wormald Holdings (U.K.) Ltd. Wormald Industrial Property Ltd. Zettler Limited 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. Tyco Flow Control de Venezuela, CA UNITED STATES OF AMERICA ADT Holdings, Inc. A&E Construction Products, Inc. A-G Safety Services, Inc. AA Property Holdings, Inc. AAAA Dealer Services, Inc. ADT Automotive Holdings, Inc. ADT Automotive Services, Inc. ADT Automotive, Inc. ADT General Holdings, Inc. ADT Investments II, Inc. ADT Investments, Inc. ADT Maintenance Services, Inc. ADT Operations, Inc. ADT Property Holdings, Inc. - --------------------------- 12 Also doing business under the following names: Wormald Fire Systaems, Wormald Engineering, Wormald Britannia, Wormald Lintott and Lintott Process Systems 20 21 ADT Security Services, Inc. ADT Security Systems, West, Inc. ADT Services, Inc. ADT Specialty Auctions, Inc. ADT Title Holding Company I ADT Title Holding Company II Advanced Protection Services, Inc. Alarms By Protectus, Inc. Alternative Ways, Inc. Alarm Specialist, Inc. API Security, Inc. ATC Sales Company Allied Tube & Conduit Corporation Anderson, Greenwood & Co. Ansul, Incorporated 13 Armin Plastics Fairmont, Inc. Armin Plastics, Inc. 14 Atcor, Inc. Auction Transport, Inc. Automated Security Corp. Automated Security Holdings, Inc. Beacon Security Systems, Inc. BW - Canada Alarm (Wells Fargo) Corporation British Car Auctions, Inc. Burton, Adams, Kemp & King, Inc. Certified Systems Central Station, Inc. Certified Systems, Inc. Crosby Valve, Inc. C.S. Charles L. Brown, L.P. (75%) C.S. Global Link, L.P. (75%) C.S. Global Mariner, L.P. (75%) C.S. Global Sentinel, L.P. (75%) C.S. Long Lines, L.P. (75%) CCTC International, Inc. CV Holding Inc. CVG Holding Corp. Carlisle Plastics, Inc. Coast Alarm Inc. Confab Holding Corp. Confab International L.P. Crosby Valve International Ltd. - ----------------------------- 13 Also doing business under the following name: Ansul Fire Protection 14 Also doing business under the following names: Armin Plastics-Western Region, Armin Plastics California, Armin Thermodynamics, Armin Plastics Northeast Region, Armin Poly-Version, Armin Polyethylene Bag, Armin Roto-Lith, Armin Plastics - Southeast Region, Armin Plastics North Carolina, Armin Plastics - Central, Armin Plastics-Midwest Region, Armin Plastics Oklahoma 21 22 Crosby Valve Sales & Services Corporation Davis & Geck, Inc. Dictograph Franchise Corporation Dunk Automatic Sprinkler Company, Inc. Earth Tech, Inc. Earth Tech Holdings, Inc. Earth Tech Engineers of New York, P.C. Earth Technology Corporation (USA), The Electro Signal Lab, Inc. FCI Liquidations, Inc. Fire Detection Consultants, Inc. Flying Lion, Inc. FRM Services, Inc. Gimpel Corporation Grinnell Corporation (15 Hanger Recycling Company Inc., The Henry Pratt Company Holmes Protection, Inc. (NY) Holmes Protection Inc. (Il) Holmes Protection Group, Inc. James Jones Company J.B. Smith Mfg. Co. Jeppo Industries, Inc. K.W. Cunningham & Associates, Inc. Kendall Holding Company Kendall Company LP, The (16) Keystone France Holdings Corp. Keystone Germany Holdings Corp. Keystone Kuwait, Inc. Keystone Middle East, Inc. Keystone Saudi, Inc. Keystone Valve-Middle East, Inc. Ludlow Corporation (17) Ludlow Jute Company Limited Mid-Atlantic Security, Inc. Mobile Security Communications, Inc. (19%) Mueller Service Co. ueller Co. Mueller Co. Foundation Mueller Holdings Corp. - -------------------------------- (15) Also doing business under the following names: Anvil Products, Automatic Sprinkler, Gem Sprinkler Company, Grinnell Flow Control, Grinnell Supply Sales Company, Grinnell Fire Protection Systems Company, Hersey Products, Tyco Flow Control, Tyco Fire & Security Services, Tyco Flow Control - Latin Division, Zettler (16) Also doing business under the following names: Kendall Healthcare, Kendall International (17) Also doing business under the following names: Accurate Forming, Ludlow Coated Products, Ludlow Technical Products, Uni-Patch 22 23 New England Fire Equipment Company, Inc. Polyken