-----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, VQSqy5XeKbeT2nnUPEO/iwTE4gfdNAMAYmYNFWYWSwmQUn0Yp+zC1qDG0Zm6ofJS AkFyKkKU3DvEY36PW3xeug== 0000912057-02-025591.txt : 20020627 0000912057-02-025591.hdr.sgml : 20020627 20020627162525 ACCESSION NUMBER: 0000912057-02-025591 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABB LTD CENTRAL INDEX KEY: 0001091587 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-16429 FILM NUMBER: 02689443 BUSINESS ADDRESS: STREET 1: PO BOX 8131 STREET 2: CH 8050 CITY: ZURICH SWITZERLAND STATE: V8 ZIP: 999999999 20-F 1 a2072395z20-f.txt FORM 20-F AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 20-F / / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-16429 ------------------------ ABB LTD (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) SWITZERLAND (JURISDICTION OF INCORPORATION OR ORGANIZATION) AFFOLTERNSTRASSE 44 CH-8050 ZURICH SWITZERLAND (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Securities registered or to be registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------------------------------------------- --------------------------------------------- AMERICAN DEPOSITARY SHARES, NEW YORK STOCK EXCHANGE EACH REPRESENTING ONE REGISTERED SHARE REGISTERED SHARES, PAR VALUE CHF 2.50 NEW YORK STOCK EXCHANGE*
- ------------------------------ * Listed on the New York Stock Exchange not for trading or quotation purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None. Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. The number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2001: 1,113,133,816 Registered Shares ------------------------ 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 which financial statement item the registrant has elected to follow. Item 17 / / Item 18 /X/ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE -------- Item 1. Identity of Directors, Senior Management and Advisers....... 4 Item 2. Offer Statistics and Expected Timetable..................... 4 Item 3. Key Information............................................. 4 Item 4. Information on the Company.................................. 16 Item 5. Operating and Financial Review and Prospects................ 49 Item 6. Directors, Senior Management and Employees.................. 86 Item 7. Major Shareholders and Related Party Transactions........... 95 Item 8. Financial Information....................................... 97 Item 9. The Offer and Listing....................................... 100 Item 10. Additional Information...................................... 102 Item 11. Quantitative and Qualitative Disclosures About Market Risk...................................................... 114 Item 12. Description of Securities Other than Equity Securities...... 117 Item 13. Defaults, Dividend Arrearages and Delinquencies............. 117 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds........................................... 117 Item 15. Reserved.................................................... 117 Item 16. Reserved.................................................... 117 Item 17. Financial Statements........................................ 117 Item 18. Financial Statements........................................ 117 Item 19. Exhibits.................................................... 118
INTRODUCTION ABB Ltd is a corporation organized under the laws of Switzerland. In this annual report, "the ABB Group," "ABB," "we," "our" and "us" refer to ABB Ltd and its consolidated subsidiaries (unless the context otherwise requires). We also use these terms to refer to ABB Asea Brown Boveri Ltd and its subsidiaries prior to the 1999 exchange offers described in this annual report under "Item 4. Information on the Company--Introduction--History of the ABB Group." Our American Depositary Shares (each representing one of our registered shares) are referred to as "ADSs." Our registered shares are referred to as "shares." We have prepared this annual report on the basis of information that we have or that we have obtained from sources we believe to be reliable. Summary discussions of documents referred to in this annual report may not be complete and we refer you to the actual documents for more complete information. Our principal corporate offices are located at Affolternstrasse 44, CH-8050 Zurich, Switzerland, telephone number 011-41-43-317-7111. BUSINESS OF ABB We are a global provider of products and systems incorporating advanced technologies and innovative applications of those products and systems, specializing in automation and power technologies for a broad range of industrial and commercial customers. We work with our customers to engineer and install networks, facilities and plants with particular emphasis on enhancing efficiency and productivity for customers that source, refine, transmit and distribute energy. We provide comprehensive market and product support services, as well as creative financing and risk management options to enable our customers to buy and use our products and services. We increasingly focus on high value-added, high return businesses that capitalize on our market and technical expertise and offer innovative products incorporating sophisticated software applications. We apply our expertise to develop creative ways of integrating our products and systems with our customers' business processes to enhance their productivity and efficiency. We refer to this integration as industrial information technology or "Industrial IT." Our commitment to Industrial IT has been supported by our recent strategic initiatives and our research and development efforts. FINANCIAL AND OTHER INFORMATION All references herein to "U.S. dollars," and "$" are to United States dollars. All references to "CHF" are to Swiss francs. All references to "E" are to euro. Except as otherwise stated, all monetary amounts in this annual report are presented in U.S. dollars. Where specifically indicated, amounts in Swiss francs have been translated into U.S. dollars. These translations are provided for convenience only, and they are not representations that the Swiss franc could be converted into U.S. dollars at the rate indicated. These translations have been made using the noon buying rate in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York as of the date indicated for each amount. The noon buying rate for Swiss francs on December 31, 2001 was $1.00 = CHF 1.6598. The noon buying rate for Swiss francs on June 26, 2002 was $1.00 = CHF 1.4940. On May 7, 2001, we effected a share split in a four-for-one ratio to reduce the nominal value of our shares from CHF 10 each to CHF 2.50 each. For more information about the share split, see "Item 10. Additional Information--The Share Split." Unless otherwise noted, all share figures in this annual report reflect the share split. 2 FORWARD-LOOKING STATEMENTS This annual report includes forward-looking statements, principally in "Item 4. Information on the Company--Description of Business Divisions" and "Item 5. Operating and Financial Review and Prospects." We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward- looking statements are subject to risks, uncertainties and assumptions including, among other things, the factors discussed in this registration statement under "Item 3. Key Information--Risk Factors" and factors described in documents that we may furnish from time to time to the Securities and Exchange Commission. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect" and similar words are intended to identify forward-looking statements. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. 3 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION SELECTED FINANCIAL DATA The following table presents our selected financial and operating information at the dates and for each of the periods indicated. You should read the following information together with the information contained in "Item 5. Operating and Financial Review and Prospects," as well as our Consolidated Financial Statements and the notes thereto, included elsewhere in this annual report. Our selected financial data are presented in the following tables in accordance with United States generally accepted accounting principles (U.S. GAAP). This selected information has been extracted from our consolidated financial statements. Our financial statements as of and for the year ended December 31, 2001 were audited by Ernst & Young AG, and our financial statements as of December 31, 2000 and 1999 and for the years ended December 31, 2000, 1999 and 1998 were audited by Ernst & Young AG and KPMG Klynveld Peat Marwick Goerdeler SA, which have expressed unqualified opinions thereon. 4
YEAR ENDED DECEMBER 31, ----------------------------------------- 2001 2000 1999 1998 -------- -------- -------- -------- (IN MILLIONS EXCEPT PER SHARE DATA) INCOME STATEMENT DATA(1) Revenues........................................... $ 23,726 $ 22,967 $ 24,356 $ 22,944 Cost of sales(2)................................... (18,708) (17,222) (18,457) (17,204) -------- -------- -------- -------- Gross profit....................................... 5,018 5,745 5,899 5,740 Selling, general and administrative expenses....... (4,397) (4,417) (4,682) (4,297) Amortization expense(3)............................ (236) (219) (189) (75) Other income (expense), net(4)..................... (106) 276 94 (42) -------- -------- -------- -------- Earnings before interest and taxes................. 279 1,385 1,122 1,326 Interest and dividend income....................... 568 565 608 608 Interest and other finance expense................. (802) (644) (708) (659) -------- -------- -------- -------- Income from continuing operations before taxes and minority interest................................ 45 1,306 1,022 1,275 Provision for taxes................................ (105) (377) (343) (337) Minority interest.................................. (70) (48) (36) (15) -------- -------- -------- -------- Income (loss) from continuing operations........... (130) 881 643 923 Income (loss) from discontinued operations, net of tax(5)........................................... (510) 562 717 (441) Extraordinary gain on debt extinguishment, net of tax(6)........................................... 12 -- -- -- Cumulative effect of change in accounting principles (SFAS 133), net of tax(7)............. (63) -- -- -- -------- -------- -------- -------- Net income (loss).................................. $ (691) $ 1,443 $ 1,360 $ 482 ======== ======== ======== ======== Weighted average shares outstanding(8)............. 1,132 1,180 1,184 1,190 Dilutive potential shares(8)....................... 3 5 3 1 -------- -------- -------- -------- Diluted weighted average shares outstanding(8)..... 1,135 1,185 1,187 1,191 ======== ======== ======== ======== Basic earnings (loss) per share:(8) Income (loss) from continuing operations......... $ (0.11) $ 0.74 $ 0.54 $ 0.77 Net income (loss)................................ $ (0.61) $ 1.22 $ 1.15 $ 0.40 ======== ======== ======== ======== Diluted earnings (loss) per share:(8) Income (loss) from continuing operations......... $ (0.11) $ 0.74 $ 0.54 $ 0.77 Net income (loss)................................ $ (0.61) $ 1.22 $ 1.15 $ 0.40 ======== ======== ======== ========
- -------------------------- (1) In June 1999, ABB Ltd issued approximately 1,180 million registered shares to the stockholders of ABB AB, a Swedish publicly listed company, and ABB AG, a Swiss publicly listed company. Preparatory to this transaction, ABB AG declared a special dividend such that, as a result, neither ABB AB nor ABB AG had operations or assets other than their respective 50% ownership interests in ABB Asea Brown Boveri Ltd. In exchange, the stockholders of ABB AB and ABB AG tendered all issued shares of the two companies except for 3% of total issued ABB AB stock. The stockholders of ABB AB who did not tender their shares for ABB Ltd shares received cash of $438 million in return for their shares of ABB AB and the equivalent number of registered shares of ABB Ltd (approximately 20 million) were sold to third parties, resulting in a total of approximately 1,200 million issued shares of ABB Ltd as of June 28, 1999. These transactions resulted in ABB Ltd being the single parent entity for the ABB Group. The Consolidated Financial Statements included elsewhere in this annual report include the accounts and subsidiaries of ABB Ltd on a consolidated basis since June 28, 1999 and the accounts and subsidiaries of ABB Asea Brown Boveri Ltd on a consolidated basis for periods prior thereto. For additional information, see "Item 5. Operating and Financial Review and Prospects" and Note 1 to the Consolidated Financial Statements. 5 (2) Prior to 2001, we estimated certain reserves for unpaid claims and expenses in our Insurance business by calculating the present value of funds required to pay losses at future dates. In the United States, where we underwrite many claims, the timing and amount of future claims payments have become more uncertain. Therefore, the discounted value can no longer be reliably estimated. Instead, we now show the expected future claims at full face value, resulting in a net charge of $295 million to cost of sales in the 2001 Consolidated Income Statement. This is a non-cash charge, which will be recovered through higher earnings over the life of the insurance contracts. For additional information, see "Item 5. Operating and Financial Review and Prospects" and Note 14 to the Consolidated Financial Statements. (3) Includes goodwill amortization of $191 million, $174 million, $155 million and $74 million in 2001, 2000, 1999 and 1998, respectively. In accordance with the adoption of Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, after January 1, 2002, goodwill will no longer be amortized but will be charged to operations when specified tests indicate that the goodwill is impaired. For additional information, see Note 2 to the Consolidated Financial Statements. (4) During 2001, 2000 and 1999, we incurred restructuring charges and related asset write-downs of $231 million, $195 million and $141 million, respectively, relating to a number of restructuring initiatives throughout the world. During 1998, we incurred $278 million in restructuring costs, of which $146 million related to additional employee terminations and severance actions in conjunction with a major restructuring plan announced in 1997. These restructuring costs were accrued in the respective periods pursuant to the requirements of EITF 94-3, LIABILITY RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING). (5) In 2001, we recorded a charge of $470 million related to the retained asbestos liability of our disposed power generation segment. During 2000, we recorded gains on the disposal of our power generation segment, which included our investment in ABB ALSTOM POWER and our nuclear business, which were partly offset by a $70 million provision related to our retained asbestos liability, a $300 million provision for estimated environmental remediation costs, $136 million of accumulated foreign currency translation losses and operating losses associated with these businesses. In 1999, we recorded a gain on the formation of a joint venture with ALSTOM, ABB ALSTOM POWER, as well as a gain on the disposal of our transportation segment, offset by a $300 million provision related to our retained asbestos liability and contract loss provisions of $560 million. As a result, our Consolidated Financial Statements present the net assets and results of operations of these segments, including charges incurred subsequent to the disposals, as discontinued operations. For additional information, see "Item 5. Operating and Financial Review and Prospects" and Notes 4 and 16 to the Consolidated Financial Statements. (6) In 2001, we repurchased outstanding bonds which resulted in an extraordinary gain on extinguishment of debt. For additional information, see Note 13 to the Consolidated Financial Statements. (7) We accounted for the adoption of Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), as a change in accounting principle. Based on our outstanding derivatives at January 1, 2001, we recognized the cumulative effect of the accounting change as a loss in the Consolidated Income Statement. For additional information, see Note 2 to the Consolidated Financial Statements. (8) The number of shares and earnings per share data in the Consolidated Financial Statements have been presented as if ABB Ltd shares had been issued for all periods presented and as if the four-for-one split of ABB Ltd shares in May 2001 had occurred as of the earliest period presented. Basic earnings per share is calculated by dividing income by the weighted average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing income by the weighted average number of shares outstanding during the year, assuming that all potentially dilutive securities were exercised and that any proceeds from such exercises were used to acquire shares of our stock at the average market price during the year or the period the securities were outstanding, if shorter. Potentially dilutive securities comprise outstanding written put options, for which net share settlement at average market price of our stock was assumed, if dilutive, and outstanding written call options and the securities issued under our management incentive plan, to the extent the average market price of our stock exceeded the exercise prices of such instruments. For additional information, see Notes 2, 20 and 21 to the Consolidated Financial Statements. 6
DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) BALANCE SHEET DATA(1) Cash and equivalents........................................ $ 2,767 $ 1,397 $ 1,615 Total assets................................................ 32,344 30,962 30,578 Long-term borrowings........................................ 5,043 3,776 3,586 Capital stock and additional paid-in capital................ 2,028 2,082 2,071 Total stockholders' equity.................................. 2,014 5,171 4,271 Net operating assets(9)..................................... 13,778 14,632 13,144
YEAR ENDED DECEMBER 31, ----------------------------------------- 2001 2000 1999 1998 -------- -------- -------- -------- ($ IN MILLIONS) CASH FLOW DATA(1) Net cash provided by operating activities............... $ 2,193 $ 1,022 $ 1,575 $ 800 Net cash used in investing activities................... (1,218) (1,713) (2,036) (1,017) Net cash provided by (used in) financing activities..... 677 (392) (1,187) 587 Net cash provided by (used in) discontinued operations............................................ (210) 949 723 741 OTHER DATA(1) Purchases of property, plant and equipment.............. $ (761) $ (553) $ (839) $ (768) Depreciation and amortization(3)........................ 787 836 795 648 Research and development................................ 654 703 865 819 Order-related development(10)........................... 916 985 1,212 1,126
- -------------------------- (9) Net operating assets is calculated based upon total assets (excluding cash and equivalents, marketable securities, current loans receivable, taxes and deferred charges) less current liabilities (excluding borrowings, taxes, provisions and pension-related liabilities). (10) Order-related development activities are customer- and project-specific development efforts that we undertake to develop or adapt equipment and systems to the unique needs of our customers in connection with specific orders or projects. Order-related development amounts are initially recorded in inventories as part of the work in progress of a contract and then are reflected in cost of sales at the time revenue is recognized in accordance with our accounting policies. DIVIDENDS AND DIVIDEND POLICY Payment of dividends is subject to general business conditions, our current and expected financial condition and performance and other relevant factors including growth opportunities. Our ability to pay dividends is subject to a recommendation by our board of directors and a vote of our shareholders at their annual general meeting. Because we pay cash dividends, if any, in Swiss francs, exchange rate fluctuations will affect the U.S. dollar amounts received by holders of ADSs upon conversion by Citibank, N.A., the depositary, of those cash dividends. The following table sets forth in Swiss francs and in U.S. dollars (translated at the noon buying rate on December 31, 2001) the dividend paid per share with respect to the years ended December 31, 2001, 2000 and 1999. At our annual general meeting in March 2002, our shareholders approved the proposal of our board of directors that no dividend be paid with respect to the year ended December 31, 2001.
DIVIDEND PER SHARE --------------------------- YEAR ENDED DECEMBER 31, SWISS FRANCS U.S. DOLLARS - ----------------------- ------------ ------------ 2001................................................... -- -- 2000................................................... 0.75 0.45 1999................................................... 0.75 0.45
7 RISK FACTORS Our business, financial condition or results of operations could suffer material adverse effects due to any of the following risks. WE OPERATE IN VERY COMPETITIVE MARKETS AND COULD BE ADVERSELY AFFECTED IF WE FAIL TO KEEP PACE WITH TECHNOLOGICAL CHANGES. We operate in very competitive environments in several specific respects, including product performance, developing integrated systems and applications that address the business challenges faced by our customers, pricing, new product introduction time and customer service. The relative importance of these factors differs across the geographic markets and product areas that we serve. The markets for our products and services are characterized by evolving industry standards (particularly for our automation technology products and systems and for products and systems provided by our Oil, Gas and Petrochemicals business), rapidly changing technology (in all of our industrial divisions) and increased competition as a result of deregulation (particularly for our power technology products and systems). For example, for a number of years power transmission and distribution providers throughout the world have been undergoing substantial deregulation and privatization. This has increased their need for timely product and service innovations that increase efficiency and allow them to compete in a deregulated environment. Additionally, the continual development of advanced technologies for new products and product enhancements is an important way in which we maintain acceptable pricing levels. If we fail to keep pace with technological changes in the industrial sectors that we serve, we may experience price erosion and lower margins. We are increasingly asked by our customers to provide an overall solution to a particular business challenge. Our success is dependent in large part on our ability to: - anticipate our customers' needs and provide products, systems and related applications to meet those needs; - develop new products, systems and related applications that are accepted by our customers; - differentiate our product and service offerings from our competitors' offerings; - enhance and upgrade our existing products and services; and - price our products and services competitively. The principal competitors for our automation technology products and services include Emerson, General Electric, Honeywell, Invensys and Siemens. We primarily compete with ALSTOM, Schneider and Siemens in sales of our power technology products and systems to our utilities customers. Similarly, our building automation products and services compete with Schneider and Siemens. The principal competitors with our Oil, Gas and Petrochemicals business include Bechtel, Cooper Cameron, Halliburton, Kvaerner, Samsung and Technip. All of our competitors are sophisticated companies with many resources that may develop products and services that are superior to our products and services or may adapt more quickly than we do to new technologies, industry changes or evolving customer requirements. Our failure to anticipate or respond adequately to technological developments or customer requirements, and any delay in accomplishing these goals, could adversely affect our business, results of operations and financial condition. Our ability to maintain margins depends to a large extent on our ability to integrate products and systems with our industry and technical expertise to enhance productivity and efficiency, and therefore add value for our customers. 8 IF WE DO NOT SUCCESSFULLY MANAGE THE TRANSFORMATION OF OUR BUSINESS TO TECHNOLOGY INTENSIVE AREAS, WE MAY INCUR LOSSES. We are increasingly asked by our customers and potential customers to integrate the equipment that we manufacture with our industry expertise and technical know-how to develop applications for our products and systems that address the business challenges that our customers face. We believe that the best strategy for us to pursue in response to these customer demands is to emphasize technology intensive areas in which we can apply this expertise and know-how and to focus on research and development for innovation. We have also disposed of asset intensive businesses, such as our former power generation and rail transportation businesses, which were not consistent with this strategy. As we change our business focus to emphasize the application of our expertise, we demand more creativity and innovation from our businesses and personnel. If we cannot provide appropriate resources, training and motivation to our employees to respond to these challenges, we may not be able to provide acceptable solutions to the problems faced by our clients and we may not compete successfully in the businesses that we target. Competition for personnel with the expertise we require is intense, and if we cannot recruit and retain such personnel, it will be difficult to implement the change in our business focus. To advance our business strategy, we have made acquisitions for total consideration (including assumed debt related to the Elsag Bailey acquisition in 1999) of $597 million, $896 million and $2,428 million in 2001, 2000 and 1999, respectively. We intend to continue to review potential acquisitions and investments in the ordinary course of our business. Acquisitions, particularly cross-border acquisitions, involve numerous risks, including: - integration of the businesses we acquire, including new services or products, into our existing offerings; - assimilation and retention of personnel; and - diversion of management's attention from other business concerns. We incurred $90 million of restructuring charges in 2000 and $38 million in fiscal 1999 in connection with restructuring certain of our operations to integrate them with the acquired Elsag Bailey operations. These charges primarily related to severance costs and early retirement payments. If we make additional acquisitions as part of the transformation of our business, we could incur similar integration costs. IF WE ARE UNABLE TO REDUCE OUR INDEBTEDNESS, OUR FINANCIAL POSITION COULD BE ADVERSELY AFFECTED. As of March 31, 2002 our aggregate gross indebtedness was $11,070 million and our aggregate net debt was $4,487 million. Net debt is short-, medium- and long-term debt less cash and marketable securities. In the first quarter of 2002, our level of indebtedness and the downgrading of our credit ratings limited our access to the commercial paper market. Consequently, we renegotiated our $3 billion credit facility with our lenders. In March 2002, we announced our intention to reduce our net debt by at least $1.5 billion by the end of 2002, partially through a series of disposals of non-core businesses. We cannot offer any assurance as to the timing or the successful completion of the announced dispositions or the proceeds we may receive from the dispositions. Delays in the implementation of our disposal program may adversely affect our ability to reduce our level of debt. Our elevated debt level means we must allocate more of our available cash to pay interest on the debt. It also could affect our competitiveness by limiting our ability to respond to changing market conditions, expand through acquisitions or invest in new products and technologies or other strategic investments. 9 INDUSTRY CONSOLIDATION COULD RESULT IN MORE POWERFUL COMPETITORS AND FEWER CUSTOMERS. Our competitors in all of our business divisions are consolidating. In particular, the automation and oil and gas industries are undergoing consolidation that is reducing the number but increasing the size of companies that compete with us. As our competitors consolidate, they likely will increase their market share, gain economies of scale that enhance their ability to compete with us and/or acquire additional products and technologies that could displace our product offerings. Our customer base also is undergoing consolidation. Consolidation among our customers' industries (such as the oil and gas industry, the marine and cruise industry and the automotive, aluminum, steel, pulp and paper and pharmaceutical industries) could affect our customers and their relationships with us. If one of our competitors' customers acquires any of our customers, we may lose its business. Additionally, as our customers become larger and more concentrated, they could exert pricing pressure on all suppliers, including ABB. For example, in an industry such as power transmission which historically has consisted of large and concentrated customers such as utilities, price competition can be a factor in determining which products and services will be selected by a customer. SOME OF OUR CUSTOMERS' INDUSTRIES HAVE EXPERIENCED PERIODIC DOWNTURNS IN THE PAST. IF SUCH DOWNTURNS OCCUR, OUR RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. Several of the industries that we serve have experienced cyclical periods of slow growth or decline in the past. For example, the automotive and pulp and paper industries, the oil, gas and petrochemicals industry and the power supply industries have experienced such cyclical downturns in the past. These downturns have often been linked to general economic conditions in the markets that we serve. In periods of slow growth or decline, our customers are more likely to decrease expenditures on the types of products and systems that our businesses in these divisions supply and we are more likely to experience decreased revenues as a result. These cyclical downturns have affected our customers' industries in the past and are likely to affect them in the future. THE REVENUES AND FINANCIAL RESULTS OF OUR UTILITIES AND POWER TECHNOLOGY PRODUCTS BUSINESSES WILL DECLINE UNLESS WE CAN EFFECTIVELY RESPOND TO DEREGULATION AND PRIVATIZATION IN THE POWER-RELATED INDUSTRIES THAT THEY SERVE. Our Utilities and Power Technology Products businesses depend on trends in the power supply, transmission and distribution businesses that we serve. In particular, we have witnessed a trend toward deregulation and privatization in the transmission and distribution industries on a worldwide basis. This deregulation has resulted in downward pressure on the prices charged for electricity. This trend increasingly challenges us to provide products and applications for those products which address the challenges faced by our customers quickly and on a cost-effective basis. If we do not do so, our revenues and margins in these businesses will be adversely affected. In 2001, the Utilities and Power Technology Products business divisions together represented approximately 29% of external revenues; therefore, an adverse effect on the financial results of these divisions could have a material adverse effect on our consolidated results of operations. OUR OIL, GAS AND PETROCHEMICALS BUSINESS MAY EXPERIENCE LOSSES IF THE OIL AND GAS INDUSTRY GENERALLY EXPERIENCES A DOWNTURN. Our Oil, Gas and Petrochemicals business depends on the condition of the oil and gas industry and particularly on capital expenditure budgets of the companies engaged in the exploration, development and production of oil and gas. Our upstream oil and gas activities are substantially dependent on the condition of the offshore exploration and development market. For example, in the first half of 1999 our Oil, Gas and Petrochemicals orders were adversely affected by low oil prices. The prices of oil and gas and their uncertainty in the future, along with forecasted growth in world oil and gas demand, will strongly influence the extent of offshore exploration and 10 development activities. Offshore oil and gas field capital expenditures also are influenced by the sale and expiration dates of offshore leases, the discovery rate of new oil and gas reserves in offshore areas, local and international political and economic conditions, environmental regulation, coordination by the Organization of Petroleum Exporting Countries, the ability of oil and gas companies to access or generate capital and the cost of such capital. Similarly, our businesses that provide products, systems and services to the downstream refining and petrochemical industry are affected by capital expenditure budgets of our customers, which are, in turn, affected by refinery margins and prices for petrochemical products such as ethylene and polypropylene. In 2001, the Oil, Gas and Petrochemicals division represented approximately 15% of external revenues. An adverse effect on the financial results of this division could have a material adverse effect on our consolidated results of operations. BIDDING ON LARGE, LONG-TERM FIXED-PRICE PROJECTS EXPOSES OUR INDUSTRIAL BUSINESSES TO RISK OF LOSS. Approximately 13% of our total orders booked in 2001 were "large orders," which we define as orders from third parties involving at least $15 million worth of products or systems. Portions of our business, particularly in our Oil, Gas and Petrochemicals, Utilities and Industries divisions, involve orders related to long-term projects that can take many months or even years to complete. Additionally, such projects are typically performed on a fixed-price or turnkey basis and are awarded on a competitive bidding basis. We may expend significant resources, both in management time as well as money, on bidding for projects that we are not awarded. Additionally, even if we do win a bid, fixed-priced contracts are inherently risky because of the possibility of underbidding and the fact that we assume substantially all of the risks associated with completing the project and the post-completion warranty obligations. We also assume the project's technical risk, meaning that we must tailor our products and systems to satisfy the technical requirements of a project even though, at the time we are awarded the project, we may not have previously produced such a product or system. The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from our original projections because of changes in conditions, including but not limited to: - unanticipated technical problems with the equipment being supplied or developed by us which may require that we spend our own money to remedy the problem; - changes in the cost of components, materials or labor; - difficulties in obtaining required governmental permits or approvals; - project modifications creating unanticipated costs; - delays caused by local weather conditions; and - suppliers' or subcontractors' failure to perform. These risks are exacerbated if the duration of the project is long-term because there is an increased risk that, the circumstances upon which we originally bid and developed a price will change in a manner that increases our costs. In addition, we sometimes bear the risk of delays caused by unexpected conditions or events. Our long-term, fixed-price projects often make us subject to penalties if we cannot complete portions of the project in accordance with agreed-upon time limits. Therefore, losses can result from performing large, long-term projects on a fixed-price or turnkey basis. For example, in 2001 the operating income of our Oil, Gas and Petrochemicals division was adversely affected by provisions for major cost overruns and project delays, the majority of which related to two large, long-term projects. In connection with large, long-term projects, we routinely undertake substantial customer- and project-specific development efforts. In 2001 and 2000, we incurred order-related development expenditures of approximately $916 million and $985 million, respectively. Order-related 11 development amounts are initially recorded in inventories as part of the work in progress of a contract and then are reflected in cost of sales at the time revenue is recognized in accordance with our accounting policies. To the extent that revenues on these projects cannot be recognized, we would not recover the order-related development expenditures. Additionally, to the extent that order-related development expenditures in a specific project exceed expectations, the profit margin on that project will be adversely affected. WE ARE SUBJECT TO LIABILITIES ARISING OUT OF OUR DISCONTINUED OPERATIONS AND WE COULD BE REQUIRED TO MAKE PAYMENTS IN RESPECT OF THESE RETAINED LIABILITIES IN EXCESS OF ESTABLISHED RESERVES. We retain ownership of Combustion Engineering, Inc., a subsidiary that formerly conducted part of the power generation business contributed to the ABB ALSTOM POWER joint venture in June 1999 and which now owns commercial real estate that it leases to third parties. Combustion Engineering is a co-defendant, together with third parties, in numerous lawsuits pending in the United States in which the plaintiffs claim damages for personal injury arising from exposure to or use of equipment that contained asbestos that Combustion Engineering supplied, primarily during the 1970s and before. As of December 31, 2001 and 2000, we had reserved $940 million and $590 million, respectively, in respect of asbestos claims and related defense costs. We also recorded receivables of approximately $150 million and $160 million at December 31, 2001 and 2000, respectively, for probable insurance recoveries with respect to the claims reserved against. Resolution of asbestos claims is subject to many uncertainties, including the availability of insurance, and the outcome of individual matters is not predictable. During 2001, we experienced an increase in the level of new claims and higher settlement costs as compared to recent years. It is possible that we could be required to make expenditures in excess of established reserves, in a range of amounts that cannot reasonably be estimated. For more information, see "Item 8. Financial Information--Legal Proceedings." We retained liability for environmental remediation costs at two sites in the United States that were operated by our nuclear business, which has been sold to British Nuclear Fuels. We have retained all environmental liabilities associated with Combustion Engineering's Windsor, Connecticut facility and a portion of the liabilities associated with our ABB CE Nuclear subsidiary's Hematite, Missouri facility. The primary environmental liabilities associated with these sites relate to the costs of remediating radiological contamination upon decommissioning the facilities. Based on the information that British Nuclear Fuels has made publicly available, we believe it may take approximately 6 years for remediation at the Hematite site, from the time of decommissioning. The Windsor site was decommissioned in 2001, and we believe the remediation may take until 2008. At the Windsor site, we believe that a significant portion of such remediation costs will be the responsibility of the United States government pursuant to federal law, although the exact amount of such responsibility cannot reasonably be estimated. In connection with the sale of the nuclear business in April 2000 we established a reserve of $300 million in connection with estimated remediation costs related to these facilities. During 2001, we expended approximately $6 million on remediation of the Windsor site. It is possible that we could be required to make expenditures in excess of the reserve, in a range of amounts that cannot reasonably be estimated. We have retained guarantees related to our divested power generation and nuclear businesses referred to above. The purchasers of these businesses have undertaken to indemnify us from and against claims that may be made against us pursuant to these guarantees. No material claims have been made against us under any of these guarantees. We are dependent, however, on the undertakings by the purchasers to indemnify us if we are ever required to fund payments under these guarantees following failures of the businesses sold to perform their obligations. 12 WE ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS IN THE COUNTRIES IN WHICH WE OPERATE. WE INCUR COSTS TO COMPLY WITH SUCH REGULATIONS AND OUR ONGOING OPERATIONS MAY EXPOSE US TO ENVIRONMENTAL LIABILITIES. Our operations are subject to U.S., European and other laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Our manufacturing facilities use and produce paint residues, solvents, metals, oils and related residues. We use petroleum-based insulation in transformers, PVC resin to manufacture PVC cable and chloroparafine as a flame retardant. We use inorganic lead as a counterweight in robots that we produce. These are considered to be hazardous substances in many jurisdictions in which we operate. We may be subject to liabilities for environmental contamination if we do not comply with applicable laws regulating such hazardous substances, and such liabilities can be substantial. All of our manufacturing operations are subject to ongoing compliance costs and capital expenditure requirements. In addition, we may be subject to significant fines and penalties if we do not comply with environmental laws and regulations including those referred to above. Some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances which could result in our liability for environmental damage without regard to our negligence or fault. Such laws and regulations could expose us to liability arising out of the conduct of operations or conditions caused by others, or for our acts which were in compliance with all applicable laws at the time the acts were performed. Additionally, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities to us. See "Item 5. Operating and Financial Review and Prospects--Liquidity and Capital Resources--Environmental Contingencies and Retained Liabilities." WE MAY BE THE SUBJECT OF PRODUCT LIABILITY CLAIMS. A malfunction in or the inadequate design of products systems and services that we design and manufacture could result in product liability claims. Additionally, we may be subject to product liability claims for the improper installation of products and systems designed and manufactured by others. These claims are more likely to occur in our Oil, Gas and Petrochemicals, Utilities and Industries divisions, whose projects often include the installation of products and systems manufactured by third parties. Product liability claims against us typically involve claims of personal injury or property damage. If the claimant runs a commercial business, claims are often made also for financial losses arising from interruption of operations consequential to property damage. Because of our broad offering of products, these claims arise in different contexts, including the following: - Our Oil, Gas and Petrochemicals division makes and installs equipment and systems used in oil and gas exploration, production and refining. These products handle petroleum-based substances which can be highly combustible and which can result in significant fires or explosions if we improperly design, manufacture or install equipment. - If our power technology products and systems are defective, there is a substantial risk of fires, explosions and power surges and significant damage to electricity generating, transmission and distribution facilities. - If our automation technology products and systems are defective, our customers could suffer significant damage to facilities that rely on these products and systems to properly monitor and control their manufacturing processes. Although we maintain insurance against product liability claims in amounts that we believe to be adequate, if a very large product liability claim were sustained, our insurance protection might 13 not be adequate or sufficient to cover such a claim in terms of paying any awards or settlements, and/or paying for our defense costs. If a litigant were successful against us, a lack or insufficiency of insurance coverage could result in an adverse effect on our business, financial condition or results of operations. Additionally, a well-publicized actual or perceived problem could adversely affect our market reputation which could result in a decline in demand for our products. OUR OPERATIONS IN EMERGING MARKETS EXPOSE US TO RISKS ASSOCIATED WITH CONDITIONS IN THOSE MARKETS. We operate in the emerging markets of Latin America, Asia, the Middle East and Africa. In 2001, approximately 38% of external revenues of the Oil, Gas and Petrochemicals division, approximately 35% of external revenues of the Utilities division and approximately 33% of external revenues of the Power Technology Products division were generated from these emerging markets. Operations in emerging markets present risks that are not encountered in countries with well established economic and political systems, including: - economic instability, which could make it difficult for us to anticipate future business conditions in these markets, cause delays in the placement of orders for projects that we have been awarded and subject us to volatile markets; - political instability, which makes our customers less willing to make investments in such regions and complicates our dealings with governments regarding permits or other regulatory matters; - boycotts and embargoes that may be imposed by the international community on countries in which we operate, which could adversely affect the ability of our operations in those countries to obtain the materials necessary to fulfill contracts and our ability to pursue business or establish operations in those countries; - significant fluctuations in interest rates and currency exchange rates; - the imposition of unexpected taxes or other payments on our revenues in these markets; and - the introduction of exchange controls and other restrictions by foreign governments. In addition, the legal and regulatory systems of the emerging markets identified above are less developed and less well enforced than in industrialized countries. Therefore, our ability to protect our contractual and other legal rights in those regions could be limited. We cannot offer any assurance that our exposure to conditions in emerging markets will not adversely affect our financial condition and results of operations. OUR INTERNATIONAL OPERATIONS EXPOSE US TO THE RISK OF FLUCTUATIONS IN CURRENCY EXCHANGE RATES. CURRENCY TRANSLATION RISK. The results of operations and financial position of most of our non-U.S. subsidiaries are reported in the currencies of countries in which those subsidiaries reside. That financial information is then translated into U.S. dollars at the applicable exchange rates for inclusion in our Consolidated Financial Statements. In 2001, approximately 76% of our consolidated revenues were generated in local currencies and translated into U.S. dollars. Of that amount the following percentages were reported in the following local currencies: - Euro, approximately 32%; - Swedish krona, approximately 9%; - Swiss franc, approximately 5%; - Norwegian krona, approximately 6%; and - British pound, approximately 5%. The exchange rate between these currencies and the U.S. dollar fluctuates substantially, which has a significant translation effect on our reported consolidated results of operations and financial 14 position. In 2001 and 2000, the U.S. dollar appreciated against most of the currencies in which our subsidiaries reported results of operations. In particular, in 2001 and 2000 the U.S. dollar strengthened by approximately: - 4% in 2001 and 13% in 2000 against the Euro; - nil in 2001 and 11% in 2000 against the Swiss franc; - 3% in 2001 and 11% in 2000 against the Norwegian krona; and - 11% in 2001 and 10% in 2000 against the Swedish krona. This resulted in the reduction of reported revenues and earnings before interest and taxes when consolidated and translated into U.S. dollars, based on average annual exchange rates, of approximately 4% and 7%, respectively, in 2001 and 8% and 10%, respectively, in 2000. CURRENCY TRANSACTION RISK. Currency risk exposure also affects our operations when our sales are denominated in currencies that are different from those in which our manufacturing costs are incurred. In this case, if after the time that the parties agree on a price, the value of the currency in which the purchase price is to be paid weakens relative to the currency in which we incur manufacturing costs, there would be a negative impact on the profit margin for any such transaction. This transaction risk may exist regardless of whether or not there is also a translation risk as described above. Currency exchange rate fluctuations in those currencies in which we incur our principal manufacturing expenses (the Euro, Swedish krona and Swiss franc) may distort competition between us and our competitors whose costs are incurred in other currencies. If our principal currencies appreciate in value against such other currencies, our competitiveness may be weakened. WE MAY ENCOUNTER DIFFICULTY IN MANAGING OUR BUSINESS DUE TO THE GLOBAL NATURE OF OUR OPERATIONS. We operate in more than 100 countries around the world, with approximately 65% of our employees located in Europe, approximately 17% in the Americas, approximately 11% in Asia and approximately 7% in the Middle East and Africa. In order to manage our day-to-day operations, we must overcome cultural and language barriers and assimilate different business practices. In addition, we are required to create compensation programs, employment policies and other administrative programs that comply with the laws of multiple countries. We also must communicate and monitor group-wide standards and directives across our global network. Our failure to successfully manage our geographically diverse operations could impair our ability to react quickly to changing business and market conditions and to enforce compliance with group-wide standards and procedures. In 2000, our internal audit group discovered during a regular compliance follow-up that several employees in the London region of our Manufacturing and Consumer Industries division had intentionally concealed losses in 1999 and part of 2000 arising from contracts for which revenues were insufficient to cover costs. We believe that these activities were isolated in the London region of this division and did not extend to other operations. As a result of our investigation, we terminated the individuals involved and replaced the local management in the London region. If we had not discovered these activities, our net income for 1999 and 2000 would have been overstated by $30 million and $10 million, respectively. In 2001, we identified and recorded additional costs amounting to approximately $25 million relating to these activities. We cannot ensure compliance on a global basis by all of our employees with our internal control policies and procedures. 15 ITEM 4. INFORMATION ON THE COMPANY INTRODUCTION HISTORY OF THE ABB GROUP Initially founded in 1883, Asea AB was a major participant in the introduction of electricity into Swedish homes and businesses and in the development of Sweden's railway network. In the 1940s and 1950s, Asea AB expanded into the power, mining and steel industries and by 1980 was among the world's ten largest electrical engineering groups. Brown Boveri & Cie. (later renamed BBC Brown Boveri AG) was formed in Switzerland in 1891 and initially specialized in power generation and turbines. In the early to mid-1900s, Brown Boveri expanded its operations throughout Europe and broadened its business operations to include a wide range of electrical engineering activities. By 1980, Brown Boveri had more than 100,000 employees. In January 1988, Asea AB and BBC Brown Boveri AG each contributed almost all of their businesses to newly formed ABB Asea Brown Boveri Ltd, of which they each owned 50%. Between 1988 and 1990, ABB made acquisitions totaling $5.2 billion, including the purchase of Westinghouse Electric Corp.'s worldwide power transmission and distribution operations. During the 1990s, the ABB Group further expanded its operations in Central and Eastern Europe, North America, South America and Asia. In 1996, Asea AB was renamed ABB AB and BBC Brown Boveri AG was renamed ABB AG. In February 1999, the ABB Group announced a group reconfiguration designed to establish a single parent holding company and a single class of shares. ABB Ltd was incorporated on March 5, 1999 under the laws of Switzerland. In June 1999, ABB Ltd became the holding company for the entire ABB Group. This was accomplished by having ABB Ltd issue its shares to the shareholders of ABB AG and ABB AB, the two publicly traded companies that formerly owned the ABB Group. The ABB Ltd shares were exchanged for the shares of those two companies which, as a result of the share exchange and certain related transactions, are now wholly owned subsidiaries of ABB Ltd and are no longer publicly traded. ABB Ltd shares are currently traded on the SWX Swiss Exchange (virt-x), the Stockholm Stock Exchange, the London Stock Exchange, the Frankfurt Stock Exchange and the New York Stock Exchange (in the form of American Depositary Shares). In 2001, we further realigned the ABB Group, as discussed below under "--Description of Business Divisions--Organizational Realignment," to simplify the way we work and better develop our relationship with customers. In April 2002, we announced our intention to divest the Building Systems business area, which is part of the Manufacturing and Consumer Industries division. The other three business areas comprising the Manufacturing and Consumer Industries division will be combined with the Process Industries division in a newly created Industries division. Our principal corporate offices are located at Affolternstrasse 44, CH-8050 Zurich, Switzerland, telephone number 011-41-43-317-7111. Our agent for U.S. federal securities law purposes is ABB Holdings Inc., located at 501 Merritt 7, Norwalk, Connecticut 06851. RECENT ACQUISITIONS AND DISPOSALS We have engaged in acquisitions and divestitures to implement our strategy of expanding into more technology-intensive businesses. In 2001, 2000 and 1999, we made the strategic acquisitions described below to strengthen our position in the process automation industry. In addition, in those years we made other acquisitions to enhance our service and technology offerings across our business areas. 16 We paid aggregate consideration of $597 million in the acquisitions that we completed during 2001, $896 million in 2000 and $2,428 million in 1999. Of the 62 acquisitions we made in 2001, 11 represented acquisitions accounted for as purchases and accordingly the results of the acquired businesses have been included in our Consolidated Financial Statements from the respective acquisition dates. The aggregate purchase price of these acquisitions during 2001 was $329 million. In 2000 and 1999, we sold the businesses that formerly constituted our power generation segment. We also divested non-core businesses and property, plant and equipment. SIGNIFICANT ACQUISITIONS In June 2001, we completed the acquisition of Entrelec Group, a France-based supplier of industrial automation and control products with operations in 17 countries. The acquisition diversified our product range and expanded our customer base in high growth markets. In January 2001, we acquired Eutech Engineering Solutions Ltd., the international engineering consultancy subsidiary of ICI Group. The acquisition of Eutech, with its expertise in the chemicals, petrochemicals and pharmaceuticals industries, contributed substantially to our knowledge and market strength in these industries. In June 2000, we acquired Umoe ASA, a Norwegian service company in the oil and gas industry with a focus on modification and maintenance services, including electrical installations. The acquisition furthered our strategy to expand our service activities in the oil and gas market. In January 1999, we completed the acquisition of Elsag Bailey Process Automation N.V., an industrial process automation company. We purchased Elsag Bailey for cash of approximately $2,210 million (including assumed debt). Elsag Bailey has been integrated into our business and significantly complemented our automation activities in terms of geographic scope, customer base and technology. It strengthened our presence in the key automation markets of the United States, Germany, Japan, Italy, France and Canada and has enabled us to achieve a leading market position in each of our core automation products, systems and services. Elsag Bailey had approximately 11,000 employees at the time of the acquisition, of which approximately 1,000 were terminated through restructuring after the acquisition. In 1999, we also acquired Kemper Europe Reassurances S.A., which allowed us to expand our reinsurance services beyond the Nordic region. SIGNIFICANT DIVESTITURES In the first quarter of 2002, we announced our intention to engage in a series of planned disposals as part of our strategy to reduce our net debt. In April 2002, we announced our intention to divest our Building Systems business area. Also in April 2002, we announced that we were in negotiations with a number of parties with respect to the sale of our Structured Finance business area, which accounts for about one-third of the assets of the Financial Services division. These negotiations are ongoing. In January 2002, Global Air Movement (Luxembourg) SARL purchased our worldwide air handling business for approximately $225 million, which is subject to adjustment based on the balance sheet of the air handling business at the time of the closing of the sale. This divestiture reinforced our strategy to focus on our expertise in power and automation technology. In April 2000, British Nuclear Fuels purchased our worldwide nuclear business for approximately $485 million. The divested businesses also include nuclear control systems. We have retained liability for certain specific environmental remediation costs at two sites in the United States that were operated by our nuclear business. See "Item 5. Operating and Financial Review and Prospects--Environmental Contingencies and Retained Liabilities." 17 In connection with the sale, one of our subsidiaries retained obligations under surety bonds relating to the performance by the nuclear business under certain contracts entered into prior to the sale to British Nuclear Fuels, and British Nuclear Fuels agreed to indemnify us against payments under those surety bonds. See "Item 5. Operating and Financial Review and Prospects--Related and Certain Other Parties." In June 1999, we contributed substantially all of our power generation businesses to ABB ALSTOM POWER N.V., a 50-50 joint venture with ALSTOM. Subsequently, in May 2000, we sold our 50% interest in ABB ALSTOM POWER N.V. to ALSTOM. We received cash proceeds of approximately $1,197 million from ALSTOM in exchange for our 50% interest. As part of the sale, we transferred additional assets and liabilities related to our former power generation segment to ABB ALSTOM POWER N.V. We retain ownership of Combustion Engineering, a subsidiary in the United States that conducted part of the power generation business contributed to the ABB ALSTOM POWER joint venture in June 1999, and its asbestos liabilities. See "Item 8. Financial Information--Legal Proceedings." Additionally, we continue to be obligated as a guarantor under letters of credit and other performance and financial guarantees in connection with major projects for the power generation businesses sold to ALSTOM. Upon the sale of these businesses to ALSTOM in May 2000, however, ALSTOM agreed to indemnify us against payments under those guarantees. See "Item 5. Operating and Financial Review and Prospects--Related and Certain Other Parties." In the first quarter of 1999, we completed the sale of our 50% share in ABB Daimler-Benz Transportation GmbH (ADtranz), the rail transportation joint venture, to DaimlerChrysler. The total level of proceeds from divestitures amounted to $283 million for 2001, $1,963 million for 2000 and $2,283 million for 1999. We have used the proceeds from these divestitures for new investments and to reduce our net debt position. INDUSTRIAL IT The modern industrial enterprise consists of numerous information systems--control, maintenance, procurement, production, sales and management--all full of vital information but often working in isolation. The concept behind Industrial IT is to integrate these systems into a seamless, easily navigated framework from which information can be selected, retrieved and acted upon rapidly. The integration of Industrial IT-enabled products into our customers' business processes provides our customers with increased information flow about their business systems in a useful form. Industrial IT allows our customers to make intelligent decisions based on the most current and accurate information and to react quickly to changing conditions. Additionally, by incorporating advanced technology into our products and systems, we can increase the speed of our customers' manufacturing and information processes without exceeding manufacturing constraints. Our goal is to ensure that the products and systems that we offer across our various businesses will be easy to use, compatible with each other, and will fit within our Industrial IT concept. We are developing a common architecture across the range of our products and systems so that they can be easily combined with each other and with our customers' systems using software to link our various technical platforms together. We intend to improve compatibility in succeeding generations of each of our products and systems. As of March 31, 2002, approximately 1,100 ABB products had been certified as meeting Industrial IT standards. Each certified product is assigned to a product suite and is named according to what it does and how it fits into the Industrial IT system. 18 DESCRIPTION OF BUSINESS DIVISIONS ORGANIZATIONAL REALIGNMENT In 2001, we realigned our worldwide business operations to increase our responsiveness to our customers' needs. Our new customer-focused structure is intended to capitalize on our extensive knowledge of our customers' industries and their business processes. It is based on the premise that our primary growth opportunity lies in our existing customer base. Our new business structure is intended to enhance our ability to expand our existing customer relationships into additional sales of products, systems and services. Our focus on customer groups should also facilitate the building of new customer relationships. We replaced our six former business segments with seven business divisions structured along customer groups. Four end-user divisions, Utilities, Process Industries, Manufacturing and Consumer Industries and Oil, Gas and Petrochemicals, serve end-user customers with products, systems and services. Two divisions, Power Technology Products and Automation Technology Products, serve the four end-user divisions and the wholesalers, distributors, original equipment manufacturers and system integrators that we refer to as "external channel partners." The Financial Services division continues to serve the ABB Group and external customers. Additionally, the Group Processes division is responsible for shared services, common processes and infrastructure within ABB. Dedicated account managers work with specialists, such as systems and application engineers, within our end-user divisions to provide customers with customized products and systems that meet their specific needs. The end-user divisions draw on the products, services and technical expertise offered by our two channel partner divisions. Instead of multiple ABB product units serving the same customer, our end-user customers are served by one dedicated team representing our total offering of products, systems and services on the basis of common terms and conditions. 19 The following chart illustrates our current business structure: [LOGO] In April 2002, we announced our intention to divest our Building Systems business area and to combine the three remaining business areas in the Manufacturing and Consumer Industries division with the Process Industries division in a newly created Industries division. We are in the process of implementing this combination, and we will begin reporting our financial results to reflect this new structure starting with our June 30, 2002 results. The following discussion reflects our current business structure. UTILITIES OVERVIEW The ABB Utilities division serves electric, gas and water utilities--whether state-owned or private, global or local, operating in liberalized or regulated markets--through a portfolio of capabilities, including products, services and systems. The Utilities division's principal customers are generators of power, owners and operators of power transmission systems, energy traders and local distribution companies. Power transmission systems deliver high-voltage electricity from power plants to distribution networks, which provide electrical power to end users. In addition, the Utilities division offers a range of products, systems and services to water and gas utilities. Gas utilities are companies engaged in the transmission, storage, distribution and trading of natural gas for sale to residential and commercial end users. Water utilities are companies engaged in the processing, distributing for sale and recycling of water. Sales to customers in the gas and water industries accounted for a minor portion of the Utilities division's revenues in 2001. 20 The following table sets forth financial and other data regarding the Utilities division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 5,649 5,473 5,875 Earnings before interest and taxes (operating income)....... 148 250 182 Operating margin (%)........................................ 2.6% 4.6% 3.1% Capital expenditures (2).................................... 27 26 42 Number of employees......................................... 15,745 15,826 17,390