Technologies Europe, Inc. Private Products, Inc. Protex Special Systems, Inc. Redi-Electric Inc. Robinson Alarm Companies, Inc. Robinson Protective Alarm Company Rochester Corporation, The Rust Architecture Inc. Rust Environment & Infrastructure Inc. Rust Environment & Infrastructure of New York Inc. Rust Environment & Infrastructure, P.E., Arch. & L.S., P.C. Rust Environment & Infrastructure of Michigan Inc. Rust Architecture & Geology of North Carolina, P.C. Rust Environment & Infrastructure of North Carolina Inc. Rust Environment & Infrastructure of Ohio Inc. Security Systems of the Tri-State, Inc. Security Solutions Inc. Sherwood Medical Company Sherwood Medical Company I Sherwood-Accurate Inc. Sigma Circuits, Inc. Sigma Holding Corp. Simplex Technologies Inc. Sonitrol Corporation Sonitrol Management Corporation Star Sprinkler, Inc. SSI Atlantic Crossing Holdings LLC SSI Atlantic Crossing LLC Suntronix Special Systems, Inc. SWD Holding, Inc. SWD Holding, Inc. I T.J. Cope Inc. TKC Holding Corp. TME Management Corp. TSSL Holding Corp. Techcon International Inc. Transoceanic Cable Ship Company, Inc. Tri-City Auto Auction, Inc. TSSL Finance Company, Inc. Tyco Acquisition Corp. I Tyco Acquisition Corp. II Tyco Acquisition Corp. III Tyco Acquisition Corp. IV Tyco Acquisition Corp. V Tyco Acquisition Corp. VI 23 24 Tyco Acquisition Corp. VII Tyco Acquisition Corp. VIII Tyco Acquisition Corp. IX Tyco Acquisition Corp. X Tyco Acquisition Corp. XI Tyco Acquisition Corp. XII Tyco Acquisition Corp. XIII Tyco Acquisition Corp. XIV Tyco Acquisition Corp. XV Tyco (US) Holdings, Inc. Tyco Finance Corp. Tyco Holdings, Inc. Tyco International Asia, Inc. Tyco Flow Control, Inc. Tyco Valves & Controls, Inc. Tyco Investments, Inc. Tyco Receivables Corp. Tyco Submarine Systems Ltd. Tyco International (US) Inc. Tyco Printed Circuit Group Inc. Tri-Parish Security Systems, Inc. Unistrut Corporation Unistrut International Corp. United States Construction Co. The Waverly Group LLC WGV Liquidations, Inc. Water Holdings Corp. Wells Fargo Alarm Services, Inc. Wormald Americas, Inc. Wells Fargo Pyro Technologies, Inc. White Mountain Insurance Company Yarway Corporation 24 EX-23.1 6 CONSENT OF PRICEWATERHOUSECOOPERS 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, 333-33779, 333-43333, 333-50855 and 333-50855-01) and on Form S-8 (File Nos. 33-38249, 33-26970, 333-03975, 333-33999 and 333-34001) of Tyco International Ltd. of our report dated October 23, 1998 on our audits of the Consolidated Financial Statements and the Consolidated Financial Statement Schedule of Tyco International Ltd. as of September 30, 1998 and 1997 and for the year ended September 30, 1998, the nine months ended September 30, 1997 and the year ended December 31, 1996, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers Hamilton, Bermuda December 9, 1998 EX-23.2 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 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, 333-33779, 333-43333, 333-50855 and 333-50855-01) and on Form S-8 (File Nos. 33-38249, 33-26970, 333-03975, 333-33999 and 333-34001) of Tyco International Ltd. of our report dated January 31, 1997 on our audit of the consolidated statements of income, changes in shareholders' investment and cash flows of Keystone International, Inc. and subsidiaries for the year ended December 31, 1996, which financial statements are not included herein. It also should be noted that we have not audited any financial statements of Keystone International, Inc. and subsidiaries subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. Arthur Andersen LLP December 9, 1998 Houston, Texas EX-27 8 FINANCIAL DATA SCHEDULE
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, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1998 SEP-30-1998 SEP-30-1998 820 0 2,217 257 1,460 5,743 5,706 1,996 16,527 5,048 4,653 0 0 117 6,020 16,527 12,311 12,311 8,046 8,046 0 82 205 1,718 541 1,177 0 2 0 1,175 2.07 2.02
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