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. ELECTRICITY The portions of an electricity grid that operate at highest voltages are "transmission" systems, while those at lower voltages are "distribution" systems. Transmission systems link power generation sources to distribution systems. Distribution networks then branch out over shorter distances to carry electricity from the transmission system to end-users. These electricity networks incorporate sophisticated devices to monitor operations and to prevent damage from failures or stresses. Electricity is transformed at different stages in the delivery process between the source and the ultimate end user. For example, electrical power is often generated in large power plants at 10 to 20 kilovolts. This voltage is too low to be transmitted efficiently but too high for use in households and businesses. By transmitting electricity at high-voltages, losses are minimized and the power lines can carry more power per line. Transformers are used to increase the voltage of generated electricity for long-distance transmission (up to as high as 1,100 kilovolts). Transformers are then used to decrease the voltage at the local end for distribution to consumers. Power distribution networks carry electricity from high-voltage transmission grids to the lower voltage point of power usage such as residential, commercial or industrial consumers, stepping down the voltages along the way to meet consumers' requirements. An electric utility distribution system comprises distribution substations and networks, both overhead and underground. Some large industrial and commercial facilities receive electricity at higher voltage levels from the transmission or distribution network, while most industrial, commercial and residential users receive electricity from distribution network feeders on lower voltages. There is an accelerating global trend toward deregulation and privatization of the power industry, which is creating a more competitive environment for our customers. This trend is well-established in the United States, parts of Latin America and Western Europe, particularly in the United Kingdom and the Scandinavian countries. It is accelerating elsewhere in Europe and is developing in other regions. The creation of a free market for electricity requires our customers to become more cost-efficient and reliable to compete as a lowest-cost provider among power suppliers. Grid operators must be able to deliver power to customers hundreds, even thousands, of miles away within a few minutes. As more disturbance-sensitive loads (E.G., computers and telecommunications systems) have been added to a network, demand for reliable, high-quality 21 electricity is increasing. Power suppliers can achieve this efficiency and reliability in a number of ways, including the following: - Replacing and modernizing assets and investing in information technology-based control and monitoring equipment, metering systems and communications networks to control and supervise power networks based on instantaneous access to information. - Upgrading current technologies and introducing new technologies to improve the reliability, increase the power rating and control the flow through existing transmission and distribution assets. - Outsourcing non-core activities, such as engineering, construction, service, maintenance and operations and giving manufacturers such as ABB greater flexibility to define the detailed specifications and design of systems. GAS Natural gas is extracted at the wellhead and gathered into a central collection point, where it is processed before entering a pipeline transmission system. The pipeline is composed of high strength steel pipe, which moves large amounts of gas thousands of miles from production sites to local natural gas utilities. Compressor stations located along pipelines boost pressure to move the gas through the lines. Many compressor stations are operated from a pipeline's central control room. Pipelines are connected in a grid with other pipelines of other utility systems, which provide system operators flexibility in moving gas. Gas pressure is reduced when it reaches local gas utilities. It is metered and an odorant is added to help leak detection. The natural gas then moves into smaller distribution pipes that form a network that delivers it to residences and businesses. Regulator technologies control the flow of the distribution system, which operates at a different pressure in different segments, and is lower as it reaches the customer. The gas utility continuously monitors flow rates and pressures throughout the distribution system from a central control center. WATER Water comes from ground water and surface water, such as rivers and lakes. Large scale water supply systems tend to rely on surface water resources, and smaller water systems tend to use ground water. Water is pumped from its source to a water treatment plant, where it is purified and chemicals can be added. In most water distribution systems, water is transported under pressure through a network of underground pipes. Smaller pipes, called service lines, connect end users to the main water lines. After it has been used, it travels through sewer systems to treatment plants where impurities are removed and can be returned to the water supply. PRODUCTS AND SERVICES For electric utilities, the Utilities division provides power equipment and power management systems based on advanced technology designed to make electricity transmission more flexible, more reliable and more profitable for our customers. We integrate our recognized industry and technical expertise with the Automation Technology Products and Power Technology Products divisions' product offerings, as well as those of third parties, to provide solutions to the technical and commercial challenges faced by our customers. For gas utilities, the Utilities division provides automation and electrification products and systems for gas transmission and distribution companies. For water utilities, the Utilities division 22 provides medium and low-voltage products for plant and system power requirements. The Utilities division offers optimized solutions including process control systems and services, complete electrical equipment for water supply and wastewater treatment plants, and total electromechanical packaged systems for water pumping stations. As an end-user division, part of the Utilities division's role within the ABB Group is to serve as a channel for products manufactured by the Power Technology Products and Automation Technology Products divisions. In 2001, approximately 38% of the revenue of the Utilities division was derived from the resale of products manufactured by the Power Technology Products and Automation Technology Products divisions, without any additional work performed by the Utilities division. UTILITY AUTOMATION SYSTEMS Our Utility Automation Systems business area applies its engineering expertise to the products manufactured by the Automation Technology Products division, as well as those of third parties, to provide customers with automation systems using sophisticated instrumentation, control systems and relay protection devices tailored for their generating plants or transmission and distribution networks. Its scope of supply also includes automation system architecture, control stations, data network and communication systems, and instrumentation. Utility Automation Systems provides energy information software and systems that enable power generators to plan unit commitment strategy, schedule generation assets for optimum efficiency, forecast generation needs, and share data within their organizations. It provides software that integrates operational information covering several aspects of their business, from outage control and meter data management to billing. Utility Automation Systems provides automation systems for water supply and treatment and gas and energy trading operations in wholesale and retail markets, as well as central markets that have access to transmission grids. It supports a wide range of products for the real-time management of energy trading, including wholesale and derivatives trading, gas and electricity retailing, customer billing and pooling and settlement systems, as well as management of network access and meter data management systems. UTILITY PARTNER Our Utility Partner business area offers full service and support for management of existing power transmission and distribution assets, including both ABB products and those manufactured by third parties. In addition to providing maintenance and repair services, it offers consulting services that enable customers to improve the performance of their transmission and distribution equipment and systems, to gauge how cost effectively their networks are functioning, and to find and correct problems quickly. Specifically, Utility Partner offers asset management services including technical consulting (system diagnostics, network analysis, planning and optimization), commercial consulting (cost reduction programs, investment strategies, reengineering of business processes) and execution (maintenance strategies, logistics). 23 UTILITY POWER SYSTEMS Our Utility Power Systems business area undertakes turnkey contracts to install and upgrade transmission and distribution systems incorporating components manufactured by the Power Technology Products and Automation Technology Products divisions, as well as those of third parties. High-voltage direct current (HVDC) transmission is a leading technology for transporting electricity over long distances because it reduces power losses, increases system stability and provides a more controllable flow than high-voltage alternating current. An HVDC transmission system typically includes: converters that change alternating current to direct current and then back to alternating current when it reaches the terminal point; transmission lines, which could be above or below ground; and switchgear and substations that perform functions similar to that described above. Advances in converter and cable technology have enabled us to introduce a system called HVDC Light-TM-. Converter stations for HVDC Light-TM- are approximately one-fifth the size of conventional HVDC technology for the same rated power. HVDC Light-TM- extends the benefits of high-voltage direct current to low-power applications, down to 5 megawatts. The HVDC Light-TM- system can connect remote small power stations such as wind, hydro, solar and bio-mass plants to national grids. It can also supply electricity from a national grid to remote areas and islands, which might otherwise require local power plants. This business area also offers static var compensation, or SVC, technology, which improves power quality, voltage stability and power capacity of transmission systems. The Utility Power Systems business area also supplies substations to interconnect electricity grids operating on different voltage levels, to sectionalize portions of the grid and to protect the electrical system against damage from outside sources such as lightning and overload. By sectionalizing the grid, power can be rerouted from portions of the transmission system that are experiencing problems to sections that are functioning properly, thereby enhancing the overall reliability of the power supply. This business area delivers complete alternating current air and gas insulated substations for power transmission. Substations are also necessary in a power distribution network to sectionalize and reduce the voltage of the main power lines and cables to the lower voltages required for efficient distribution and consumption. For power distribution, this business area sells traditional custom-engineered substations as well as compact, modular substations, which require less space than a conventional substation and thus are particularly well suited for urban settings. It also offers prefabricated secondary substations that can be installed more quickly than traditional substations, and which transform electricity to consumer-level voltages. CUSTOMERS The Utilities division's principal customers are electric, gas and water utilities, owners and operators of power transmission systems, utilities that own or operate networks, owners and operators of power generating plants, and energy traders. Other customers include gas transmission companies, local distribution companies and multi-utilities, which are involved in the transmission or distribution of more than one commodity. COMPETITION The Utilities division's principal competitors in the supply of power transmission and distribution equipment and services are ALSTOM, Mitsubishi, Schneider and Siemens. In the utility automation area, the division's principal competitors are ALSTOM, Emerson, GE Harris, Honeywell, Invensys and Siemens. 24 RESEARCH AND DEVELOPMENT Research and development expenses for the Utilities division amounted to approximately $53 million, or 0.9% of its revenues, for 2001. The research and development activities of the division during 2001 were primarily related to developing information technology systems for network management and systems for optimization of power plant operations. CAPITAL EXPENDITURES The Utilities division's capital expenditures for property, plant and equipment were $27 million, $26 million and $42 million in 2001, 2000 and 1999, respectively. In 2001, ABB sold the division's railway project business, primarily located in Italy. In 2000, ABB divested the nuclear automation business located in the United States, Sweden and Germany, and land and buildings, primarily in Sweden and Italy. As the division is not involved in manufacturing, capital expenditures are not related to major investments and are geographically dispersed. PROCESS INDUSTRIES OVERVIEW The Process Industries division serves the chemical, life sciences, marine, turbocharging, metals, minerals, mining, cement, paper, petroleum and printing industries with process-specific products and services combined with ABB's power and automation technology. The division creates industry-specific products and services that help to improve the efficiency and competitive strength of our customers. In April 2002, we announced our intention to divest the Building Systems business area, which currently is part of the Manufacturing and Consumer Industries division. The other three business areas comprising the Manufacturing and Consumer Industries division will be combined with the Process Industries division in a newly created Industries division. The following table sets forth financial and other data regarding the Process Industries division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 3,377 3,339 3,485 Earnings before interest and taxes (operating income)....... 116 88 123 Operating margin (%)........................................ 3.4% 2.6% 3.5% Capital expenditures (2).................................... 24 27 40 Number of employees......................................... 15,937 15,997 16,237
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. The customers of the Process Industries division have been affected by a number of trends over the past several years, including the following: - increased concentration on improving shareholder return through better asset management rather than relying on increased production; - stronger focus on energy management; 25 - ongoing sustainable development regulation and awareness; - slow, stable growth in North America and Europe, with high Asian growth possibilities, especially in chemicals and steel; - a stable oil and chemical market, and a growing pharmaceuticals market; - consolidating metal industry, with strong demand in Asia and Eastern Europe; - a stable pulp and paper market as a result of better inventory management by producers; and - in 2001, continued high demand for oil and gas vessels due to continued new field exploration and a depressed cruise industry partially resulting from the acts of terrorism on September 11, 2001. The Process Industries division addresses these trends by providing products and services that increase production efficiency, improve product quality, optimize assets, and minimize raw material and energy use. PRODUCTS AND SERVICES Most businesses served by the Process Industries division use batch and continuous production, such as chemicals and paper. The division also serves the marine industry, including oil and gas vessels and cruise ships. Offerings to these customers include standard power and automation technologies developed by the Automation Technology Products and Power Technology Products divisions, as well as value-added systems, software and services designed, manufactured and delivered by Process Industries. The Process Industries division also focuses on developing synergies and efficiencies among its units, such as common marketing, software re-use, and streamlined geographic sales and service networks. Synergies exist in the marine and petroleum businesses, as many vessels are also floating oil and gas production units. Additionally, product tracking software can be applied both to rolls of paper and steel and common sales and service personnel can interface with customers with diverse petroleum, metals, mining and/or paper holdings. As an end-user division, part of the Process Industries division's role within the ABB Group is to serve as a channel for products manufactured by the Power Technology Products and Automation Technology Products divisions. In 2001, approximately 20% of the gross revenue of the Process Industries division was derived from the resale of products manufactured by the Power Technology Products and Automation Technology Products divisions, without any additional work performed by the Process Industries division. PETROLEUM, CHEMICAL AND LIFE SCIENCES The Petroleum, Chemical and Life Sciences business area provides products and services to enhance efficiency, safety, reliability, environmental compliance and flexibility in operations where a few basic elements may yield hundreds of varied end products. In the petroleum sector, this business area provides onshore, offshore and subsea production technology, gas gathering and processing, refining, transportation and distribution applications. At the oil wellhead, it monitors and controls production from Alaska's North Slope to the Middle East to the North Sea. Its technologies manage the movement of hydrocarbons through the world's network of pipelines, tankers and terminals, eliminating losses and meeting strict government regulations. This business area's specific value-added offerings, which it designs, develops and delivers, include oilfield production enhancement software, chemical process plant design services, and pharmaceutical production 26 validation services. Our Full Service offering, in which we take over in-house maintenance activities for customers and apply strategies to reduce overall maintenance costs, helps optimize these investments. PAPER, PRINTING, METALS AND MINERALS The Paper, Printing, Metals and Minerals business area supplies power and automation technologies that improve quality and reduce costs in cement, metals, minerals, mining, pulp, paper and printing operations. Its offerings include quality control systems; drive systems; online sensors, analyzers and actuators; machine health monitoring; production planning and product tracking software; drying systems; induction furnaces; and mine hoists. Online sensors, analyzers and actuators measure and control production processes by measuring product parameters, analyzing data and providing instantaneous input to automatic control systems. Online actuators make automatic adjustments during production to improve product quality and consistency. Online machine health monitoring measures production machinery parameters and alerts operators to impending failures while helping them maximize maintenance scheduling. Collaborative production management software provides web-enabled interaction between producers and customers to optimize production planning, quality management and product tracking. Drying systems provide technology to dry pulp and paper more quickly and evenly. This business area's induction furnaces and inductive heating systems bring new capacity to foundry and melt shop operations. Extensive domain expertise in these industries allows it to provide a variety of asset optimization services. Because of the process industries-specific aspects of these products, all of these products and systems are developed, manufactured and delivered by the Process Industries division. MARINE AND TURBOCHARGING The Marine and Turbocharging business area provides global shipbuilders with power and automation technologies for luxury cruise liners, ferries, tankers, offshore oilrigs and special purpose vessels. It designs, engineers, builds, supplies and commissions electrical systems and software for marine power generation, power distribution and diesel electric propulsion, as well as turbocharging products and services for diesel and gasoline engines. A key value-added product is the Azipod-Registered Trademark- (azimuthing podded) propulsion system, developed by ABB along with leading shipbuilders. The Azipod-Registered Trademark- system improves vessel maneuverability at low speeds, resulting in faster docking and embarkation, lower operating costs and increased vessel capacity. The Azipod-Registered Trademark- system has proven very attractive for cruise liners and offshore supply ships. As a result of its success, in 2001 this business area introduced a Compact Azipod product for use on smaller vessels. Other applications include propulsion control, power management, cargo and ballast control and dynamic positioning. This business area particularly focuses on providing turbocharging products and services for diesel and gas engines in the 500 kW-plus power range. These products are developed in close cooperation with the world's top diesel engine makers. A global network of more than 70 ABB service stations ensures close proximity to customers as well as fast service. CUSTOMERS The Process Industries division's customers are primarily companies in the chemical, life sciences, marine, turbocharging, metals, minerals, mining, cement, paper, petroleum and printing industries. COMPETITION The Process Industries division's principal competitors are Aspentech, Emerson Electric, GE, Honeywell, Invensys, Metso Automation, Rockwell, Siemens, Voith Automation and Yokogawa. 27 RESEARCH AND DEVELOPMENT Research and development expenses for the division amounted to approximately $40 million, or 1.2% of its revenues, for 2001. The research and development activities of the division in 2001 primarily related to developing specific products and software to control the customer processes of the industries served by the division, including new online measurement instruments for quality parameters of paper, software to control the flow of oil through pipelines and new forms of propulsion systems for large ocean-going vessels such as oil tankers. CAPITAL EXPENDITURES The Process Industries division's capital expenditures for property, plant and equipment were $24 million, $27 million and $40 million in 2001, 2000 and 1999, respectively. Principal investments in 2001 included several types of equipment for a turbocharger plant in Germany. MANUFACTURING AND CONSUMER INDUSTRIES OVERVIEW The Manufacturing and Consumer Industries division sells products and services to improve customer productivity and competitiveness in areas such as automotive industries, telecom, product manufacturing, electronics manufacturing, airports, parcel and cargo distribution as well as public, industrial and commercial buildings. In April 2002, we announced our intention to divest the Building Systems business area, which currently is part of the Manufacturing and Consumer Industries division. The other three business areas comprising the Manufacturing and Consumer Industries division will be combined with the Process Industries division in a newly created Industries Division. The following table sets forth financial and other data for the Manufacturing and Consumer Industries division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 4,780 5,225 5,697 Earnings before interest and taxes (operating income)....... 87 205 147 Operating margin (%)........................................ 1.8% 3.9% 2.6% Capital expenditures (2).................................... 27 33 43 Number of employees......................................... 29,455 33,449 34,027
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. Our customers are increasingly under pressure to deliver their products more quickly to their customers and to respond rapidly to changing customer preferences. At the same time, constant price pressure requires them to find ways to decrease production costs. Furthermore, as the quality of products becomes more equalized among our customers' competitors, our customers increasingly focus on design and branding to distinguish their products from those of their competitors. This change in focus means that much of the manufacturing and production activities are outsourced to sub-suppliers, which may manufacture products for a number of different companies in a given industry. The consolidation in the manufacturing role enables the 28 sub-suppliers to provide products at a lower cost and presents further opportunities for ABB to provide flexible solutions for automation, financing and energy supply. PRODUCTS AND SERVICES The Manufacturing and Consumer Industries division works to maximize flexibility and efficiency in the entire value chain, which includes product design, engineering, production, storage and distribution, to help our customers identify and satisfy customer demands. The division provides to its customers the full range of ABB's products on a stand-alone basis, or as part of systems involving conceptual design, detailed engineering, project management, installation and commissioning, as well as after sales services and system optimization during the full life span of the system to ensure optimal benefits for its customers. As an end-user division, part of the Manufacturing and Consumer Industries division's role within the ABB Group is to serve as a channel for products manufactured by the Power Technology Products and Automation Technology Products divisions. In 2001, approximately 5% of the gross revenue of the Manufacturing and Consumer Industries division was derived from the resale of products manufactured by the Power Technology Products and Automation Technology Products divisions, without any additional work performed by the Manufacturing and Consumer Industries division. In January 2002, this division sold its air handling equipment business to Global Air Movement (Luxembourg) for approximately $225 million, reinforcing the ABB Group's strategy to focus on its expertise in power and automation technology. AUTOMOTIVE INDUSTRIES The Automotive Industries business area designs, installs and commissions automation systems for customers in the automotive industry and their sub-suppliers, incorporating software developed by its engineers into the range of products manufactured by the Power Technology Products and Automation Technology Products divisions. The products and systems are used in such areas as press shop, body shop, paint shop, power train assembly, trim and final assembly. TELECOM AND PRODUCT MANUFACTURING INDUSTRIES The Telecom and Product Manufacturing Industries business area provides life-cycle services and automation systems, including products and services to maximize energy efficiency and provide a secure power supply as well as process automation and robot-based manufacturing, painting, packing, palletizing and picking, for customers in the telecom and manufacturing industries. The business area incorporates software developed by its engineers into the power and automation products manufactured by the Power Technology Products and Automation Technology Products divisions. For example, it provides painting systems for mobile phones, as well as robot cells to produce base stations for telecom companies. For food and beverage companies, it provides robotized picking and packing systems. It also provides systems for handling material in the glass industry. LOGISTICS SYSTEMS The Logistics Systems business area provides information technology packages and automation services to airports for baggage and material handling and air traffic management, as well as turnkey electromechanical systems and airfield lighting systems. It provides power and automation systems for crane manufacturers for container terminals and harbors. The business area 29 also delivers software and automation systems to optimize the flow of inventory in warehouses, from receiving to shipping. BUILDING SYSTEMS The Building Systems business area designs, builds and maintains complete installations for industrial, infrastructure and commercial facilities integrating products manufactured by the Power Technology Products and Automation Technology Products divisions as well as those from third-party suppliers. Customers increasingly demand complete systems and related applications that cover a wide range of essential functions, from lighting and ventilation systems to monitoring, control and communication systems that ensure the most efficient use of electricity throughout an entire building. This business area has developed a "Total Technical Solutions" concept that bundles together electrical, mechanical and other technical installations, eliminating the need to coordinate the work of several suppliers with specific applications for facilities with high technical content such as arenas, hospitals, data centers and "clean rooms." Building Systems incorporates software and voice and data communications networks into building systems that monitor their own performance to achieve the best balance between energy consumption on the one hand and comfort and security on the other. In April 2002, we announced our intention to divest the building systems business area. CUSTOMERS The Manufacturing and Consumer Industries division serves a wide range of customers, primarily engaged in discrete manufacturing in areas such as automotive industries, telecom, electronics manufacturing, food and beverages, and home and personal care. In addition, the division serves customers requiring technical infrastructure and management within commercial, public or industrial buildings ranging from public authorities to real estate developers and industrial clients. COMPETITION The competitive landscape for this business division is fragmented, with each market segment having a separate set of competitors. Examples of our principal competitors include Cegelec, Fluor Daniel, GE Fanuc, KUKA, Siemens, Skanska, Suez/Groupe Fabricom and Vivendi. RESEARCH AND DEVELOPMENT Research and development expenses for the division amounted to approximately $17 million, or 0.4% of its revenues, for 2001. The research and development activities of the division in 2001 primarily related to the further development of fans within the air handling equipment business area and research into the integration of systems for people movement, energy consumption and communication in buildings. 30 CAPITAL EXPENDITURES The Manufacturing and Consumer Industries division's capital expenditures for property, plant and equipment were $27 million, $33 million and $43 million in 2001, 2000 and 1999, respectively. Principal investments in 2001 included equipment for the Building Systems business area. OIL, GAS AND PETROCHEMICALS OVERVIEW The Oil, Gas and Petrochemicals division supplies a comprehensive range of products, systems and services to the global oil, gas and petrochemicals industries, from the development of onshore and offshore exploration technologies to the design and supply of production facilities, refineries and petrochemicals plants. The following table sets forth financial and other data regarding the Oil, Gas and Petrochemicals division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 3,489 2,796 3,086 Earnings before interest and taxes (operating income)....... 79 157 165 Operating margin (%)........................................ 2.3% 5.6% 5.3% Capital expenditures (2).................................... 38 30 48 Number of employees......................................... 13,471 11,549 8,941
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. The oil, gas and petrochemicals industry is typically divided into two markets: - UPSTREAM MARKETS: Equipment, systems and services for onshore and offshore oil and gas exploration and production, including our areas of principal focus, subsea production and floating production systems. - DOWNSTREAM MARKETS: Processing of hydrocarbon raw materials, including: refineries; petrochemical and chemical plants; gas processing; and pipelines. Our activities in this business division are relatively evenly split between the upstream market and the downstream market, although large projects may shift the balance from year to year. Our upstream business focuses principally on the subsea and floating production market. Our activities in the downstream markets range from engineering, procurement and construction (or EPC) projects, engineering and project management services to licensing of technology to the refining and petrochemical industries. One of the division's strengths is its ability to access the research and development capabilities of the ABB Group. Upstream, the division continues to focus on making oil and gas exploration and production more economical, no matter where the natural resources are found. Downstream, it is improving oil and gas conversion technology so refineries can manufacture fuels to stringent environmental specifications. 31 PRODUCTS AND SERVICES The Oil, Gas and Petrochemicals division's services, products and systems to the global oil, gas, refinery and petrochemicals industry include: - engineering, procurement and construction projects: refineries and petrochemical plants; subsea and floating production; compressor stations; - production and assembly of offshore production equipment, including specialized subsea equipment for production, controls and power distribution; - production of onshore and offshore pressure-containing equipment; - assembly of gas treatment and processing systems and heat transfer equipment; - provision of project management and procurement services; - licensing of process technologies; and - modification and maintenance services for both offshore and onshore facilities. In the upstream market, the division is a global producer of equipment and services for oil and gas exploration and production. The division designs and develops subsea oil and gas production equipment for conventional subsea development as well as for development in difficult conditions such as deep waters. It offers a broad range of services, with particular expertise in offshore production, including: - front-end engineering and design studies, employing the division's technical and market expertise to develop a plan for building all or a portion of a production facility; - procurement of materials and equipment to be used in oil and gas production facilities, including equipment from the Oil, Gas and Petrochemicals division and other ABB business divisions; - management of projects for the development of a production facility; and - modification and maintenance, in which we apply our expertise to troubleshoot and make repairs and/or make proposals about enhancing productivity and efficiency. The division has particular expertise in turnkey engineering, procurement and construction projects in which it is responsible for managing all aspects of the development of a production facility. In the downstream market, the Oil, Gas and Petrochemicals division is a full service engineering company. In addition to expertise in engineering, procurement and construction projects, it licenses more than 40 process technologies in the refining, chemical, petrochemical and polymer fields. It has particular expertise in ethylene process technologies through ABB Lummus Global, which is part of the ABB Group. Ethylene is used as a raw material in a wide variety of plastics. The division also provides modernization and maintenance services for refining and petrochemical facilities in the downstream market. Contracts for the Oil, Gas and Petrochemicals division's products and projects in both the upstream and downstream markets include both turnkey contracts and contracts providing for reimbursement of design, procurement, project management, construction management and commissioning. The division seeks to integrate its planning and project management expertise with the equipment that it produces, particularly in the turnkey engineering, procurement and construction projects. Almost all of the projects to which the division provides design, engineering, procurement, management or maintenance services include the division's products and systems. 32 The division, therefore, is able to leverage its industry and technical expertise to sell both its own products and those of other ABB divisions. The Oil, Gas and Petrochemicals division works with other ABB divisions to provide products and services tailored to its customers' needs. For example, the Power Technology Products and Utilities divisions worked closely with the Oil, Gas and Petrochemicals division to solve the problem of transporting power to equipment in deep water far away from offshore facilities. Unlike the other end-user divisions, however, the Oil, Gas and Petrochemicals division does not resell products manufactured by other divisions without any additional work performed within the division. In 2001, ABB and Schlumberger created Syntheseas, a new joint venture company targeted at improving the efficiencies and economics of subsea oil and gas development. The company combines the expertise of ABB and Schlumberger to create upstream solutions that integrate reservoir management and development, from subsea production to topside facilities. ABB holds a 50% interest in the joint venture. Also in 2001, the Oil, Gas and Petrochemicals division established a new service business in Macae, the principal hub for oil and gas business in Brazil. Additionally, ABB and Petroleum Equipment Industries Company (PEIC) established a new company in Iran, with ABB holding a 60% interest. ABB acquired FIP S.A. in August 2001. In addition to being a leading supplier of pressure containing equipment for oil and gas production in Mexico, FIP supplies wellheads and gate valves used in oil and gas wells to customers around the world. In 2000, ABB acquired an 80% interest in a company jointly owned with Equistar Chemicals to purchase the Novolen-Registered Trademark- polypropylene technology from Targor GmbH and to acquire the rights to market Targor's metallocene polypropylene technology, used in the production of a new generation of high performance plastics. In 2000, ABB also acquired the oil and gas activities of Umoe ASA, a Norwegian service company in the oil and gas industry, to support the division's further growth in that market. The Oil, Gas and Petrochemicals division is also active in the design and fabrication of a wide variety of gas treatment systems. It produces equipment that cleanses (tail gas clean-up) and neutralizes (acid gas sweetening) the hazardous components of gasses that result from the petrochemical refining process before those gasses are released into the atmosphere. The division's services in this area and in the area of gas processing for producing products such as ethylene and propane include project definition, installation, training and technical assistance. CUSTOMERS The Oil, Gas and Petrochemicals division serves a range of customers, including multinational integrated oil and gas companies, national oil companies and independent exploration and production companies, as well as petrochemical companies. 33 COMPETITION The Oil, Gas and Petrochemicals division's competitors include the following:
UPSTREAM MARKET DOWNSTREAM MARKET - --------------- ----------------- - - Cooper Cameron - Bechtel Group - - FMC Technologies - Fluor - - Halliburton - Foster Wheeler - - Kvaerner - Haldor Topsoe - - Technip-Coflexip - IFP - Kellog Brown & Root (KBR) (Halliburton) - Snamprogetti - Technip - UOP
RESEARCH AND DEVELOPMENT Research and development expenses for the Oil, Gas and Petrochemicals division amounted to approximately $41 million, or 1.2% of the division's revenues, for 2001. In the upstream market, the division launched SEPDIS, the world's first full size subsea electrical power distribution system, in 2001. The project combined ABB's extensive knowledge and experience in electrical systems and total subsea solutions with external specialist knowledge. Additionally, the division was awarded the engineering, procurement and construction contract for the Kizomba deep-water floater for ExxonMobil. The contract is based on a new floater technology concept that is expected to substantially increase the payload of a deep-water tension leg platform. In the downstream market, Avantium Technologies of Amsterdam and ABB Lummus Global have entered into a research agreement to exploit the opportunity to use combinatorial techniques and high-throughput experimentation for catalyst synthesis. The Chevron Lummus Global partnership, a 50-50 owned joint venture between Chevron Research and Technology Company and ABB Lummus Global, has expanded the scope of cooperation to include a wider range of hydroprocessing technologies and catalysts. Chevron Lummus Global commercialized a new zeolite hydrocracking catalyst at Petrocanada. The first cracking furnaces designed by the ABB and China Petrochemical Technology Company (SINOPEC TECH) strategic alliance were successfully commissioned at the Beijing Yanshan Petrochemical Group Co. ethylene complex in Beijing, China in 2001. The two new 100,000 metric ton per annum furnaces were started up in record time. CAPITAL EXPENDITURES The Oil, Gas and Petrochemicals division's capital expenditures for property, plant and equipment were $38 million, $30 million and $48 million in 2001, 2000 and 1999, respectively. The capital expenditures during these periods related primarily to purchases of machinery and equipment in the United States, Great Britain, Italy and Norway. 34 POWER TECHNOLOGY PRODUCTS OVERVIEW The Power Technology Products division produces transformers, switchgear, breakers, capacitors, cables and other products and technologies for high and medium-voltage applications. The products are used in industrial, commercial and utility applications and are sold through the end-user divisions as well as through external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators. The following table sets forth financial and other data regarding the Power Technology Products division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 4,042 3,662 3,862 Earnings before interest and taxes (operating income)....... 234 244 282 Operating margin (%)........................................ 5.8% 6.7% 7.3% Capital expenditures (2).................................... 105 105 162 Number of employees......................................... 27,555 27,785 27,871
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. PRODUCTS AND SERVICES HIGH-VOLTAGE TECHNOLOGY The High-Voltage Technology business area manufactures the principal components of power transmission systems, including transmission switchgear products in air- and gas-insulated technology, cables, capacitors, high-voltage and generator circuit breakers, disconnectors, grounding switches, instrument transformers, surge arrestors, power lines and transmission towers. Its products and components also include polymer insulators for lines and switchgear, circuit breaker drives, cable accessories and fittings for overhead lines. Its products follow a modular platform design to achieve maximum flexibility at a low cost. In particular, the High-Voltage Technology business area has focused on developing Industrial IT-enabled products that can be seamlessly integrated into complete automation systems. MEDIUM-VOLTAGE TECHNOLOGY The Medium-Voltage Technology business area supplies switching equipment for utilities and industrial customers both directly and through distributors and original equipment manufacturers. It produces a comprehensive line of medium-voltage equipment, including products such as indoor and outdoor switch disconnectors, breakers, reclosers, fuses, contactors, instrument transformers and sensors as well as air and gas insulated switchgear, motor control centers, and ring main units for primary and secondary distribution. It also produces indoor and outdoor modular systems, modular solutions for specific applications, compact substations and power distribution centers. Most of these products provide connections between higher voltage substations and lower voltage uses. The Medium-Voltage Technology business area has developed products and systems that reduce outage times and improve power quality and control. 35 POWER TRANSFORMERS The transformers manufactured by the Power Transformers business area are based on a modular set of common technologies for its factories and provide a competitive advantage in terms of reliability and efficiency. Its products cover most applications from standard to highly complex and customized. In 1999, this business area launched a new high-voltage transformer that uses advanced cable technology and does not require oil to cool and insulate the transformer. The new product, called the Dryformer-TM-, is safer and better suited to urban areas because it eliminates the hazards of oil fires. This advanced cable technology is also used in the Powerformer-TM-, a new type of generator feeding directly into the transmission grid without step-up transformers. DISTRIBUTION TRANSFORMERS Distribution transformers are used in industrial facilities, commercial buildings and utility distribution networks to step down electrical voltage to the levels needed by end users. The Distribution Transformers business area manufactures and sells a full range of power distribution transformers, including oil-type, dry-type and special application distribution transformers. While oil-type transformers are more commonly used, demand for dry-type transformers is growing because they minimize fire hazards and have applications in high-density office buildings, nuclear power plants, offshore drilling platforms, naval vessels and high-volume industrial plants. CUSTOMERS The Power Technology Products division supplies power transmission and distribution products to external channel partners, as well as to the end-user divisions for resale to end-user customers or for integration into a system. In 2001, approximately 59% of the division's gross revenues were attributable to sales to ABB end-user divisions, primarily the Utilities division. COMPETITION On a global basis, the Power Technology Products division's principal competitors are ALSTOM, Schneider and Siemens. In North American markets, the division's principal competitors are Cooper Industries and General Electric. In Asia, the division's competitors include Hitachi, Mitsubishi Electric and Toshiba. In niche markets such as distribution transformers, the division also competes with companies such as Howard Industries. RESEARCH AND DEVELOPMENT Research and development expenses for the Power Technology Products division amounted to approximately $103 million, or 2.6% of its revenues, for 2001. The division's research and development activities in 2001 primarily related to the ongoing renewal of technology platforms and the implementation of the Industrial IT concept into the division's products and production processes. The new technology platforms enable the creation of streamlined product portfolios, mass customization of products and production in fewer factories. The division's research and development activities in electric arc physics led to the creation in 2001 of a new generation of generator breakers for use with high currents at a lower cost. CAPITAL EXPENDITURES The Power Technology Products division's capital expenditures for property, plant and equipment were $105 million in each of 2001 and 2000 and $162 million in 1999. Principal investments in 2001 included investments to replace existing equipment, particularly in Europe and the United States, as well as expansion investments in the Distribution Transformers and Power Transformers business areas. 36 AUTOMATION TECHNOLOGY PRODUCTS OVERVIEW The Automation Technology Products division provides products, systems, software and services for the automation and optimization of industrial and commercial processes. Key technologies include measurement and control, instrumentation, process analysis, drives and motors, power electronics, robots, and low-voltage products. These technologies are sold to customers through the end-user divisions as well as through external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators. The following table sets forth financial and other data regarding the Automation Technology Products division (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 5,246 5,175 5,550 Earnings before interest and taxes (operating income)....... 380 464 392 Operating margin (%)........................................ 7.2% 9.0% 7.1% Capital expenditures (2).................................... 126 139 190 Number of employees......................................... 39,834 41,332 43,874
- -------------------------- (1) See Note 2 to our Consolidated Financial Statements, included elsewhere in this annual report, for a description of our revenue recognition policies. (2) Excludes purchased intangible assets. ABB customers use automation technologies primarily to improve product quality, productivity and consistency in industrial and manufacturing applications. The automation market can be divided into three sectors: - FACTORY AUTOMATION refers to discrete operations, manufacturing individual items used mainly within the automotive, packaging and consumer goods industries. Product lines for this market include robots and robot cells which include standardized and tailored systems for discrete applications such as painting, picking, packing and palletizing. ABB provides a comprehensive set of systems using these technologies. For example, the Automation Technology Products division works with the Manufacturing and Consumer Industries division to supply complete production systems for the consumer products industry as well as software applications for warehouse and supply chain management and other business processes. - PROCESS AUTOMATION refers to control systems applied in processes where the main objective is continuous production, such as oil and gas, electricity, chemicals and pulp and paper. Product lines for this market include instrumentation, analytical measurement and control products and systems, as well as motors and drives. This division offers complete process automation systems that incorporate medium and low-voltage switchgear, synchronized drive systems, instrument and control and advanced diagnostic packages. Its products also include software to optimize the manufacturing and business processes. - BUILDING AUTOMATION comprises product lines and applications particularly targeted at the building industry. Product lines for this market include heating, ventilating, air handling and access control systems. Customers also require software for optimal management of the energy cost of buildings. 37 The Automation Technology Products division manufactures products relating to all three areas, primarily focusing on process automation products and systems, as well as robotics technologies for factory automation. The Automation Technology Products offering has been enhanced through a number of strategic acquisitions in recent years. In early 1999, ABB acquired Elsag Bailey Process Automation, a leading global provider of control, instrumentation and process analytical products whose offering significantly extended our reach both in terms of automation technology and geography. In mid-2001, we acquired Entrelec, a French supplier of industrial automation and control products, including electrical connecting devices, time relays, signaling and safety devices and wiring accessories for the housing market. This acquisition further diversified our product range and expanded our customer base in European and American markets. In mid-2001, this division entered into a ten-year strategic alliance (in cooperation with the Manufacturing and Consumer Industries division) with Dow Chemical Company in which Dow agreed to use its Industrial IT automation systems in nearly all of its new automation projects, as well as in retrofits of existing systems. Another significant strategic cooperation was forged in 2001 through a framework agreement with the original equipment manufacturer York International, a long-time customer, for simplified account service, pricing and joint development spanning multiple product lines. In keeping with the Automation Technology Products division's implementation of the Industrial IT concept, the division has sought in 2001 to simplify and streamline its product portfolio by eliminating product overlaps, which often resulted from the acquisition of new automation businesses, and to certify an increasing number of automation products as Industrial IT compliant. PRODUCTS AND SERVICES We are a recognized market leader in our core automation products and systems, with particular strength in process automation systems (including supervisory control and data acquisition, or SCADA, systems), quality control systems, advanced robotics, process instrumentation (including analytical measurement devices) and alternating current, or AC, drives. INSTRUMENTATION AND METERING The process instrumentation products manufactured by the Instrumentation and Metering business area interact with the division's Open Control System products and include products for the measurement of process variables such as pressure, temperature, volume and flow. The increasing sophistication of many process automation systems often requires thousands of measurement points for such variables. These instrumentation products are sold separately or in combination with control systems. The various analytical measurement devices produced by this business area form an important part of the instrumentation and control system. These devices measure chemical characteristics while process instrumentation products measure physical characteristics. This business area's analytical product offerings include gas analyzers, chromatographs, spectrometers and paper quality control systems which perform either sample based or continuous measurement of properties such as chemical or physical composition (for example, the water and fiber content of paper or the composition of gas), energy content and environmental emissions. These products are sold separately or through the end-user divisions as part of complete systems. The Instrumentation and Metering business area's metering products include electricity, water, energy, and gas meters, metering systems and load control systems. The innovative products and systems produced by this business area reflect the wealth of knowledge and experience gained from more than a century of dedication to the electricity, water, energy, and gas industries. 38 CONTROL AND FORCE MEASUREMENT The Control and Force Measurement business area develops, markets and sells products and systems within the Industrial IT architecture. The business area emphasizes Open Control Systems, including batch control systems, supervisory control and data acquisition systems, and, to a lesser but increasing extent, programmable logic controls (known as "PLCs") and remote terminal units (known as "RTUs"). Control systems are the hubs that link instrumentation, devices and systems for control and supervision of an industrial process. One primary advantage of using products and systems that conform to the Industrial IT architecture (which we refer to as Industrial IT Control Systems) instead of traditional Open Control Systems is that information is rendered accessible by parties across an organization at any point in the manufacturing process. Control systems also enable customers to integrate their production systems with their enterprise, resource and planning systems, providing a link to ordering, billing and shipping. This linkage combined with the connection of Open Control Systems to field instrumentation and automation power products allows customers to manage their entire manufacturing and business process based on instantaneous access to useful information. Additionally, this coordination allows customers to employ information received from instrumentation and measurement products to increase production efficiency, optimize their assets and reduce environmental waste. These features of Industrial IT Control Systems enable customers to react quickly to changing circumstances based on accurate information while decreasing the possibility of errors, human or otherwise. The Control and Force Measurement business area also offers batch control and supervisory control and data acquisition systems. Batch control systems control the production of a variety of products in shorter runs based on recipes such as pharmaceuticals. Supervisory control and data acquisition systems are used for supervision and data acquisition needs over wide areas or long distances. In 2000 and 2001 we introduced new control products based on the Industrial IT architecture. These products take full advantage of the ABB Aspect Integrator-TM---a powerful, object-based platform which allows organization of plant devices in easy-to-navigate structures tailored to the needs of operations, maintenance or management personnel--for configuration, support or evaluation of each component within the context of its larger system. The Aspect Integrator facilitates real-time interaction between the characteristics (Aspects) of system components and allows easy "copy-and-paste" configuration of new systems by moving or adding components in the same way that users can manipulate the file structure on a personal computer. This business area also provides a comprehensive range of force measurement products designed to improve control, productivity and quality in a wide variety of processes and industries--including measurement of flatness, roll force, strip and web tension, strip width, position, and torque. These technologies are sold to the metal fabrication, paper, and other industries. ELECTRICAL MACHINES The Electrical Machines business area supplies a comprehensive range of AC and DC motors and generators, including high-efficiency motors that conform to leading environmental and efficiency standards. Efficiency is an important criterion for selection by customers, because electric motors account for nearly two-thirds of the electricity consumed by industrial plants. This business area manufactures synchronous motors for the most demanding applications, and a full range of low and high-voltage induction motors. Each motor is designed individually to meet all requirements of the specific application. 39 DRIVES AND POWER ELECTRONICS The Drives and Power Electronics business area focuses on the ongoing development of low-voltage and medium-voltage AC drive products and systems for industrial, commercial and residential applications for the pulp and paper, metals, marine, water, food and beverage, chemical, oil and gas and heating, ventilation and air conditioning industries. Drives provide motion and torque, and they control equipment such as fans, pumps, compressors, conveyors, kilns, centrifuges, mixers, hoists, cranes, extruders, printing machinery and textile machines. This business area also covers several areas of power electronics products. It produces static excitation and synchronizing systems that provide stability for power stations, as well as high power rectifiers that convert AC power to DC power for very high-amperage applications such as furnaces in zinc plants and aluminum and magnesium smelters. The business area also manufactures frequency converters that use state-of-the-art semiconductor technology to convert electrical power into the correct type and frequency required by individual customers. ROBOTICS Manufacturers use the Robotics business area's flexible automation and advanced robotics products for applications involving multiple tasks such as welding, material handling, painting, picking, packing and palletizing. The business area provides complex, multi-axis robots used in advanced manufacturing and service applications, including a heavy-duty robot capable of precision lifting of loads up to 500 kilograms, which was introduced in 2001. The ABB end-user divisions provide complete production automation systems for industry segments ranging from automotive, metal fabrication and plastics to food products, pharmaceuticals and consumer goods. Services, including design and project management, engineering, installation, training and life-cycle care of the complete production line, are also provided, typically in cooperation with the Manufacturing and Consumer Industries division. LOW-VOLTAGE PRODUCTS The Low-Voltage Products business area manufactures circuit breakers, controls, switches and fuse gear that are used in industrial electrical applications to protect, switch and control industrial equipment. In addition, our acquisition of Entrelec provided us with a range of connectors, terminal blocks and protection and monitoring devices that are used primarily in industrial applications. The business area also makes line protection products, wiring accessories and enclosures and cable systems that are primarily used for control and protection in building installations. Customers increasingly require low-voltage products with built-in intelligence, self-regulation and energy efficiency capabilities. To meet these requirements, we have recently launched a number of product families, such as INSUM, a motor protection, monitoring and communication system that uses advanced electronic sensoring and feedback systems to control power distribution to industrial motors, ensuring that they run at optimal efficiency with minimal downtime. We also introduced the European Installation Bus/Powernet system, which integrates and automates a building's electrical installations, ventilation, security and data communications networks. The Powernet system can be built into existing electrical installations without installing new communication busses. 40 The world market for low-voltage products and systems can be divided according to which standard is used. The products made by the Low-Voltage Products business area follow the IEC (International Electrotechnical Committee) standard, a leading global standard. CUSTOMERS The Automation Technology Products division sells its products to ABB's end-user divisions for resale or for integration into a system, as well as to external channel partners. In 2001, approximately 40% of the division's gross revenues were attributable to sales to ABB end-user divisions, primarily the Utilities and Process Industries divisions. COMPETITION The Automation Technology Products division's principal competitors vary by product line. For most businesses, they include Emerson Electric, Fanuc, General Electric, Honeywell, Invensys, KUKA Roboter, Metso, Rockwell, Siemens and Yokogawa. In the low-voltage products area, the division's principal competitors include General Electric, Legrand, Schneider and Siemens. RESEARCH AND DEVELOPMENT Research and development expenses for the division amounted to approximately $269 million, or 5.1% of its revenues, for 2001. Research and development in the Automation Technology Products division in 2001 focused on innovations that improve customer productivity, coupled with a strong awareness of ABB's large installed base and the need to evolve the division's technologies while protecting the customer's installed investment. In the control systems area, for example, an estimated 30,000 systems produced by ABB and our predecessor companies are installed worldwide. Recognizing the value of supporting this installed base, the division adheres to a philosophy of forward and backward compatibility, allowing incremental enhancements to be added to installed systems without making existing components obsolete. An important focus of the division's research programs is the group-wide commitment to Industrial IT. The Automation Technology Products division is responsible for the development of the Industrial IT architecture and the base Industrial IT control products and systems. As a result, the division's research is heavily focused on intelligent, "information enabled" products and devices that may be integrated easily to provide better access to real-time information across the business enterprise. Increasing "productization" of automation technologies is intended to yield a growing portfolio of reusable building blocks that may be easily deployed and bundled by customers, channel partners and the ABB end-user divisions. CAPITAL EXPENDITURES The Automation Technology Products division's capital expenditures for property, plant and equipment were $126 million, $139 million and $190 million in 2001, 2000 and 1999, respectively. Approximately 65% of the expenditures in 2001 were related to replacement of existing investments, geared toward maintaining and improving productivity, and the remainder represented investments in new products and businesses. FINANCIAL SERVICES OVERVIEW The Financial Services division supports the ABB Group's businesses and customers with innovative financial solutions in structured finance, leasing, project development and ownership, 41 financial consulting and insurance. The following table sets forth certain financial and other data regarding the Financial Services business division for each of the years indicated (see Note 23 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Revenues (1)................................................ 2,133 1,966 1,687 Earnings (loss) before interest and taxes (operating income)................................................... (32) 349 337 Number of employees......................................... 1,120 1,125 1,049
- -------------------------- (1) Financial Services' revenues include interest income, trading income, fee income, insurance premiums, dividends and capital gains. PRODUCTS AND SERVICES The Financial Services business division is comprised of four business areas: - Structured Finance; - Equity Ventures; - Insurance; and - Treasury Centers. STRUCTURED FINANCE The Structured Finance business area provides debt capital for projects and equipment. It also provides asset-based financing such as leasing to customers, as well as financial advisory services. Leasing is a flexible finance option that can benefit a client through competitive pricing, long-term financing, off-balance sheet financing and flexible rental arrangements to optimize cash flows. By combining leasing with other financing options, such as hire purchase (which allows a lessor to purchase the equipment at a later stage), lending, securitization or other capital market products, this business area can tailor financing to each client's requirements. The Structured Finance business area generates stand-alone profits through four business lines: medium to large transactions on its own account; asset-based sales support financing for ABB customers and other clients; advisory services for cross-border leasing and other asset-based financing options; vendor leasing for "small ticket" investments such as office equipment, personal computers and vending machines. ABB Export Bank, a Swiss commercial bank with extensive experience in export, trade and project finance, is a key part of the Structured Finance business area. It arranges medium-term export financing for capital goods. Covered by national export credit agencies or bilateral and multilateral institutions such as the World Bank, ABB Export Bank grants buyer's credits in all currencies accepted by the agency involved. In support of ABB equipment supply, ABB Export Bank has financed exports from all countries with an ABB manufacturing base, using those countries' export credit agencies. Structured Finance also acts as financial advisor and lender for infrastructure and industrial projects to expedite the closing process. This financing is often structured as trade, export or limited recourse project financing. Structured Finance has relationships with a wide range of multilateral, bilateral and export credit agencies, local and global capital market financing sources, government support programs and various forms of financial structures based on commodity 42 trading. Structured Finance also provides debt financing and underwriting capacity to projects, focusing on global infrastructure and industrial projects. Financing options can include senior debt, subordinated debt, bridge financing and special tailored financing structures. In June 2000, ABB Financial Services acquired a 35% share of the Swedish Export Credit Corporation for aggregate consideration of approximately $136 million, thereby strengthening our position in structured finance and leasing. The remaining 65% share of the Swedish Export Credit Corporation is owned by the Government of Sweden. The Swedish Export Credit Corporation, with assets of approximately $20 billion, specializes in long-term export finance to sectors such as telecommunications, automotive, transportation, energy, and process industries like pulp and paper and petrochemicals. In 2001, ABB Financial Services acquired Xerox's small ticket leasing portfolio in Northern Europe. The total volume comprised some $362 million in lease assets and 15,000 customers who will be integrated into Structured Finance's existing leasing activities. In April 2002, we announced that we were in negotiations with a number of parties with respect to the sale of our Structured Finance business area, which accounts for about one-third of the assets of the Financial Services division. The negotiations are ongoing. EQUITY VENTURES Our Equity Ventures business area originates, develops, finances, owns and operates infrastructure projects on a global basis. We invest equity in these projects and manage the portfolio of equity investments. Equity Ventures currently focuses on the following main areas where ABB has domain competence and a strong market presence: private power generation (power projects that are not government sponsored); renewable power; power and gas transmission and distribution; water; airport and logistic systems; oil, gas and petrochemicals; and selected telecommunication industries. At the end of 2001, Equity Ventures' portfolio consisted of investments in power generation and transmission projects and an airport development project. Our Equity Ventures business area combines commercial, technical, financial and legal expertise. A commercial group sets the goals for the project and ensures that they are followed through to financial closing and commercial operation. The technical group consists of experienced engineers who can help the project fit into the big picture, using advanced technology to interface with existing infrastructure. Our financial experts determine the appropriate means of financing projects, ranging from public and private, local and international, equity and debt funding sources. Our legal professionals balance the legal demands of infrastructure construction, technology and financing. INSURANCE Our Insurance business area provides international reinsurance and insurance underwriting through Sirius International, financial reinsurance and insurance through Scandinavian Re and Sirius International, and specialized program insurance in the United States through Sirius America. In reinsurance, the reinsurer, in return for a premium payment, provides coverage to a primary insurance company for all or a specific portion of the primary insurer's obligation to its customer. The business area's brokerage companies Komposit in Germany and ABB Insurance Brokers in Switzerland provide services to ABB companies and third-party clients. Our network of branches 43 and local companies comprises locations in Sweden, Germany, Belgium, Switzerland, Singapore and the United States. An important and growing part of the reinsurance portfolio are the excess of loss accounts, mainly in the property, marine, aviation, oil and energy sectors. This type of insurance provides coverage against all or a specified portion of losses on underlying insurance contracts to the extent they exceed an agreed level of losses. Our Financial Risks unit applies sophisticated techniques to handling risk in commercial contracts, larger export projects and other complex risks within a company's operations. For example, the unit structures, prices and underwrites certain credit risk portfolios, whose benefit can include increased return on capital for customers. It also structures complex insurance and reinsurance deals for reinsurance customers. Investment income provides a substantial amount of insurance and reinsurance business profits. We pursue prudent policies in managing our own funds and cooperate with investment managers to maximize returns within set guidelines. TREASURY CENTERS ABB's Treasury Centers manage the ABB Group's liquid assets and borrowings, execute foreign exchange transactions, borrow funds and offer financial consulting services. Each year, Treasury Centers raise the equivalent of several billion U.S. dollars for ABB Group companies through medium-term debt and commercial paper programs. A primary task for the Treasury Centers is to assist in managing the financial risk arising in the companies within the ABB Group. The ABB companies rely on Treasury Centers for cash pooling, netting of intercompany payments, foreign exchange and interest rate management services, borrowing and investment of excess liquidity and financial advisory services. Effective June 19, 2002, the Treasury Centers halted proprietary trading activities. Subsequent to that date, treasury operations will focus primarily on treasury services and execution for companies within the ABB Group. The Treasury Centers are incorporating the rapid development of eBusiness into our operations. We provide treasury services online, including a web-based cash management process for our subsidiaries and real-time, 24-hour access to financial data. 44 SIGNIFICANT SUBSIDIARIES ABB Ltd is the parent company of the ABB Group. The ABB Group is comprised of over 800 subsidiaries worldwide. The following table sets forth, as of May 31, 2002, the name, jurisdiction of incorporation and ownership interest held in our significant subsidiaries:
OWNERSHIP NAME JURISDICTION INTEREST (%) - ---- ------------ ----------------- ABB Australia Pty Limited............. Australia 100 ABB AG................................ Austria 100 ABB Ltda.............................. Brazil 100 ABB Inc............................... Canada 100 ABB (China) Ltd....................... China 100 ABB s.r.o............................. Czech Republic 100 ABB A/S............................... Denmark 100 Asea Brown Boveri S.A.E............... Egypt 100 ABB Oy................................ Finland 100 ABB S.A............................... France 100 Asea Brown Boveri Germany Aktiengesellschaft.................. 98.5 ABB Engineering Trading and Hungary Service Ltd......................... 100 Asea Brown Boveri Ltd................. India 59.3 ABB S.p.A............................. Italy 100 ABB K.K............................... Japan 100 ABB Holdings Sdn. Bhd................. Malaysia 100 Asea Brown Boveri S.A. de C.V......... Mexico 100 ABB BV................................ Netherlands 100 ABB Holdings BV....................... Netherlands 100 ABB Holdings AS....................... Norway 100 ABB Sp.zo.o........................... Poland 100 ABB S.G.P.S., S.A..................... Portugal 100 Asea Brown Boveri Ltd................. Russia 100 ABB Contracting Company Ltd........... Saudi Arabia 49 ABB Holdings (Pty) Ltd................ South Africa 100 Asea Brown Boveri S.A................. Spain 100 ABB AB................................ Sweden 100 ABB Asea Brown Boveri Ltd............. Switzerland 100 ABB Ltd............................... United Kingdom 100 Asea Brown Boveri Inc................. United States 100 ABB Holdings Inc...................... United States 100 Asea Brown Boveri S.A................. Venezuela 100
SUPPLIES AND RAW MATERIALS We purchase a variety of raw materials for use in our production processes. We enter into long-term supply agreements with selected key suppliers for the purchase of significant raw materials and components required in our operations. We operate a worldwide Supply Chain Management network with employees dedicated to this function in key countries. The Supply Chain Management network uses the scale of the ABB Group to maximize the efficiency of supply networks. In 2001, we expanded our eBusiness activities, including e-procurement for materials and services, and further developed advanced supplier collaboration tools and a supplier information system. 45 A strong increase in demand for specialty steel beyond industry capacity caused the price of this material to increase by approximately 4% in 2001. In addition, aluminum, copper and oil prices rose by approximately 2% in 2001 due to cost pressures and refining and capacity constraints. Capacity constraints in non-ferrous metals fabrication and specialty steel production led to minor material shortages and delays in delivery during the first half of 2001. Prices on electronic components rose between 3% and 4% in 2001. Shortages in supplies, such as those for memories and capacitors, caused extended lead times during the first three quarters of 2001. Lead times and prices for electronic components returned to normal levels during the fourth quarter of 2001. There can be no assurance that our ability to obtain sufficient raw materials will not be adversely affected by unforeseen developments. In addition, the price of raw materials may vary, perhaps substantially, from year to year. RESEARCH AND DEVELOPMENT Each year, we invest significantly in research and development. Our research and development area focuses on developing and commercializing the core technologies of our businesses that are of strategic importance to our future growth. In 2001, 2000 and 1999, we invested $654 million, $703 million and $865 million, or approximately 2.8%, 3.1% and 3.6% of annual revenues, respectively, on research and development activities. We also had expenditures of $916 million, $985 million and $1,212 million, respectively, or approximately 3.9%, 4.3% and 5.0%, respectively, of annual revenues in 2001, 2000 and 1999, on order-related development activities. These are customer- and project-specific development efforts that we undertake to develop or adapt equipment and systems to the unique needs of our customers in connection with specific orders or projects. Order-related development amounts are initially recorded in inventories as part of the work in progress of a contract and then are reflected in cost of sales at the time revenue is recognized in accordance with our accounting policies. In addition to continuous product development, our research and development program also engages in high-impact projects which are market-specific projects with more ambitious payback goals but which face more challenges on the technical side in commercialization than conventional product development. Through active management of these investments, we seek to maintain a balance between short-term and long-term research and development programs and optimize our return on investment. Our global computer network links our engineers and scientists to facilitate the exchange of ideas and foster the development of new products and systems. A significant part of our research and development activities is carried out in our ten research and development centers in the United States and Europe. In 2001, we streamlined our portfolio of projects and sharpened the focus of our corporate research programs considerably, by shifting resources toward new technologies such as Industrial IT and wireless applications. We estimate that this new focus will lead to a reduction in the number of employees working in corporate research and development by approximately 135. We are building up new research and development activities in the United States and Asia, while moving away from mature technologies in Europe. We created four networked laboratories in 2001, which we call global virtual laboratories. The global virtual laboratories are strategically focused on four key areas of research: automation, power, engineering and manufacturing, and oil and gas technologies. The four focal points were chosen to better support our core areas of expertise in power and automation technologies. They 46 coordinate their research and link up--in a fully networked, online environment--our scientists and engineers with one another, and with universities, research institutes and partner organizations. Recent developments include: - a broad campaign to introduce more distributed control and communication in ABB products in order to integrate them into the Industrial IT architecture; - a set of innovations relating to robots, software for easy programming of robot applications as well as high precision robots for consumer products and manufacturing applications; - comprehensive software packages to serve the deregulated energy markets, design optimized grids and facilitate the business processes of energy providers; - new products for the electrical power market to increase the efficiency, power quality and safety of the power transmission and distribution systems; - applications of power electronics in powerful drives for use in marine vessels together with innovative propulsion concepts; - subsea technology such as separation systems and electrical distribution systems that we believe will contribute to significant cost savings in subsea oil and gas production; and - exploration of nanotechnologies, the design of material on a molecular base, for a variety of applications in our industry as well as micro-electromechanical systems in automation and power applications. ENVIRONMENTAL ACTIVITIES We have based our environmental policy directly on the principles of the ICC Business Charter for Sustainable Development, a set of principles for environmental management based on the idea that sustained economic growth should be achieved on a basis consistent with protection of the environment. Our commitment to sustainable development comprises five key elements: - to develop and design ecoefficient products and systems; - to share state-of-the-art technologies with emerging markets; - to contribute to common efforts; - to apply our social policy, including occupational health and safety policy, throughout the Group and to develop procedures and indicators to improve social performance continuously; and - to continuously improve our own environmental performance. Our research and development program includes significant efforts related to improving the environmental impact of our products and systems. Through the development and application of advanced technologies, we seek to improve the operating efficiency of our products, reduce their emissions, and minimize their use of resources and energy. For example, our drive systems significantly reduce energy consumption and ensure optimum operation of customers' equipment. In the Oil, Gas and Petrochemicals division, we have fully integrated environmental controls into our subsea systems, resulting in less need for materials and energy, reduced pollution and easy decommissioning. To continuously improve the environmental performance of our own operations, we are implementing environmental management systems according to the ISO 14001 standard on all our sites. We have implemented the ISO 14001 standard at almost all of our manufacturing facilities and service workshops (approximately 550 sites). We are now expanding our scope by 47 implementing an adapted environmental management system in our non-manufacturing organizations. Commencing in 1999, we introduced the concept of Environmental Product Declarations to improve the environmental performance of our core products. These describe the salient environmental aspects and impacts of a product line, viewed over its complete life cycle, and include relevant environmental goals and improvement programs. Declarations are based on Life Cycle Assessment studies, created according to the international standard ISO 14025. To date, 43 declarations have been produced for major product lines, 9 of which have been externally certified. We have retained liability for environmental remediation costs at two sites in the United States that were operated by our former nuclear business, which we have sold to British Nuclear Fuels. The primary environmental liabilities associated with these sites relate to the costs of remediating radiological contamination upon decommissioning the facilities. In connection with the sale of the nuclear business, in April 2000 we established a reserve of $300 million in connection with estimated remediation costs related to these facilities. For further information, see "Item 3. Key Information--Risk Factors--We are subject to liabilities from discontinued operations and we could be required to make payments in respect of these retained liabilities in excess of established reserves" and "Item 5. Operating and Financial Review and Prospects--Environmental Contingencies and Retained Liabilities." PATENTS AND TRADEMARKS We believe that intellectual property has become as important as tangible assets for a technology group such as ABB. Over the past ten years we have almost doubled our total number of first patent filings, and we intend to continue our aggressive approach to seeking patent protection. Currently we have over 10,000 patent registrations and approximately 8,000 pending applications. In 2001, we filed patent applications for more than 600 inventions. Based on our existing intellectual property strategy, we believe that we have adequate control over our core technologies. The ABB trademark and trade name is well known throughout the world and represents a very significant value for the ABB Group. The ABB trademark is registered in more than 200 countries. We have protection for over 900 product marks. REGULATORY MATTERS Our operations are also subject to numerous other governmental laws and regulations including those governing currency conversions and repatriation, taxation of foreign earnings and earnings of expatriate personnel, and use of local employees and suppliers. As a reporting company under Section 12 of the U.S. Securities Exchange Act of 1934, we are subject to the U.S. Foreign Corrupt Practices Act's antibribery provisions with respect to our conduct around the world. Our operations are also subject to the 1997 Organization of Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions as implemented by the 34 signatory countries. The 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions obliges signatories to adopt national legislation that makes it a crime to bribe foreign public officials. As of December 31, 2001, those countries which have adopted implementing legislation and have ratified the OECD Convention include the United States, Switzerland and several European nations in which we have significant operations. 48 We and our subsidiaries conduct business in certain countries known to experience governmental corruption. While we and our subsidiaries are committed to conducting business in a legal and ethical manner, there is a risk that our employees or agents may take actions that violate either the U.S. Foreign Corrupt Practices Act or legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. These actions could result in monetary penalties against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business. DESCRIPTION OF PROPERTY As of December 31, 2001, the ABB Group had approximately 100 manufacturing, production and development facilities of over 10,000 square meters each throughout the world. A substantial portion of our production and development activities is conducted in Germany, the United States, Sweden, Switzerland, Finland, Norway and Italy. We also own or lease other properties, including office buildings, warehouses, research and development facilities and sales offices in approximately 96 countries. We own approximately 60% of the properties on which our facilities are located and lease the remainder. We own most of the properties on which our production is conducted and essentially all of the machinery and equipment used in the manufacturing operations. In certain countries, we have entered into sale-leaseback agreements, notably in Sweden and Switzerland. Those arrangements mainly pertain to administrative buildings and partly to manufacturing facilities. From time to time we have a surplus of space arising from acquisitions, production efficiencies and/or restructuring of operations. Normally we seek to sell such surplus space or, to a lesser extent, lease it to third parties. It is our general policy to maintain facilities and equipment at quality levels assuring continuous production at good efficiency and safety standards. The net book value of our property, plant and equipment at December 31, 2001, was $3,003 million of which machinery and equipment represented $1,377 million and land and buildings represented $1,438 million. We believe that our current facilities are in good condition and are adequate to meet the requirements of our present and foreseeable future operations. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS PLEASE REFER TO "FORWARD-LOOKING STATEMENTS" AND "ITEM 3. KEY INFORMATION--RISK FACTORS" FOR A DISCUSSION OF THE FACTORS RELEVANT TO THIS DISCUSSION AND OTHER FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT. OVERVIEW We are a global provider of power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. In January 2001, we announced the transformation of our worldwide enterprise around customer groups, aiming to boost growth by helping our customers become more successful in a business environment of accelerating globalization, deregulation, consolidation and eBusiness. We replaced our former business segments with seven business divisions structured along customer groups. Four end-user divisions--Utilities, Process Industries, Manufacturing and Consumer Industries and Oil, Gas and Petrochemicals--serve end-user customers with products, systems and services. Two channel partner divisions, Power Technology Products and Automation Technology Products, serve external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators directly and end-user customers indirectly through 49 the end-user divisions. The Financial Services division provides services and project support for the ABB Group as well as for external customers. The ABB Utilities division serves electric, gas and water utilities--whether state-owned or private, global or local, operating in liberalized or regulated markets--with a portfolio of products, services and systems. Our principal customers are generators of power, owners and operators of power transmission systems, energy traders and local distribution companies. The division has approximately 16,000 employees. The ABB Process Industries division serves the chemical, life sciences, oil and gas, refining, petrochemicals, marine, turbocharging, metals, minerals, mining, cement, pulp, paper and printing industries with process-specific products and services combined with ABB's power and automation technologies. ABB is the leading supplier in many of these markets, and we use our industry and process knowledge to create Industrial IT solutions that improve the efficiency and competitive strength of customers. The division has approximately 16,000 employees. The ABB Manufacturing and Consumer Industries division sells products, systems and services that improve customer productivity and competitiveness in areas such as automotive industries, telecommunications, consumer goods, food and beverage, product and electronics manufacturing, airports, parcel and cargo distribution, and public, industrial and commercial buildings. In April 2002, we announced our intention to divest our Building Systems business area and to combine the three remaining business areas in the Manufacturing and Consumer Industries division with the Process Industries division in a newly created Industries division. The division has approximately 25,000 employees. The ABB Oil, Gas and Petrochemicals division supplies a comprehensive range of products, systems and services to the global oil, gas and petrochemicals industries, from the development of onshore and offshore exploration technologies to the design and supply of production facilities, refineries and petrochemicals plants. The division has approximately 13,000 employees. The ABB Power Technology Products division covers the entire spectrum of technology for power transmission and power distribution. It includes transformers, switchgear, breakers, capacitors, cables, as well as other products, platforms and technologies for high and medium-voltage applications. Power technology products are used in industrial, commercial and utility applications. They are sold through the end-user divisions, as well as through external channel partners such as distributors, contractors, original equipment manufacturers and system integrators. The division has approximately 28,000 employees. The ABB Automation Technology Products division provides products, systems, software and services for the automation and optimization of industrial and commercial processes. Key technologies include measurement and control, instrumentation, process analysis, drives and motors, power electronics, robots, and low-voltage products. These technologies are sold to customers through the end-user divisions as well as through external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators. The division has approximately 39,000 employees. The ABB Financial Services division supports the ABB Group's businesses and customers with innovative financial solutions in structured finance, leasing, project development and ownership, financial consulting, insurance and treasury activities. The division has approximately 1,200 employees. 50 CRITICAL ACCOUNTING POLICIES AND ESTIMATES GENERAL Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included elsewhere in this annual report, which have been prepared in accordance with accounting principles generally accepted in the United States. As described in Note 2 to the Consolidated Financial Statements, the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to costs expected to be incurred to complete projects, product guarantees and warranties, bad debts, inventories, investments, intangible assets, income taxes, financing operations, restructuring, long-term service contracts, pensions and other post-retirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe changes in the following judgments, assumptions and estimates involved in the application of our most critical accounting policies could materially affect the amounts reported in our consolidated financial statements. REVENUE AND COST OF SALES RECOGNITION Short-term contract revenues are generally recognized upon completion of services or delivery of goods. These revenue recognition methods assume collectibility of the revenues recognized. When recording the respective accounts receivable, loss reserves are calculated to estimate those receivables that will not be collected. These reserves assume a level of default based on historical information, as well as knowledge about specific invoices and customers. There remains the risk that greater defaults will occur than estimated. As such, revenues recognized might exceed that which will be collected, resulting in a deterioration of earnings in the future. This risk is likely to increase in a period of significant negative industry or economic trends. Long-term contract revenues are generally recognized under the percentage of completion method. The percentage of completion method of accounting involves the use of various assumptions and projections, including future material costs, overhead costs and labor performance and rates. As a result there remains the risk that total contract costs will exceed those which have been originally estimated. These risks are exacerbated if the duration of the project is long-term, because there is a higher probability that the circumstances upon which we originally developed the estimates will change in a manner that increases our costs. Factors that could cause costs to increase include: - delays caused by unexpected conditions or events; - unanticipated technical problems with the equipment being supplied or developed by us which may require that we spend our own money to remedy the problem; - changes in the cost of components, materials or labor; - difficulties in obtaining required governmental permits or approvals; - project modifications creating unanticipated costs; - suppliers' or subcontractors' failure to perform; and 51 - penalties incurred as a result of not completing portions of the project in accordance with agreed upon time limits. Changes in the initial assumptions may result in revisions to total estimated costs, current income and anticipated income. These changes are recognized in the period in which the information is determined. We believe, that this approach, referred to as the catch-up approach, produces more relevant information because the cumulative revenue-to-date reflects the current estimates of the stage of completion. Additionally, at any time an overall loss on a contract becomes known, the full amount of the loss is recognized within the calculations as an excess on contract costs over related contract sales and reflected as such on the income statement. Anticipated costs for warranties on products are accrued upon sales recognition on the related contracts. Warranty costs include calculated costs arising from design imperfections, material and workmanship, performance guarantees (technical risks) and delays in contract fulfillment. General assessment is made on an overall, statistical basis whereas orders with risks resulting from order-specific conditions/guarantees, E.G. plants/installations, are assessed individually. There remains the risk that actual warranty costs will exceed that which has been provided, the result of which would be a deterioration of earnings in the future when these actual costs are determined. GOODWILL AND OTHER INTANGIBLE ASSETS IMPAIRMENT We have assessed the impairment of goodwill and other identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an impairment review include the following: - significant underperformance relative to historical or projected future operating results; - significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and - significant negative industry or economic trends. When we have determined the carrying value of goodwill and other identified intangible assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measured any impairment based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in our current business model. In assessing the recoverability of our goodwill and other intangible assets we must make assumptions regarding estimated future cash flows, discount rates and other factors to determine the fair value of the respective assets. If our experience results in decreases to our forecasted cash flows or increases to the discount rate used, we may be required to record impairment charges for these assets. Our accounting policies for accounting for goodwill and other intangible assets changed on January 1, 2002. In accordance with Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, we ceased to amortize goodwill on that date. In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter. This impairment review requires a fair value estimate applied to the reporting entity to which the goodwill is applicable, as opposed to the respective assets of the acquired company as before. This expands the impairment analysis to include the future cash flows of the business owned before an acquisition that has benefited from an acquisition. As in the previous impairment model, if we determine through the impairment review process that goodwill has been impaired, we will record the impairment charge in our Consolidated Income Statement. 52 RESTRUCTURING During fiscal year 2001, we recorded significant reserves in connection with our restructuring program. These reserves include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from our actions. Although we do not anticipate significant changes, the actual costs may differ from these estimates. TAXES In preparing our consolidated financial statements we are required to estimate income taxes in each of the jurisdictions in which we operate. We account for deferred taxes by using the asset and liability method. Under this method, we determine deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We recognize a deferred tax asset when we determine that it is more likely than not that the asset will be realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. To the extent we establish a valuation allowance or increase this allowance in a period, we must expense the allowance within the tax provision in the Consolidated Income Statement. Unforeseen changes in tax rates and tax laws may impact these estimates, as well as differences in the projected taxable income versus the actual taxable income. CONTINGENCIES We are subject to proceedings, lawsuits and other claims related to environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue often with assistance from both internal and external counsel and technical experts. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters. PENSION AND POSTRETIREMENT BENEFITS We have significant pension and postretirement benefit costs and credits that are determined from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions. The discount rate is adjusted annually based on changes in long-term, highly rated corporate bond yields. Decreases in the discount rate result in an increase in the projected benefit obligation and to pension costs (as shown in Note 19 to the Consolidated Financial Statements). The expected return on plan assets represents a long-term rate and is not often adjusted. Decreases in the expected return on plan assets result in an increase to pension costs. At December 31, 2001, the unfunded balance of the pension benefits was $1,825 million. In accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87), EMPLOYERS' ACCOUNTING FOR PENSIONS, we have recorded only a net liability of $908 million on the balance sheet. The difference is primarily due to an unrecognized actuarial loss of $835 million, which is amortized using the "minimum corridor" approach as defined by SFAS 87. The unfunded balance can increase or decrease based on the performance of the financial markets or changes in our assumption rates and the unfunded amount does not represent a mandatory short-term cash obligation. We are in full compliance with all appropriate statutory funding requirements. 53 INSURANCE Premiums are generally recognized in earnings on a pro rata basis over the period coverage is provided. Premiums earned include estimates of certain premiums not yet paid. These premium receivables include premiums relating to retrospectively rated contracts. For such contracts, a provisional premium is paid that will eventually be adjusted. An estimated value of the actual premium is included in receivables. Unearned premiums represent the portion of premiums written that is applicable to the unexpired terms of reinsurance contracts or certificates in force. These unearned premiums are calculated by the monthly pro rata method or are based on reports from ceding companies. Insurance liabilities are reflected in accrued liabilities and other, on the Consolidated Balance Sheet and are determined on the basis of reports from ceding companies and underwriting associations, as well as on management's, including in-house actuaries', estimates including those for incurred but not reported losses, salvage and subrogation recoveries. Changes to these estimated liabilities are recognized as an increase or decrease to cost of sales in the period in which they are identified. Inherent in the estimates of losses are expected trends of frequency, severity and other factors that could vary significantly as claims are settled. Accordingly, ultimate losses could vary significantly from the amounts currently provided for. We seek to reduce the loss from our underwriting liabilities by reinsuring certain levels of risks with other insurance enterprises or reinsurers. Recoverable amounts are recorded for both paid and unpaid losses and are estimated in a manner consistent with the claim liability associated with the reinsurance policy. The risk of collectibility of these reinsurance receivables arises from disputes relating to the policy terms and the ability of the reinsurer to pay. NEW ACCOUNTING STANDARDS On January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by the Statement of Financial Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133 and the Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, collectively referred to as SFAS 133. These Statements require the recognition of all derivatives, other than certain derivatives indexed to our own stock, on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through income. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Based on our outstanding derivatives on January 1, 2001, we recognized a loss in the consolidated income statement of approximately $63 million, net of tax, and a reduction to equity of $41 million, net of tax, in accumulated other comprehensive loss. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which modifies the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. We will adopt this Statement effective January 1, 2003. We have not yet determined the impact, if any, that this Statement will have on our financial position or results of operations. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER 54 INTANGIBLE ASSETS, which modify the accounting for business combinations, goodwill and identifiable intangible assets. All business combinations initiated after June 30, 2001 must be accounted for by the purchase method. Goodwill from acquisitions completed after that date will not be amortized, but will be charged to operations when specified tests indicate that the goodwill is impaired, that is, when the goodwill's fair value is lower than its carrying value. Certain intangible assets will be recognized separately from goodwill, and will be amortized over their useful lives. During 2002, all goodwill must be tested for impairment as of January 1, 2002, and a transition adjustment must be recognized for any impairment found. All goodwill amortization also ceased at that date. We recognized goodwill amortization expense of $191 million, $174 million and $155 million in 2001, 2000 and 1999, respectively. We do not expect to record a material transition adjustment in connection with such impairment testing in 2002. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED Assets. This Statement modifies the discontinued operations guidance of Accounting Principles Board Opinion 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, and supersedes Statement of Financial Accounting Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, while retaining certain requirements of SFAS No. 121 regarding impairment loss recognition and measurement. In addition, SFAS 144 provides additional accounting and reporting guidance for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. We adopted this statement on January 1, 2002, and we expect to present more disposals as discontinued operations subsequent to adoption of SFAS 144. On April 30, 2002, the FASB issued Statement No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS, which rescinds previous requirements to reflect all gains and losses from debt extinguishment as extraordinary. We have elected to adopt the new standard effective April 1, 2002 and, as a result, the gains from extinguishment of debt recorded prior to that date will be reclassified and will not be presented as extraordinary items when these historical periods are presented for purposes of comparison with later periods. Therefore, when results for 2001 are presented for purposes of comparison with 2002 results, income from continuing operations will include the gain on debt extinguishment currently reflected as extraordinary. RESTRUCTURING EXPENSES During the first quarter of 1999, we acquired Elsag Bailey Process Automation N.V. in a business combination accounted for as a purchase. We implemented a restructuring plan in connection with the acquisition that included reorganizing operations predominantly in Germany and the United States and called for workforce reductions of approximately 1,500 salaried employees, of which approximately 1,000 were Elsag Bailey employees. In conjunction with our completed assessment of our post-merger strategy related to the Elsag Bailey acquisition, we recorded a $141 million restructuring liability in our purchase price allocation, principally related to employee terminations and severance. In conjunction with the acquisition of Elsag Bailey, a $38 million expense charge was incurred in 1999 related to restructuring activities of ABB's businesses primarily related to employee termination and severance costs associated with the integration of the Elsag Bailey businesses. Restructuring charges of $195 million were included in other income (expense), net, during 2000, of which approximately $90 million related to the continued integration of Elsag Bailey. The Elsag Bailey restructuring was substantially complete at the end of 2000. The remainder related 55 primarily to the consolidation of manufacturing operations in our former Power Transmission segment and other actions to improve efficiency throughout the ABB Group. In July 2001, we announced a restructuring program anticipated to extend over 18 months. This initiative is expected to lead to one-time costs of $500 million over the 18-month period and, when completed, to produce cost benefits amounting to $500 million annually. The primary component of the restructuring, and the cost benefit, will be a reduction in headcount of approximately 12,000 employees, including through natural attrition. This restructuring program was initiated in an effort to simplify product lines, reduce multiple location activities and respond to the economic conditions in our major markets. As of December 31, 2001, we recorded charges of $114 million relating to workforce reductions and $73 million relating to lease terminations and other exit costs associated with the restructuring program. These costs are included in other income (expense), net. Termination benefits of $35 million were paid in 2001 to approximately 2,300 employees and $33 million was paid to cover costs associated with lease terminations and other exit costs. Workforce reductions include production, managerial and administrative employees. At December 31, 2001, accrued liabilities include $79 million for termination benefits and $40 million for lease terminations and other exit costs. As a result of the restructuring, certain assets have been identified as impaired or will no longer be used in continuing operations. We have recorded $44 million to write down these assets to fair value. These costs are included in other income (expense), net. ACQUISITIONS, INVESTMENTS AND DIVESTITURES In 2001, 2000 and 1999, we paid aggregate consideration of $597 million, $896 million and $2,428 million, respectively, related to acquisitions and investments in joint ventures and affiliated companies completed in those years. In 2001, we completed the acquisition of Entrelec Group, a France-based supplier of automation and control products, for a total aggregate consideration of $284 million. In 2000, we acquired for aggregate consideration of $130 million the oil and gas service activities of Umoe ASA, a Norwegian service company in the oil and gas industry, to support our further growth in that market. In 1999, we acquired Kemper Europe Reassurances for aggregate considerations of $120 million. We also completed the acquisition of Elsag Bailey for total consideration of $2,210 million (including assumed debt of $648 million). In June 2000, we entered into a share subscription agreement to acquire a 42% interest in b-business partners B.V. Pursuant to the terms of the agreement, we committed to invest a total of $278 million, of which $69 million was paid in 2000 and $134 million was paid during the first half of 2001. In December 2001, Investor AB acquired 90% of our investment and capital commitments for approximately book value, or $166 million in cash. After this initial transaction, b-business partners B.V. repurchased 50% of its outstanding shares, which resulted in a return of capital to us of $10 million. After these transactions, we retain a 4% investment in b-business partners B.V. and we are committed to provide additional capital to b-business partners B.V. of $3 million. Further, b-business partners B.V. retains a put right to cause us to repurchase 150,000 shares of b-business partners B.V. at a cost of approximately $13 million. The 2001 transactions are reflected in the Consolidated Statements of Cash Flows and included in the aggregate total amounts of investments ($578 million net of cash acquired) and divestment ($283 million net of cash disposed). In 2001, 2000 and 1999, we received aggregate cash consideration of $283 million, $1,963 million and $2,283 million, respectively, from dispositions and recognized net gains of $34 million, $931 million and $1,935 million, respectively. The material dispositions are described below. In addition, we received cash consideration of $77 million in 1999 from the disposition of our two standard power cable businesses in Norway and Sweden. 56 In 2000, we disposed of our power generation businesses, which included our investment in the ABB ALSTOM POWER joint venture described below and our nuclear power business. We received cash proceeds of $1,197 million from ALSTOM in exchange for our joint venture interest and recognized a net gain of $713 million. We received proceeds of $485 million from the sale of the nuclear power business and recognized a net gain of $17 million. Our Consolidated Financial Statements reflect our former power generation segment as discontinued operations. Effective June 30, 1999, we formed the ABB ALSTOM POWER joint venture with ALSTOM by contributing our power generation business and assets. Upon the formation of the joint venture, we received $1,500 million cash boot and recognized a corresponding net gain of $1,339 million. In the first quarter of 1999, we sold our 50% interest in the ABB Daimler-Benz Transportation GmbH joint venture to DaimlerChrysler AG for cash consideration of $472 million. Upon the disposal of our investment, we realized a net gain of $464 million. Our Consolidated Financial Statements reflect our equity in the earnings of this joint venture, together with the gain from its sale, as a discontinued operation. SUMMARY FINANCIAL DATA The following table demonstrates the amount and percentage of ABB Group revenues derived from each of our business divisions (see Note 23 to the Consolidated Financial Statements):
REVENUES PERCENT OF REVENUES ------------------------------ ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- ($ IN MILLIONS) (%) Utilities................................... 5,649 5,473 5,875 19.7 19.8 20.1 Process Industries.......................... 3,377 3,339 3,485 11.8 12.1 11.9 Manufacturing and Consumer Industries....... 4,780 5,225 5,697 16.6 18.9 19.5 Oil, Gas and Petrochemicals................. 3,489 2,796 3,086 12.1 10.1 10.5 Power Technology Products................... 4,042 3,662 3,862 14.1 13.3 13.2 Automation Technology Products.............. 5,246 5,175 5,550 18.3 18.7 19.0 Financial Services.......................... 2,133 1,966 1,687 7.4 7.1 5.8 ------ ------ ------ ----- ----- ----- Subtotal.................................... 28,716 27,636 29,242 100.0 100.0 100.0 ===== ===== ===== Corporate and Eliminations.................. (4,990) (4,669) (4,886) ------ ------ ------ Consolidated Revenues....................... 23,726 22,967 24,356 ====== ====== ======
We conduct business in more than 100 countries around the world. The following table demonstrates the amount and percentage of our consolidated revenues derived from each geographic region (based on the location of the customer) in which we operate:
REVENUES PERCENT OF REVENUES ------------------------------ ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- ($ IN MILLIONS) (%) Europe...................................... 12,780 12,570 13,893 53.9 54.7 57.0 The Americas................................ 5,944 5,702 5,675 25.0 24.8 23.3 Asia........................................ 2,686 2,770 2,763 11.3 12.1 11.4 Middle East and Africa...................... 2,316 1,925 2,025 9.8 8.4 8.3 ------ ------ ------ ----- ----- ----- Total....................................... 23,726 22,967 24,356 100.0 100.0 100.0 ====== ====== ====== ===== ===== =====
57 ORDERS AND PERCENTAGE OF COMPLETION ACCOUNTING We book an order when a binding contractual agreement has been concluded with the customer covering, at a minimum, the price and the scope of products or services to be supplied. Approximately 13% of our total orders booked in 2001 were large orders. We define large orders as orders from third parties involving at least $15 million worth of products or systems. Portions of our business, particularly in our Oil, Gas and Petrochemicals, Utilities and Power Technology Products divisions, involve orders related to long-term projects which can take many months or even years to complete. Revenues related to these orders are typically recognized on a percentage of completion basis over a period, ranging from several months to several years. The level of orders can fluctuate from year-to-year. Arrangements included in particular orders can be extremely complex and non-recurring. Some contracts do not provide for a fixed amount of work to be performed and are subject to modification or termination by the customer. Although large orders are more likely to result in revenues in future periods, the level of large orders, and orders generally, cannot be used to predict accurately future revenues or operating performance. Orders that are placed can be cancelled, delayed or modified by the customer. These actions can have the effect of reducing or eliminating the level of expected revenues or delaying the realization of revenues. Both the Utilities and the Oil, Gas and Petrochemicals divisions' total orders contain a significant number of large orders. The Utilities division often receives large third party orders and in turn places internal orders for products with the Power Technology Products division. Internal orders may be considerably larger than $15 million. Orders for the ABB Group decreased $1,661 million, or 7%, to $23,779 million in 2001 from a high order intake level in 2000 of $25,440 million. As reported in local currencies, orders declined by 2% in 2001 compared to 2000. The level of orders declined significantly in the Manufacturing and Consumer Industries, Oil, Gas and Petrochemicals, and Automation Technology Products divisions. Large orders often arise in connection with long-term, fixed price projects. When we undertake a long-term, fixed-price project, we recognize costs, revenues and profit margin from that project in each period based on the percentage of the project completed. Profit margin is based on our estimate of the amount by which total contract revenues will exceed total contract costs at completion. The nature of this accounting method is such that refinements of the estimating process for changing conditions and new developments are continuous. Accordingly, as work progresses or as change orders are approved and estimates are revised, contract margins may be increased, reduced or, on contracts for which a loss has become apparent, eliminated. In addition to the elimination of previously recognized margins, expected losses on loss contracts are recognized in full immediately. 58 ANALYSIS OF RESULTS OF OPERATIONS CONSOLIDATED YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 REVENUES Revenues for the ABB Group increased by $759 million, or 3%, to $23,726 million in 2001 from $22,967 million in 2000. As reported in local currencies, revenues increased 8% in 2001 compared to 2000. This reflects the significant effect of translating revenues generated in local currencies into the U.S. dollar, which strengthened against most of our local currencies. Revenues for the Utilities division increased by $176 million, or 3%, in 2001 compared to 2000 (a 7% increase as reported in local currencies). The increase in revenues was primarily due to revenue increases in our Power Systems and Modular Substations business areas. The Process Industries division increased revenues by $38 million, or 1%, in 2001 compared to 2000 (a 5% increase as reported in local currencies). Our Marine and Turbocharging business area was the primary contributor to this revenue increase. Manufacturing and Consumer Industries experienced a $445 million, or 9%, decrease in revenues for 2001 compared to 2000 (a 4% decrease as reported in local currencies), due primarily to the negative impact of the economic slowdown in the automotive industry. Revenues from Oil, Gas and Petrochemicals increased by $693 million, or 25%, in 2001 compared to 2000 (a 28% increase as reported in local currencies). The increase primarily reflected the large order intake of 2000, a significant portion of which was converted into revenues in 2001, and a full year of revenues from Umoe ASA, the oil and gas company acquired in the second half of 2000. This improvement was driven by upstream exploration markets, while downstream ended flat. Power Technology Products revenues increased by $380 million, or 10%, in 2001 compared to 2000 (a 15% increase as reported in local currencies). Revenues increased in most of the business areas, with our High-Voltage Products business area being the main contributor to the revenue increase. Revenues for the Automation Technology Products division increased by $71 million, or 1%, in 2001 compared to 2000 (a 6% increase as reported in local currencies). Revenue growth was strongest in our Drives and Power Electronics business area, offset in part by declines in our Robotics business area. Revenues from Financial Services increased by $167 million, or 8%, in 2001 compared to 2000 (a 13% increase as reported in local currencies). This increase primarily reflected improved revenues from our Insurance business area, primarily from acquisitions, and our Structured Finance business area. For a more detailed discussion of the individual divisions, see "Business Divisions" below. COST OF SALES Cost of sales for the ABB Group increased by $1,486 million, or 9%, to $18,708 million in 2001 from $17,222 million in 2000. As a percentage of revenues, cost of sales increased from 75.0% in 2000 to 78.9% in 2001. The increase in actual cost of sales was primarily attributable to the increase in revenues from the divisions, in particular the Utilities and the Oil, Gas and Petrochemicals divisions. Cost of sales increased in the Financial Services division mainly reflecting a $295 million non-cash charge from a change in accounting estimate for reinsurance reserves. Prior to 2001, we presented a portion of our insurance reserves on a discounted basis, which estimated the present value of funds required to pay losses at future dates. During 2001, the timing and amount of claims payments being ceded to us in respect of prior years' finite risk reinsurance contracts has changed and cannot be reliably determined at December 31, 2001. Therefore, we have not discounted our loss reserves, resulting in a charge to losses and loss adjustment expenses in 2001 of $295 million. In addition, our Insurance business area booked provisions for $138 million in underwriting losses, including $48 million in provisions for expected claims arising from the events of September 11, 2001. Additionally, costs and provisions for alternative energy projects of $55 million in New Ventures business area and project cost overruns in Oil, Gas and 59 Petrochemicals division of $140 million also contributed to the higher cost of sales during 2001. Our cost of sales consists primarily of labor, raw materials and related components. Cost of sales also includes provisions for warranty claims, contract losses and project penalties, as well as order-related development expenses related to projects for which we have recognized corresponding revenues. Order-related development expenditures amounted to $916 million and $985 million, in 2001 and 2000, respectively. In these periods, $499 million and $423 million, respectively, of order-related development expenditures were related to the Oil, Gas and Petrochemicals division. Order- related development amounts are initially recorded in inventories as part of the work in progress of a contract, and then reflected in cost of sales at the time revenue is recognized. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by $20 million, to $4,397 million in 2001 from $4,417 million in 2000. The decrease reflects group-wide cost reduction and efficiency improvement initiatives. As a percentage of revenues, selling, general and administrative expenses declined to 18.5% in 2001 from 19.2% in 2000. Selling, general and administrative expenses included research and development costs of $654 million in 2001 and $703 million in 2000. For the year 2001, the Automation Technology Products and the Power Technology Products divisions incurred research and development costs of $269 million and $103 million, respectively. The other industrial divisions shared the remaining cost in approximately equal proportions. AMORTIZATION EXPENSE Amortization expense increased by $17 million, or 8%, to $236 million in 2001 from $219 million in 2000, attributable to slightly higher amortization of purchased goodwill and intangibles, in particular from the Umoe acquisition completed in June 2000 and the acquisition of Entrelec Group in June 2001. In accordance with Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, goodwill is no longer amortized as of January 1, 2002. OTHER INCOME (EXPENSE), NET Other income (expense), net, typically consists of our share of income or loss on investments, principally from our Equity Ventures business area, as well as gains or losses from sales of businesses, investments and property, plant and equipment, license income and restructuring charges. Other income (expense), net, decreased by $382 million, to an expense of $106 million in 2001 from an income of $276 million in 2000. The change was primarily related to the benefit in 2000 of $447 million from capital gains, which was not repeated, as against $57 million in 2001. The significant capital gains in 2000 primarily resulted from the sale of non-core property and businesses. Also included were asset write-downs of mainly intangible assets ($93 million in 2001, $17 million in 2000), and income from equity accounted companies, license income and other of $161 million in 2001 and $41 million in 2000. EARNINGS BEFORE INTEREST AND TAXES Earnings before interest and taxes, or operating income, decreased $1,106 million, or 80%, to $279 million in 2001 from $1,385 million in 2000. As reported in local currencies, earnings before interest and taxes declined by 78% in 2001 compared to 2000. The decrease is primarily attributable to the higher cost of sales in 2001, and the significantly lower capital gains recorded in 2001 compared to 2000. When adjusted for capital gains of $57 million in 2001 and $447 million in 2000, operating income decreased by 76% in 2001 compared to 2000. As a percentage of revenues, reported operating income decreased from 6.0% in 2000 to 1.2% in 2001. 60 NET INTEREST AND OTHER FINANCE EXPENSE Interest and other finance expense increased by $158 million, or 25%, to $802 million in 2001 from $644 million in 2000. Net interest expense was primarily affected by a higher net debt position, which arose to fund our share repurchases in 2001, as well as costs associated with the listing of our shares in the United States and costs to hedge our management incentive plan. See Note 20 to the Consolidated Financial Statements. Interest expense reflects fluctuations, which may be substantial, in the level of borrowings throughout the year as required by the operating needs of our business. The level of interest and dividend income earned remained flat at $568 million in 2001 from $565 million in 2000. PROVISION FOR TAXES Provision for taxes decreased by $272 million, or 72%, to $105 million in 2001 from $377 million in 2000. The decrease in the provision reflects primarily the reduction in income from continuing operations before taxes and minority interests, which declined from $1,306 million to $45 million. As a percentage of income from continuing operations before taxes and minority interest, the development led to a higher tax rate of 234% in 2001 compared to 28.9% in 2000. The higher effective rate reflects the inclusion of the provision for our reinsurance business located in a low tax jurisdiction. The tax rate applicable for income from continuing operations without the insurance provision would have been 30.9%. We generally conduct our tax planning activities to achieve a tax structure for ABB that provides for an effective tax rate of approximately 30% on our operations. INCOME (LOSS) FROM CONTINUING OPERATIONS Income (loss) from continuing operations decreased $1,011 million to a loss of $130 million in 2001 from an income of $881 million in 2000. The decrease reflects the impact of the items discussed above. INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX Loss from discontinued operations, net of tax, was $510 million in 2001, compared to an income, net of tax, of $562 million in 2000. The loss from discontinued operations reflects significant reduction in gains from the sale of discontinued operations and an additional provision taken for the asbestos liabilities relating to our discontinued power generation business. In 2000, we recorded gains on the sale of our interest in the ABB ALSTOM POWER joint venture and our nuclear power business, which were not repeated in 2001. During 2001, we experienced a substantial increase in the level of new asbestos claims as well as an increase in settlement costs per claim. In light of this, we recorded a charge of $470 million. See "--Environmental Contingencies and Retained Liabilities." NET INCOME (LOSS) As a result of the factors discussed above, net income decreased to a loss of $691 million in 2001 from an income of $1,443 million in 2000. The net loss in 2001 primarily reflects the significantly lower level of gains from sales of businesses, including discontinued business, and higher cost of sales, which includes the non-cash charge related to our reinsurance business. We also recorded a $12 million extraordinary gain on the repurchase of our own bonds and a one-time after tax charge of $63 million, due to cumulative effect of change in accounting principles upon adoption of the Statement of Financial Accounting Standards No. 133 (SFAS 133) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. See "New accounting standards" above. 61 EARNINGS (LOSS) PER SHARE Diluted earnings (loss) per share was a loss per share of $0.61 in 2001 compared to an income per share of $1.22 in 2000, largely resulting from the factors mentioned above which negatively impacted net income. Diluted loss per share from discontinued operations were $0.45 compared to diluted earnings per share of $0.48 in 2000, reflecting the loss from discontinued operations discussed above as opposed to a gain in 2000. Diluted earnings (loss) per share from continuing operations decreased to a loss of $0.11 in 2001 from earnings of $0.74 per share in 2000, primarily as a result of the decreases in the gross margin and in capital gains and higher interest expense in 2001. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 REVENUES Revenues for the ABB Group decreased by $1,389 million, or 6%, to $22,967 million in 2000 from $24,356 million in 1999. This includes the significant effect of translating revenues generated in local currencies into the U.S. dollar, which strengthened against most of our local currencies. As reported in local currencies, revenues increased by 2% in 2000 compared to 1999. The divisional revenues were also impacted by this translation effect. In four of our divisions the translation effect changed the local currency revenue increases into revenue decreases. Utilities revenues decreased by $402 million, or 7%, in 2000 compared to 1999 (a 2% decrease as reported in local currencies). The decrease in revenues was primarily due to reductions in Power Systems. Orders for the division, however, increased by 4%, as compared to 1999. Process Industries division decreased revenues by $146 million, or 4%, in 2000 compared to 1999 (a 2% increase as reported in local currencies). The revenues performance reflected weakness in our Petroleum, Chemical and Life Sciences business area, which was affected by the low backlog from year-end 1999. Manufacturing and Consumer Industries experienced a $472 million, or 8%, decrease in revenues for 2000 compared to 1999 (a flat development as reported in local currencies). The reported reduction primarily arose from our Building Systems business area. Revenues from Oil, Gas and Petrochemicals decreased by $290 million, or 9%, in 2000 compared to 1999 (a 3% decrease as reported in local currencies). The decrease in 2000 primarily reflected both a strong order backlog at the end of 1998, which positively affected early 1999 revenues, and generally weak market conditions in 1999. Power Technology Products revenues decreased by $200 million, or 5%, in 2000 compared to 1999 (a 2% increase as reported in local currencies). Our High-Voltage Products business area experienced a considerable reduction in 2000 as a result of lower volumes from a low order intake in 1999. Automation Technology Products division revenues decreased by $375 million, or 7%, in 2000 compared to 1999 (a 2% increase as reported in local currencies). The reported decrease primarily reflected weakness in sales of larger automation systems. Revenues from Financial Services increased by $279 million, or 17%, in 2000 compared to 1999. This increase primarily reflected increased revenues from our Insurance business area mainly through acquisitions. For a more detailed discussion on the individual divisions, see "Business Divisions" below. COST OF SALES Cost of sales for the ABB Group decreased $1,235 million, or 7%, to $17,222 million in 2000 from $18,457 million in 1999. As a percentage of revenues, cost of sales was 75.0% in 2000 compared to 75.8% in 1999. The reduction in actual cost of sales was primarily attributable to the reduced level of revenues and the improvement in the gross margin was mainly a result of cost reduction efforts. Order-related development expenses amounted to $985 million and $1,212 million in 2000 and 1999 respectively. The reduction in these costs was mainly a result of the streamlining of research and development activities. This streamlining reflects the significant progress that we 62 made towards common ABB platforms and products. Order-related development amounts are initially recorded in inventories as part of the work in progress of a contract, and then reflected in cost of sales at the time revenue is recognized, in accordance with our accounting policies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses decreased by $265 million, or 6%, to $4,417 million in 2000 from $4,682 million in 1999. The decreased selling, general and administrative costs reflect reductions resulting from the restructuring in connection with the integration of the Elsag Bailey operations, which initially had higher selling, general and administrative expenses than our existing related businesses. The decrease also reflects group-wide cost reduction and efficiency improvement initiatives as well as expenditures to prepare for the Year 2000 issues in 1999, which were not repeated in 2000. Selling, general and administrative expenses included $703 million and $865 million of research and development costs in 2000 and 1999 respectively. AMORTIZATION EXPENSE Amortization expense was $219 million in 2000 and $189 million in 1999. There were no material acquisitions that affected the level of amortization expense in 2000. OTHER INCOME (EXPENSE), NET Other income, net, increased by $182 million to $276 million in 2000 from $94 million in 1999. The improvement was primarily attributable to an increase in net gains from sales of non-core property, plant and equipment and improved earnings from investments made by Equity Ventures, offset by an increase in restructuring costs. EARNINGS BEFORE INTEREST AND TAXES Earnings before interest and taxes, or operating income, increased by $263 million, or 23%, to $1,385 million in 2000 from $1,122 million in 1999. As reported in local currencies, earnings before interest and taxes increased 38% in 2000 compared to 1999. As a percentage of revenues, operating income increased to 6.0% in 2000 from 4.6% in 1999. The increase is primarily attributable to the benefit from the 6% reduction in selling, general and administrative expenses and the increased level of other income, net. The improvements in other income, net, reflected primarily significant capital gains in 2000 of $447 million as compared to $180 million in 1999. As adjusted for capital gains, operating income remained flat for 2000 compared to 1999. Significant capital gains in 1999 relate to gains from the sale of shares and participations and from the sale of non-core property. NET INTEREST AND OTHER FINANCE EXPENSE Interest expense decreased by $64 million, or 9%, to $644 million in 2000 from $708 million in 1999. The decrease primarily reflects a lower level of borrowings during 2000 compared to 1999, resulting from the use of cash generated by operations and divestitures to reduce borrowings during the period. The level of interest and dividend income earned decreased by $43 million, to $565 million in 2000 from $608 million in 1999. PROVISION FOR TAXES Provision for taxes increased by $34 million, or 10%, to $377 million in 2000 from $343 million in 1999, primarily reflecting taxes on an increased level of income from continuing operations. As a percentage of income from continuing operations before taxes and minority interest, however, we incurred a lower effective tax rate of 28.9% in 2000 compared to 33.6% in 1999. The lower effective tax rate can be attributed to a change in the financing of our operations in a number of 63 countries throughout 2000, including financing related to the Elsag Bailey operations, as well as earnings in countries with tax rates lower than the weighted average rate. INCOME FROM CONTINUING OPERATIONS Income from continuing operations increased by $238 million, or 37%, to $881 million in 2000 from $643 million in 1999. As a percentage of revenues, income from continuing operations increased to 3.8% in 2000 from 2.6% in 1999. The increase reflects the impact of the items discussed above. INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX Income from discontinued operations, net of tax, decreased by $155 million, or 22%, to $562 million in 2000 from $717 million in 1999. The 1999 amount reflected both the net gain on the contribution of our power generation business to the ABB ALSTOM POWER joint venture of $1,339 million and the gain on the sale of ADtranz of $464 million, partially offset by operating losses from the divested businesses. The 2000 amount includes a net gain of $713 million on the sale of our remaining 50% share in ABB ALSTOM POWER and a net gain of $17 million on the sale of our nuclear power business. The net gain from the sale of our nuclear power business includes a $300 million provision for estimated environmental remediation. NET INCOME As a result of the factors discussed above, net income increased by $83 million, or 6%, to $1,443 million in 2000 from $1,360 million in 1999. The increase in net income reflects the 37% improvement in income from continuing operations. This improvement more than offset the 22% decrease in income from discontinued operations resulting from the lower level of gains on sales of non-core businesses. EARNINGS PER SHARE Diluted earnings per share increased by $0.07 to $1.22 in 2000 from $1.15 in 1999. The increase primarily reflected the significant increase in income from continuing operations. Diluted earnings per share from continuing operations increased by $0.20 to $0.74 in 2000, from $0.54 in 1999, reflecting the increase in income from continuing operations discussed above. This increase was only partially offset by a decrease in diluted earnings per share from discontinued operations of $0.13 to $0.48 in 2000 from $0.61 in 1999. This decrease reflected the lower level of income from discontinued operations discussed above. BUSINESS DIVISIONS In April 2002, we announced our intention to divest our Building Systems business area, which is part of the Manufacturing and Consumer Industries division, and to combine the three remaining business areas in the Manufacturing and Consumer Industries division with the Process Industries division in a newly created Industries division. We are in the process of implementing this combination, and we will begin reporting our financial results to reflect this new structure starting with our June 30, 2002 financial results. The discussion of the various divisions set forth below does not reflect this new division reporting. 64 OVERVIEW Revenues, earnings before interest and taxes (or operating income) and operating margins by division for the fiscal year 2001, 2000 and 1999 and net operating assets as of December 31, 2001, 2000 and 1999 are as follows (see Note 23 to the Consolidated Financial Statements):
REVENUES NET OPERATING ASSETS ------------------------------ ------------------------------ YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- ($ IN MILLIONS) ($ IN MILLIONS) Utilities..................................... 5,649 5,473 5,875 795 1,018 912 Process Industries............................ 3,377 3,339 3,485 738 839 795 Manufacturing and Consumer Industries......... 4,780 5,225 5,697 249 411 634 Oil, Gas and Petrochemicals................... 3,489 2,796 3,086 315 893 554 Power Technology Products..................... 4,042 3,662 3,862 1,311 1,328 1,483 Automation Technology Products................ 5,246 5,175 5,550 2,558 3,215 3,388 Financial Services............................ 2,133 1,966 1,687 10,926 9,098 7,750 Corporate and Eliminations.................... (4,990) (4,669) (4,886) (3,114) (2,170) (2,372) ------ ------ ------ ------ ------ ------ Consolidated figures.......................... 23,726 22,967 24,356 13,778 14,632 13,144 ====== ====== ====== ====== ====== ======
EARNINGS BEFORE INTEREST AND TAXES OPERATING MARGIN ------------------------------ ------------------------------ YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- ($ IN MILLIONS) (%) Utilities..................................... 148 250 182 2.6 4.6 3.1 Process Industries............................ 116 88 123 3.4 2.6 3.5 Manufacturing and Consumer Industries......... 87 205 147 1.8 3.9 2.6 Oil, Gas and Petrochemicals................... 79 157 165 2.3 5.6 5.3 Power Technology Products..................... 234 244 282 5.8 6.7 7.3 Automation Technology Products................ 380 464 392 7.2 9.0 7.1 Financial Services............................ (32) 349 337 n/a n/a n/a Corporate and Eliminations.................... (733) (372) (506) n/a n/a n/a ------ ------ ------ ------ ------ ------ Consolidated operating income/margins......... 279 1,385 1,122 1.2 6.0 4.6 ------ ------ ------ ------ ------ ------
DIVISION COSTS Cost of sales and selling, general and administrative expenses comprise the most significant part of operating expenses for all divisions. Cost of sales includes costs related to the sale of products and services, which comprise, among other things, the cost of raw materials, components, order-related research and development and procurement costs. Cost of sales for the Financial Services division includes insurance claims, acquisition costs and direct costs incurred to obtain revenues and income from third parties and related parties. Selling, general and administrative expenses include the overhead related to the sales force and all costs related to general management, human resources, financial control, corporate finance and non order-related research and development. As a percentage of revenues, cost of sales is approximately equal for all industrial divisions, except that it is slightly lower for the Automation Technology Products division as a result of the higher gross margins typical in the automation industry. Selling, general and administrative expenses as a percentage of revenues are typically higher in the Automation Technology Products division compared to our other industrial divisions, due to relatively higher volumes attributable to smaller units of sales. The Oil, Gas and Petrochemicals division, in contrast, has a higher level of cost of sales (a lower gross margin) than the other industrial divisions but significantly lower selling, general and administrative expenses as a percentage of revenues, due to relatively higher volumes attributable to large projects. 65 UTILITIES Demand in the Americas remained strong throughout 2001. The slowdown in the U.S. economy and the events of September 11, 2001, did not significantly affect utilities markets in 2001, as utility investments primarily are infrastructure-related and generally have long lead times. Market activities in the United States and Europe were stable while in China and Brazil, the positive market trend from large project investments continued from the year 2000. In the Middle East and Africa, political instability has slowed investments in large projects. The Utilities division strengthened its focus on core utility customers through the sale of its railway electrification project business to Balfour Beatty in the fourth quarter of 2001. The divested business employed approximately 350 people. A shift in customer investments from power sources to power networks continues to drive the market. Driven by need for reliable power, demand for new systems and improvements in existing systems are foreseen. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders increased by $201 million, or 3%, to $6,436 million in 2001 from $6,235 million in 2000. As reported in local currencies, orders increased 7% in 2001 compared to 2000. This order improvement included a $360 million order in China for the Power Systems business area, announced in the fourth quarter of 2001. This order relates to a project involving the construction of a HVDC power transmission system linking hydropower plants in central China to the Guangdong province. In 2001, large orders represented approximately 17% of the division's total orders. Revenues increased by $176 million, or 3%, to $5,649 million in 2001 from $5,473 million in 2000. As reported in local currencies, revenues increased 7% in 2001 compared to 2000. All business areas reported higher revenues in 2001 compared to 2000 due to strong order intake in 2000, with the exception of the Utility Services business area, where the 2000 results reflected a period of heightened revenues from the invoicing of the ComEd project in Chicago. Earnings before interest and taxes, or operating income, decreased by $102 million, or 41%, to $148 million in 2001 from $250 million in 2000. There was no significant effect from translating local currency earnings into U.S. dollars. Operating income included capital gains of $54 million in 2000. When adjusted for capital gains, earnings before interest and taxes decreased by 24%. The reduction primarily related to the Power Systems business area, where competition-driven price deterioration reduced margins, and fixed costs related to projects that were deferred negatively impacted profitability. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Orders increased $254 million, or 4%, to $6,235 million in 2000 from $5,981 million in 1999. As reported in local currencies, orders increased 10% in 2000 compared to 1999. A number of significant orders were received by the Power Systems business area for an interconnection between Brazil and Argentina and HVDC projects in the United States and Australia. The strongest improvement came from the Modular Substations business area, which improved orders significantly through the booking of large projects, primarily in western Europe. Revenues decreased $402 million, or 7%, to $5,473 million in 2000 from $5,875 million in 1999. As reported in local currencies, revenues decreased 2% in 2000 compared to 1999. All business areas contributed to the negative revenue development, except our Utility Services business area, which increased revenues significantly by invoicing several large projects and benefited from full service contracts signed in 1999 and early 2000. Full service contracts typically last for several years and revenue is recognized throughout the contract period. The decrease in revenues primarily resulted from investment uncertainty in Latin America in 1999, which resulted in order deferrals, particularly in our Power Systems business area. 66 Earnings before interest and taxes, or operating income, increased by $68 million, or 37%, to $250 million in 2000 from $182 million in 1999. As reported in local currencies, operating income increased by 46% in 2000 compared to 1999. Operating income included capital gains of $54 million in 2000. Adjusted for capital gains, earnings before interest and taxes increased $14 million, or 8%. In general, the improvement reflected the benefits of cost base reduction and improved internal efficiency, productivity and quality management on a global basis. These efforts included the restructuring of our Utility Automation business area. For our Utility Services business area, the higher volumes largely contributed to the strong increase in earnings before interest and taxes. PROCESS INDUSTRIES Throughout 2001, many industries served by the Process Industries division consolidated, in particular the paper, aluminum and steel industries. Consolidation has diverted attention toward integration and has led to reduced capital spending by customers in those industries. The overall economic slowdown in the United States, exacerbated by the events of September 11, 2001, negatively affected the cruise industry, and contributed to a consolidation trend in the marine industry. The poor economic environment also had a negative effect on the metal, pulp and paper and mining businesses. In contrast, oil and gas vessel demand remained high in 2001 due to the continued exploration of new oil fields. The chemical and life sciences industries experienced growth in 2001. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders decreased by $121 million, or 3%, to $3,376 million in 2001 from $3,497 million in 2000. As reported in local currencies, orders remained flat. Orders increased significantly in the Petroleum, Chemical and Life Sciences business area offsetting decreases in our Paper, Printing, Metals and Minerals and Marine and Turbocharging business areas. Revenues increased by $38 million, or 1%, to $3,377 million in 2001 from $3,339 million in 2000. As reported in local currencies, revenues increased 5% in 2001 compared to 2000. Revenue increases were primarily attributable to increased volumes in our Marine and Turbocharging business area as a result of the high order backlog from 2000. Additionally, our Petroleum, Chemical and Life Sciences business area contributed to the revenue improvement. Earnings before interest and taxes, or operating income, increased by $28 million, or 32%, to $116 million in 2001 from $88 million in 2000. As reported in local currencies, earnings before interest and taxes rose 35% in 2001 compared to 2000. This increase primarily resulted from improvements in cost controls and project management in our Petroleum, Chemical and Life Sciences business area, as well as revenue growth in our Marine and Turbocharging business area. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Orders decreased slightly by $28 million, or 1%, to $3,497 million in 2000 from orders of $3,525 million in 1999. As reported in local currencies, however, orders increased by 6% in 2000 compared to 1999. The reported decrease primarily reflects the impact of translating local currencies into U.S. dollars for reporting purposes. Our Petroleum, Chemical and Life Sciences business area experienced decreased orders, while orders improved in our Marine and Turbocharging business area. Revenues decreased by $146 million, or 4%, to $3,339 million in 2000 from $3,485 million in 1999. As reported in local currencies, however, revenues increased by 2% in 2000 compared to 1999. The reported decrease reflects the significant effect of translating revenues generated in local currencies into U.S. dollars for reporting purposes. Revenues in our Paper, Printing, Metals and Minerals and our Marine and Turbocharging business areas declined due to adverse market 67 conditions. Revenues from our Petroleum, Chemical and Life Sciences business area decreased significantly due primarily to the low order backlog from the end of 1999 in the oil and gas industry. Earnings before interest and taxes, or operating income, in 2000 decreased by $35 million, or 28%, to $88 million from $123 million in 1999. As reported in local currencies, operating income decreased 17% in 2000 compared to 1999. Operating income in our Paper, Printing, Metals and Minerals business area remained unchanged from 1999, but operating income in our Marine and Turbocharging and Petroleum, Chemical and Life Sciences business areas experienced significant decreases from the 1999 levels. These two business areas were both negatively affected by significant losses from large projects due to cost overruns. MANUFACTURING AND CONSUMER INDUSTRIES Most of our markets--automotive, telecom, air handling and building construction--were negatively influenced by general economic uncertainty in 2001. In the second half of 2000, automotive industry customers reduced spending and postponed investments. As this continued in 2001, large order intake decreased and toward the middle of 2001, base orders also slowed significantly. In the telecom industry, the repositioning of the major operators and the uncertainty about new UMTS mobile communication network technology postponed rollout projects, while investments in traditional GSM communication networks have been at a minimum. After the events of September 11, 2001, a number of airport expansion projects have been delayed and scaled back. The European construction market for buildings weakened in 2001 with a marked drop in applications for building permits, whereas the retrofit and building service market is expected to improve. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders decreased by $1,097 million, or 20%, to $4,388 million in 2001 from $5,485 million in 2000. As reported in local currencies, orders decreased by 16% in 2001 compared to 2000. The reduction in orders was primarily attributed to our Automotive Industries and Building Systems business areas, particularly in the United States, Germany and Sweden. Additionally, large order intake decreased, as well as orders for standard products, primarily robots supplied by the Automation Technology Products division. Revenues decreased by $445 million, or 9%, to $4,780 million in 2001 from $5,225 million in 2000. As reported in local currencies, revenues declined 4% in 2001 compared to 2000. The decrease in revenues mainly arose from the impact of the global economic slowdown in our Automotive Industries business area. This was partly offset by moderate revenue increases in our Building Systems business area, due to good order backlog carried over from 2000. Earnings before interest and taxes, or operating income, decreased by $118 million, or 58%, to $87 million in 2001 from $205 million in 2000. As reported in local currencies, earnings before interest and taxes decreased 56% in 2001 compared to 2000. Operating income includes capital gains of $41 million in 2000. Adjusted for capital gains, earnings before interest and taxes decreased 47%. Our cost cutting efforts, although significant, lagged behind the sharp downturn in our markets. Our Automotive Industries business area in Germany was impacted by a number of project losses and initiated restructuring to improve the efficiency of project execution. In the United States, repositioning of selected activities within our Telecom and Product Manufacturing Industries business area led to lower operating margins. In addition, our Building Systems business area experienced project losses and higher costs related to over-capacity in the United Kingdom, Australia, Poland and Germany. Our Logistics Systems business area also experienced lower volumes in 2001. The division reduced the number of employees by more than 10% during 2001. 68 YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Orders decreased by $561 million, or 9%, to $5,485 million in 2000 from $6,046 million in 1999. As reported in local currencies, orders decreased by 1% in 2000 compared to 1999. A large order was booked in 2000 in our Telecom and Product Manufacturing Industries business area for the maintenance and upgrade of a telecommunications access network. This improvement was, however, more than offset by reductions in other business areas, primarily in our Building Systems business area. Revenues decreased by $472 million, or 8%, to $5,225 million in 2000 from $5,697 million in 1999. As reported in local currencies, however, revenues increased by 1% in 2000 compared to 1999. Increased revenues in our Telecom and Product Manufacturing Industries business area resulted from higher volumes in our full service business. This improvement was offset by reductions in other business areas, primarily in our Building Systems business area as a result of the discontinuation of the rail service and contracting business in Australia. Earnings before interest and taxes, or operating income, increased by $58 million, or 39%, to $205 million in 2000 from $147 million in 1999. As reported in local currencies, operating income increased by 51% in 2000 compared to 1999. Operating income includes capital gains of $41 million in 2000. Adjusted for capital gains, earnings before interest and taxes increased 12%. The increase was driven by improvements in our Automotive Industries and Telecom and Product Manufacturing business areas, particularly in the United States, reflecting the favorable market conditions at the end of 1999 and the beginning of 2000. Additionally, the earnings improvement can be attributed to efficient execution of projects, favorable product mix and savings in general and administration costs following active cost management. Operating income in our Building Systems business area remained relatively unchanged as losses in the United Kingdom offset operational improvements achieved in other markets. OIL, GAS AND PETROCHEMICALS Capital expenditures by customers of the Oil, Gas and Petrochemicals division are influenced by oil company expectations about the supply and demand for crude oil and natural gas products, the energy price environment that results from supply and demand imbalances and consolidation of the oil and gas markets. Key factors that may influence the worldwide oil and gas market include production restraint of OPEC nations and other oil-producing countries, global economic growth, technological progress in oil exploration and production and the maturity of the resource base. The downstream markets are influenced by factors such as economic growth, substitution of products and demand for more environmentally friendly products. Crude oil prices dropped in the fourth quarter of 2001 to below the OPEC band of $22 to $28 per barrel, with the average price for 2001 below that of 2000. The upstream business (from the well or bore hole to the refinery) continued to see high activity levels in 2001. The activity in West Africa continued its strong 2000 level throughout 2001, with some softening of demand in the fourth quarter due to the economic slowdown. Oil exploration activities in the Gulf of Mexico were robust while there was a shortfall in the gas exploration and production market, due to lower gas prices in the United States. The high order levels in the downstream market in 2000 did not continue through 2001. Demand in the petrochemicals industry decreased, subsequently leading to reduced investments in new capacity, while investments in refineries and gas-processing plants remained stable, driven by environmental regulations. The deterioration of the world economy had a negative impact on the downstream business, resulting in reduced activities in the process technology market in 2001. We expect this challenging downstream environment to continue in 2002. 69 YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders decreased by $520 million, or 13%, to $3,403 million in 2001 from $3,923 million in 2000. As reported in local currencies, orders decreased 12% in 2001 compared to 2000. In 2001, approximately half of the total order volume in the Oil, Gas and Petrochemicals division was composed of large orders. From the particularly high level of large orders in 2000, the upstream business continued to grow, but was offset by reductions in the downstream business. We experienced high tendering activity in the Oil, Gas and Petrochemicals division in 2001. This is expected to affect orders positively going into 2002. Revenues increased by $693 million, or 25%, to $3,489 million in 2001 from $2,796 million for 2000. As reported in local currencies, revenues increased 28% in 2001 compared to 2000. This growth was primarily generated by the large order intake in 2000 and also by a full year of revenues from Umoe, the oil and gas company acquired in the second half of 2000. Revenues improved in our Upstream business area, but the Downstream business area remained flat in 2001 compared to 2000. Earnings before interest and taxes, or operating income, decreased by $78 million, or 50%, to $79 million in 2001 from $157 million in 2000. As reported in local currencies, earnings before interest and taxes decreased 49% in 2001 compared to 2000. Earnings before interest and taxes were adversely affected by provisions for major cost overruns and project delays, the majority of which related to two large projects. The remaining underlying business developed positively, benefiting from the higher level of revenues. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 As oil prices recovered during 2000, demand in both the upstream market and the downstream markets increased in 2000, reflecting renewed investments by companies in the oil, gas and petrochemical-related industries. This resulted in an increase in orders of $893 million, or 29%, to $3,923 million in 2000 from $3,030 million in 1999. As reported in local currencies, orders increased by 40% in 2000 compared to 1999. A considerable part of the increase in orders was attributable to additional large orders booked in 2000. Large orders are by nature longer-term and do not immediately affect revenues. Revenues decreased by $290 million, or 9%, to $2,796 million in 2000 from $3,086 million in 1999. As reported in local currencies, revenues decreased 3% in 2000 compared to 1999. The decrease resulted from the low level of orders in 1999 reflecting the drop in overall market volume, both upstream and downstream, in 1999. Additionally, the improved levels of orders in late 1999 and 2000 were only reflected in revenues in late 2000. Earnings before interest and taxes, or operating income, decreased by $8 million, or 5%, to $157 million in 2000 from $165 million in 1999. As reported in local currencies, earnings before interest and taxes remained flat in 2000 compared to 1999. A capital gain of $15 million arising from non-core divestitures was included in 2000 operating income. Cost of sales showed a favorable development, but was offset by selling, general and administrative expenses, which did not keep pace with the revenue decrease. POWER TECHNOLOGY PRODUCTS Demand in the Americas remained high during 2001, particularly for power transmission products. The U.S. market in particular showed good demand and a higher level of investments in our High-Voltage Technology business area, which primarily serves the utilities market. The market in China continued to grow with a strong fourth quarter of 2001, while the majority of the Southeast Asian market remained stable with respect to infrastructure and industrial investments. Markets in Europe were mixed, with moderate growth in the German, Italian and Swedish markets, offset by flat or declining investments in other European countries. Demand in Middle Eastern and African 70 markets, in particular Saudi Arabia and the United Arab Emirates, showed improved momentum during the second half of 2001. Generally, we expect the positive developments to continue and weaker markets to recover during 2002. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders increased by $150 million, or 4%, to $4,221 million in 2001 from $4,071 million in 2000. As reported in local currencies, orders increased 9% in 2001 compared to 2000. Our Power Transformers business area recorded strong order growth mainly due to a considerable large order booked for the Chinese power link project. Our High-Voltage Technology business area increased orders substantially in the United States, Brazil, China and Russia. Orders in our Distribution Transformers and Medium-Voltage Technology business areas showed more modest growth as a result of the economic slowdown in North America, which affected the building and infrastructure markets. Revenues increased by $380 million, or 10%, to $4,042 million in 2001 from $3,662 million in 2000. As reported in local currencies, revenues increased 15% in 2001 compared to 2000. Our High-Voltage Technology business area showed a substantial revenue increase, generated in the Americas and Europe through increased volumes in high-voltage breakers and systems activities. Other distribution and transmission products recorded high single-digit or low double-digit growth in local currencies. Earnings before interest and taxes, or operating income, decreased by $10 million, or 4%, to $234 million in 2001 from $244 million in 2000. As reported in local currencies, earnings before interest and taxes remained unchanged in 2001 compared to 2000. Excluding the effect of increased restructuring charges in 2001, earnings before interest and taxes showed a slight improvement as a result of revenue growth and operational improvements. The higher level of revenues and operational improvements, however, were offset in part by lower product prices and the postponement of certain orders. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Orders increased by $230 million, or 6%, to $4,071 million in 2000 from $3,841 million in 1999. As reported in local currencies, orders increased by 14% in 2000 compared to 1999. The main contributor was our High-Voltage Technology business area, which represented approximately one third of total division orders. In particular, significant orders were received from the Utilities division for an interconnection between Brazil and Argentina and HVDC projects in the United States and Australia. Revenues decreased $200 million, or 5%, to $3,662 million in 2000 from $3,862 million in 1999. As reported in local currencies, however, revenues increased by 2% in 2000 compared to 1999. The level of revenues reflected the weakness of orders from Latin America in 1999 that affected revenues in 2000, particularly in our High-Voltage Technology business area, which experienced a significant revenue decrease. The Latin American market has been an important market for this business area. The decrease was offset by an improvement in revenues from our Power Transformers business area. Revenues from our Distribution Transformers business area increased as a result of an improved business climate, primarily in North America, where the business area performed well. Earnings before interest and taxes, or operating income, decreased by $38 million, or 13%, to $244 million in 2000 from $282 million in 1999. As reported in local currencies, however, operating income decreased by 9% in 2000 compared to 1999. Excluding capital gains of $30 million in 1999, operating income decreased 3% in 2000. The decrease in operating income was mainly the result of weak revenues and higher costs associated with restructuring charges in our Power Transformers and High-Voltage Technology business areas. Efforts to increase production efficiency include 71 reducing product overlaps and increasing the standardization of products where appropriate. Particularly in our Medium-Voltage Technology business area these efforts have lowered our cost base and improved the level of operating income already in 2000. These positive developments were offset by added development costs for the new technology within the area of distributed generation. AUTOMATION TECHNOLOGY PRODUCTS The 2001 economic downturn, first in the United States and later in Europe, negatively impacted demand. Asia generally remained stable. The automotive industry experienced significant reductions in investments due to generally weaker economic conditions across our major markets. The events of September 11, 2001, negatively affected the cruise industry in particular. Continuing consolidation in the pulp and paper industry depressed demand as customers focused on integration issues. The weakened construction market, especially in Germany, adversely affected our Low-Voltage Products business area. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Orders decreased by $251 million, or 5%, to $5,170 million in 2001 from $5,421 million in 2000. As reported in local currencies, orders were flat in 2001 compared to 2000. Our Drives and Power Electronics business area increased orders in 2001 and improved market share, while our Robotics business area was negatively affected by the decline in the automotive industry. Order levels in all other business areas decreased as they were impacted by increasingly difficult market conditions. Despite difficult conditions, our Instrumentation and Metering and Low-Voltage Products business areas maintained their market shares. Revenues increased by $71 million, or 1%, to $5,246 million in 2001 from $5,175 million in 2000. As reported in local currencies, revenues increased by 6% in 2001 compared to 2000. Revenue growth was especially strong in our Drives and Power Electronics business area. Supported by the strong order backlog at the end of 2000, our Electrical Machines and Low-Voltage Products business areas increased revenues. Offsetting in part the revenue increase were a significant decline in our Robotics and Control and Force Measurement business areas due to the downturn in the automotive industry and ongoing consolidation in the pulp, paper and metals industries, respectively. Earnings before interest and taxes, or operating income, decreased by $84 million, or 18%, to $380 million in 2001 from $464 million in 2000. As reported in local currencies, earnings before interest and taxes decreased 14% in 2001 compared to 2000. In our Robotics business area, reduced revenues resulted in significantly reduced operating income. Operating income in our Low-Voltage Products business area declined in 2001 reflecting the divestiture of certain profitable, but non-core, businesses. Earnings before interest and taxes in our Drives and Power Electronics business area increased due to good volume development; however, this development did not fully offset reductions in other business areas. Ongoing efforts to simplify product lines and multiple manufacturing locations should help to counteract the difficult market conditions going forward. Additionally, the division reduced personnel by approximately 3,000 in the second half of 2001. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Orders decreased by $201 million, or 4%, to $5,421 million in 2000 from $5,622 million in 1999. As reported in local currencies, however, orders increased by 6% in 2000 compared to 1999. Growth was especially strong in our Drives and Power Electronics, Electrical Machines, Robotics and Low-Voltage Products business areas, due to strong markets. Revenues decreased by $375 million, or 7%, to $5,175 million in 2000 from revenues of $5,550 million in 1999. As reported in local currencies, however, revenues increased by 2% in 2000 72 compared to 1999. The revenue level reflected the weakness in sales of larger automation systems sold through the Manufacturing and Consumer Industries division. Increased sales volumes, particularly in Europe, Asia and Latin America, partially offset pricing pressure on our automation products. Our Robotics business area significantly increased revenues, largely as a result of higher volumes from large automotive orders. Earnings before interest and taxes, or operating income, in 2000 increased by $72 million, or 18%, to $464 million in 2000 from $392 million in 1999. As reported in local currencies, earnings before interest and taxes increased by 32% in 2000 compared to 1999. In general, the improvement in earnings before interest and taxes reflects the division's substantial efforts to reduce its cost base and improve internal efficiency, productivity and quality management. In particular, our Drives and Power Electronics business area experienced operational improvements and healthy market conditions. Increased sales volumes and improved efficiency moderately increased operating income in the Low-Voltage Products business area. Our Robotics business area significantly increased operating income due to higher volumes. Efficiency improvements in our Electrical Machines business area also contributed to significantly higher operating income. FINANCIAL SERVICES The Financial Services division is impacted by interest rate movements in various currencies, mainly the U.S. dollar, the Euro and the Swiss franc, as well as exchange rate movements. The level of investment income generated from the investments in our Insurance business area and the income from the division's lease portfolio are affected by movements in interest rates, while the trading results of the Treasury Centers have been affected by movements in interest rates and exchange rates. Effective June 19, 2002, the Treasury Centers halted proprietary trading activities. Additionally, movements in the equity markets affect the ability to realize investment results in our Insurance business area. The events of September 11, 2001 negatively affected financial markets but had a mixed impact on the global insurance market. As a consequence, the worldwide insurance business is experiencing rising demand for insurance and reinsurance while facing reduced capacity, substantially higher premium rates, a flight to quality, rethinking of risk assessments, and more restrictive terms and conditions. At the same time the insurance industry was impacted by lower investment results, reflecting generally declining equity markets compared to the beginning of 2001. During 2001, there was a global trend toward lower interest rates, resulting in higher market values of bond portfolios. YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 Revenues increased by $167 million, or 8%, to $2,133 million in 2001 from $1,966 million in 2000. As reported in local currencies, revenues increased 13% in 2001 compared to 2000. The main contributors to the increase in revenues were our Insurance business area, due to a higher level of insurance premiums resulting from increased volumes, and our Structured Finance business area, resulting from the acquisition of a portfolio of small, mainly standardized leases and increased revenues from its growing financial receivables portfolio. The majority of income in our Equity Ventures business area derives from equity-accounted investments, which do not appear as revenue but are instead recognized in other income. Earnings before interest and taxes, or operating income, decreased by $381 million, to a loss of $32 million in 2001 from $349 million in 2000. The reduction in operating income is principally the result of a $295 million non-cash charge in 2001 relating to our reinsurance business. Prior to 2001, we presented a portion of our insurance reserves on a discounted basis, which estimated the present value of funds required to pay losses at future dates. During 2001, the timing and amount of claims payments being ceded to us in respect of prior years' finite risk reinsurance contracts has changed and cannot be reliably determined at December 31, 2001. Therefore, we have not 73 discounted our loss reserves resulting in a charge to losses and loss adjustment expenses in 2001 of $295 million. For further information, see Note 14 to the Consolidated Financial Statements. Our Structured Finance business area reported an increase in profitability as a consequence of higher income from its expanded financial receivables portfolio, and also due to its 35% stake in Swedish Export Credit Corporation, which was acquired in June 2000. Our Structured Finance business area successfully sold various lease transactions during 2001. Our Equity Ventures business area achieved higher earnings before interest and taxes through successful refinancing, improved performance and achievement of milestones in infrastructure projects. During 2001, our Equity Ventures business area reduced its stakes in certain projects. Results for our Insurance business area were negatively impacted by insurance losses, mainly through a non-cash charge of $295 million following the change in estimation of insurance loss reserves described above. In addition, our Insurance business area recorded provisions for $138 million in underwriting losses, including provisions totaling $48 million relating to the events of September 11, 2001, leading to substantial additional negative insurance results. A lower level of capital gains on the equity investment portfolio was realized during 2001, which was partly offset by realized gains in the bond portfolio due to lower interest rates, particularly in the United States. Weakened economic conditions and the monetary policy following the events of September 11, 2001 exacerbated the trend of lower U.S. interest rates. Benefiting from such trends and other price movements, our Treasury Centers business area increased earnings mainly by improvements in its trading results in financial markets. Total assets of Financial Services amounted to approximately $15 billion as of December 31, 2001, representing marketable securities held by Treasury Centers and Insurance, financial leases held by Structured Finance, equity participations held by Equity Ventures, lending to infrastructure projects by Structured Finance and to ABB companies by Treasury Centers. YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Financial Services revenues increased by $279 million, or 17%, to $1,966 million in 2000 from $1,687 million in 1999. As reported in local currencies, revenues increased 23% in 2000 compared to 1999. The revenue increase primarily related to improved revenues in our Insurance business area, which arose mainly from the acquisition of Kemper Europe Reassurances and a higher level of insurance premiums. Earnings before interest and taxes, or operating income, increased by $12 million, or 4%, to $349 million in 2000 from $337 million in 1999. As reported in local currencies, operating income increased 12% in 2000 compared to 1999. Our Structured Finance business area posted higher earnings for 2000, mainly reflecting higher net interest income from the growing lease and loan portfolio. Structured Finance earnings also included ABB's share in the results of Swedish Export Credit Corporation amounting to $16 million following our acquisition of a 35% interest in that institution in June 2000. Our Equity Ventures business area increased its earnings as a result of higher income from its investment in special purpose infrastructure companies. New investments during 2000 included a stake in a high-voltage power transmission line in Australia. Earnings in our Insurance business area decreased in 2000 compared to 1999 as a consequence of reduced investment and underwriting results. The reduced investment income reflects both the unusually strong equity markets in 1999 and the volatile markets in 2000. The decrease also reflected the costs of integrating Kemper Europe Reassurances into our Insurance business area. 74 Treasury Centers posted earnings higher in 2000 than in 1999, mainly due to a stronger trading result. Total assets of Financial Services amounted to approximately $12 billion as of December 31, 2000, representing marketable securities held by Treasury Centers and Insurance, financial leases held by Structured Finance, equity participations held by Equity Ventures, lending to infrastructure projects by Structured Finance and to ABB companies by Treasury Centers. CORPORATE The corporate and elimination line item includes our New Venture activities, Corporate Research and Development, the Group Processes Division, costs for other corporate functions such as for our holding companies, and elimination of intra-company interest from the Financial Services division. Total operating cost from corporate and elimination increased by $361 million, to $733 million in 2001 from $372 million in 2000. The loss in our New Venture activities increased by $107 million to a loss of $119 million, from a loss of $12 million in 2000, and reflects both the negative operating results of consolidated or equity accounted units, as well as the write-down of intangible assets and some participations in non consolidated New Venture units. Corporate research and development cost increased by $7 million to $103 million in 2001, from $96 million in 2000, due to higher research activities during 2001, mainly in the area of Industrial IT. Expenses for our Group Processes division decreased slightly by $2 million to $55 million, from $57 million in 2000. Intra-company elimination of interest income of our Financial Services division increased by $20 million to $171 million, from $151 million in 2000, due to higher corporate borrowings in the market through the Financial Services division, mainly to finance treasury shares purchases and corporate acquisitions. Costs for other corporate decreased by $50 million to $315 million, from $365 million in 2000, mainly due to cost reduction activities in the context of the new organizational structure. The main reason for the lower result in 2001 was the significant drop in capital gains of $279 million to $30 million, down from $309 million in 2000. LIQUIDITY AND CAPITAL RESOURCES Liquidity and capital resources have been drawn from three primary sources: cash from operations, proceeds from the issuance of debt securities, and bank borrowings. We believe that our ability to generate cash flow through our operating activities, our access to both domestic and international capital markets, as well as our credit lines with banks, will continue to provide the cash flows necessary to satisfy our working capital requirements as well as meet our financial commitments for at least the next 12 months. Due to the nature of our operations, our cash flow from operations generally tends to be weaker in the first half of the year than in the second half of the year. On April 23, 2002, Standard & Poor's Rating Services lowered our short-term debt rating to A-2 and affirmed our long-term debt rating at A, with a negative outlook. On April 26, 2002, Moody's Investors Service confirmed our short-term debt rating at Prime-3 and our long-term debt rating at Baa2, also with a negative outlook. Any further ratings change will affect our funding cost. ABB Ltd and certain finance subsidiaries serve as the primary vehicles for the issuance of publicly traded and privately placed debt securities and bank borrowings. Debt securities are issued within amount, maturity, currency and price guidelines set each year and reviewed periodically by ABB Ltd. We have a number of commercial paper programs giving us access to short-term liquidity throughout the world. Our current short-term debt ratings, however, significantly limit our success in issuing new commercial paper. 75 Our commercial paper programs are reflected in the table below:
PROGRAM SIZE (IN LOCAL PROGRAM SIZE ($ IN PROGRAM DESCRIPTION CURRENCY MILLIONS) MILLIONS)(1) - ------------------- ---------------------- ------------------ Nordic and Baltic commercial paper program........ SEK 6,000 568 European commercial paper program................. USD 3,000 3,000 German commercial paper program................... EUR 1,000 880 U.S. commercial paper program..................... USD 2,000 2,000 Australian commercial paper program............... AUD 250 127
- ------------------------ (1) Translated using year-end exchange rates. At March 31, 2002, December 31, 2001 and 2000, a total of $1,760 million, $3,297 million and $1,923 million respectively, was outstanding under these programs with a weighted average interest rate of 3.2%, 2.7% and 5.9%, respectively. The weighted average interest rate on our other short-term debt of $983 million and $1,163 million was 4.6% and 6.0% at December 31, 2001 and 2000, respectively. Other short-term debt amounted to $4,295 million at March 31, 2002. We have access to long-term funding through both public debt issuances and private placements. These debt securities are issued both under our existing medium term note program (with a program size of $5,250 million) and as separate issuances outside of the program. At March 31, 2002, December 31, 2001 and 2000, $3,381 million, $3,575 million and $2,502 million, respectively, was outstanding under our medium term note program and $1,693 million, $1,768 million and $1,405 million, respectively, outside of the program. Depending on market opportunities, we fund ourselves in a range of currencies and maturities and on various interest rate terms. We use derivatives to reduce the exposures created by such debt issuances. For example, to reduce our exposure to interest rates, we use interest rate swaps to effectively convert fixed rate borrowings into floating rate liabilities and we use cross currency swaps to effectively convert foreign currency denominated bonds into U.S. dollar liabilities. After considering the effect of interest rate swaps, the effective average interest rate on our floating rate long-term borrowings of $4,422 million and our fixed rate long-term borrowings of $1,017 million at December 31, 2001 was 2.7% and 5.3%, respectively. This compares with an effective rate of 5.4% for floating rate long-term borrowings and 4.6% for fixed rate long-term borrowings as of December 31, 2000. In mid-December 2001, as support for our commercial paper issuance, as well as for general corporate purposes, we entered into a syndicated $3,000 million, 364-day unsecured revolving credit facility, with the option to convert up to $1,000 million of any outstanding amounts at the end of the period into a one-year term facility. During the first three months in 2002, we experienced increased difficulties in issuing new commercial paper, which partly was due to the increased negative sentiment of investors against corporate borrowers as well as a series of rating downgrades by Moody's Investors Service and Standard & Poor's Rating Services during the same period. In March 2002, we drew down $2,845 million under the credit facility to ensure that we would satisfy our commercial paper obligations maturing during 2002. In April 2002, we amended the credit facility to remove terms that required renegotiation of the credit facility if our credit ratings fell below specified levels. Instead, certain covenants were introduced. At the same time, we reduced our outstanding amount under the credit facility to $2,750 million. The interest rate on amounts borrowed under the credit agreement will range between 0.60% and 2.50% over LIBOR, depending on our credit ratings. For further information regarding the credit facility, see "Item 10. Additional Information" and Note 24 to the Consolidated Financial Statements. 76 During 2001, we succeeded in broadening our sources of funding. We raised the equivalent of $417 million through the first Japanese yen denominated bond by a Swiss corporate and a further equivalent of $215 million resulted from an overnight index-linked bond targeted at the French investor base. Both of these bonds were issued under our medium term note program. Furthermore, we raised $350 million through our first Rule 144A private placement into the United States market. In May 2002, we issued $968 million aggregate principal amount of convertible unsubordinated bonds due 2007. The bonds pay interest semi-annually in arrears at a fixed annual rate of 4.625% and are convertible into ABB shares at a conversion price of CHF 18.48 (converted into U.S. dollars at a fixed conversion rate of 1.6216 Swiss francs per U.S. dollar). The conversion price is subject to adjustment provisions to protect against dilution or a change in control. Based upon the conversion price in effect at issuance, conversion of the bonds would enable the holders to receive an aggregate of approximately 85 million of our shares. The bonds may be converted into ABB shares at any time on or after June 26, 2002, up to and including May 2, 2007. We may elect to deliver a cash payment in lieu of delivering some or all of the shares otherwise deliverable on conversion. We may redeem the bonds, in whole, but not in part, (1) from and after May 16, 2005, if the trading price of the shares on the SWX Swiss Exchange exceeds certain thresholds or (2) at any time, if at least 85% in aggregate principal amount of the bonds originally issued have been exchanged, redeemed or purchased and cancelled. Unless previously redeemed, converted or purchased and cancelled, we will redeem the bonds at par value on May 16, 2007. We may elect to redeem the bonds in cash, shares, or by a combination of cash and shares. In May 2002, we issued bonds with an aggregate principal amount of L200 million, or approximately $292 million, which pay interest semi-annually in arrears at 10% per annum and mature on May 29, 2009. Also in May 2002, we issued bonds with an aggregate principal amount of E500 million, or approximately $466 million, which pay interest annually in arrears at 9.5% per annum and mature on January 15, 2008. The annual rate of interest on both of these bonds will increase by 150 basis points if our credit rating decreases to a level below Baa3 by Moody's or below BBB- by Standards & Poor's. As of May 31, 2002, our credit rating was Baa2 by Moody's and A by Standard & Poor's. Aggregate proceeds from issuance of these bonds, before commissions and other issue costs, was approximately $747 million. Pursuant to the terms of our amended revolving credit facility, the issuance of the convertible bonds, the euro-denominated bonds and the sterling-denominated bonds reduced the amount available under the credit facility to $1,315 million. As a result, on May 29, 2002, we utilized a portion of the proceeds from these bond offerings to reduce our borrowings under the credit facility to $1,315 million. Proceeds from future disposals of assets or certain other offerings in the capital markets may further reduce the amount available under the credit facility to a minimum of $1,000 million. In addition to the aforementioned primary sources of liquidity and capital resources, we also sold certain trade receivables to Qualifying Special Purpose Entities (QSPEs) unrelated to us, in revolving-period securitizations during 2001 and 2000. The net cash received from QSPEs during 2001 and 2000 was $86 million and $208 million, respectively. We retain servicing responsibility relating to the sold receivables. Solely for the purpose of credit enhancement from the perspective of the QSPEs, we retained an interest in the sold receivables. Pursuant to the requirements of the revolving-period securitization, we effectively bear the risk of potential delinquency or default associated with trade receivables sold or interests retained. The fair value of the retained interests at December 31, 2001, and December 31, 2000, was approximately $264 million and $214 million, respectively. 77 Cash settlement with the QSPEs takes place monthly on a net basis. The total cost of $33 million and $26 million in 2001 and 2000, respectively, related to the securitization of trade receivables, is included in the determination of current earnings. At December 31, 2001 and 2000, of the gross trade receivables sold, the total outstanding trade receivables amounted to $1,058 million and $918 million, respectively. At December 31, 2001 and 2000, an amount of $65 million and $49 million, respectively, was more than 90 days past due, which according to the terms of the programs, is deemed to be delinquent. For more information regarding our securitization programs, see Note 7 to the Consolidated Financial Statements. Our debt and operating lease obligations as of December 31, 2001 are summarized in the table below: OBLIGATIONS
PAYMENTS DUE BY PERIOD ($ IN MILLIONS) ----------------------------------------------------- LESS THAN 1-3 4-5 AFTER 5 TOTAL 1 YEAR YEARS YEARS YEARS -------- --------- -------- -------- -------- Long-term debt...................................... 5,510 467 2,679 1,815 549 Commercial paper.................................... 3,297 3,297 -- -- -- Short-term loans and repurchase agreements.......... 983 983 -- -- -- Operating leases.................................... 1,340 269 414 293 364
It is industry practice to use letters of credit, surety bonds and other performance guarantees on major projects, including long-term operation and maintenance contracts. Such guarantees may include guarantees that a project will be completed or that a project or particular equipment will achieve defined performance criteria. The guarantors may include subsidiaries of ABB Ltd and/or ABB Ltd. Because such guarantees may not state a fixed or maximum amount, the aggregate amount of our potential exposure under the guarantees cannot reasonably be estimated. Provisions are recorded in the consolidated financial statements at the time it becomes probable we will incur losses pursuant to a performance guarantee. We do not expect to incur significant losses under these guarantees in excess of our provisions. However, such losses, if incurred, could have a material impact on our consolidated financial position, liquidity or results of operations. Our financial services business has guaranteed the obligations of certain third parties in return for a commission. These financial guarantees represent irrevocable assurances that we will make payment in the event that the third party fails to fulfill its obligations and the beneficiary under the guarantee records a loss under the terms of the guarantee agreement. The commissions collected are recognized as income over the life of the guarantee and we record a provision when we become aware of an event of default or a potential event of default occurs. At December 31, 2001, we had issued approximately $270 million of financial guarantees with maturity dates ranging from one to nineteen years. We do not expect to incur significant losses under these contracts. FINANCIAL POSITION Our operating assets, excluding cash and equivalents, decreased to $16,747 million at December 31, 2001, from $17,314 million at December 31, 2000. Operating assets include marketable securities, receivables, inventories and prepaid expenses. The decrease in 2001 partially reflects the impact of translating balance sheet amounts from local currencies to U.S. dollars for reporting purposes. The decrease also reflects a $1,263 million decrease in marketable securities and a reduction in inventories of $117 million, partially offset by a $773 million increase in prepaid expenses. This increase is mainly due to increases in the fair value of derivatives recorded on the balance sheet as required by SFAS 133. 78 Current operating liabilities include accounts payable, short-term borrowings, accrued liabilities and insurance reserves (which form part of the normal operations of our insurance business), among other items. The $3,583 million increase in current operating liabilities from December 31, 2000 to December 31, 2001 is principally the result of the increase of trade and other accounts payable of $963 million, of short-term borrowings of $1,160 million and accrued liabilities and other of $1,460 million. This increase is due to an increase in insurance reserve, as well as the application of SFAS 133, which requires derivative assets and liabilities to be reported on the balance sheet. Financing receivables, which includes receivables from leases and loans receivable, increased to $4,263 million at December 31, 2001, from $3,875 million at December 31, 2000. The increase is principally due to a higher level of project financing activity throughout the year that was only partially offset by our cash generation activity late in the year. Property, plant and equipment decreased to $3,003 million at December 31, 2001, from $3,243 million at December 31, 2000, primarily reflecting the effect of translating balance sheet amounts into U.S. dollars and normal levels of depreciation and disposition of non-core property, plant and equipment. Intangible assets increased to $3,299 million at December 31, 2001, from $3,155 million at December 31, 2000 reflecting an increase in software capitalization and goodwill from acquisitions, which was only partially offset by the amortization expense. Investments and other assets increased to $2,265 million at December 31, 2001, from $1,978 million at December 31, 2000. The increase primarily resulted from a higher amount of prepaid pension assets ($162 million contribution to our U.S. pension plan), improved returns on investments in projects with ABB equity participation and a higher amount of deferred tax assets. This increase was partially offset by the sale of most of our interest in b-business partners. Our net debt position (defined as borrowings minus cash and equivalents and marketable securities) amounted to $4,077 million at December 31, 2001, compared to $1,757 million at December 31, 2000. The increase in net debt during the year arose due to the need to fund the acquisition of Entrelec, significant investments in Financial Services assets and the purchase of treasury shares. At December 31, 2001 and 2000, we had total borrowings, including short-, medium- and long-term borrowings, outstanding of $9,790 million and $7,363 million, respectively. During 2001, our level of borrowings increased significantly during the first nine months mainly due to the financing of the repurchase of our own shares as well as a higher level of activity in project financing. Toward year-end, we decreased our borrowings significantly through a strong increase in our operating cash flow. Short-term borrowings, including current maturities of long-term debt, increased by $1,160 million, or 32%, to $4,747 million outstanding at December 31, 2001 from $3,587 million outstanding at December 31, 2000. Long-term borrowings increased by $1,267 million, or 34%, in 2001 to $5,043 million at December 31, 2001 from $3,776 million at December 31, 2000. 79 The consolidated statement of cash flows can be summarized into main activities as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- ($ IN MILLIONS) Cash flows provided by (used in): Operations.................................................. $ 2,193 $1,022 $ 1,575 Acquisitions, investments, divestitures and discontinued operations, net........................................... (505) 331 (641) Asset purchases, net of disposals........................... (609) (315) (351) Other investing activities.................................. (314) (780) (321) Borrowings, net of repayments............................... 2,639 (44) (525) Treasury and capital stock transactions..................... (1,393) 244 (165) Other financing activities.................................. (569) (592) (497) Effects of exchange rate changes............................ (72) (84) (100) ------- ------ ------- Increase (decrease) in cash................................. $ 1,370 $ (218) $(1,025) ======= ====== =======
CASH FLOW FROM OPERATING ACTIVITIES Net cash provided by operating activities in 2001 increased by $1,171 million to $2,193 million from $1,022 million in 2000. Income from continuing operations, net of adjustments for non-cash items, decreased by $623 million in 2001, from $1,323 million in 2000 to $700 million in 2001. This was more than offset by net cash provided related to the decrease in net operating assets of $1,493 million in 2001 as compared to the cash outflow related to the increase in net operating assets and liabilities of $301 million in 2000. The increase in net cash provided by operating activities in 2001 was primarily due to the increase in trade payables and non-trade payables. The increase also reflected an increase in insurance reserves (which is a non-cash charge to the income statement), related to our re-insurance business (which form part of the normal operations of our insurance business). Net operating assets include marketable securities held for trading purposes, receivables, inventories, payables and other assets and liabilities. Marketable securities are classified as either trading or available-for-sale. Debt and equity securities that are bought and held principally for the purpose of sale in the near term are classified as trading securities. Net cash provided by operating activities decreased by $553 million to $1,022 million at December 31, 2000 from $1,575 million at December 31, 1999. Income from continuing operations, net of adjustments for non-cash items, increased by $159 million from $1,164 million in 1999. This was more than offset by cash outflows related to the increase in net operating assets of $301 million in 2000 as compared to cash provided by the decrease in net operating assets of $411 million in 1999. The increase in net operating assets in 2000 was primarily due to the increase in cash tied up in ongoing customer projects where unbilled receivables and inventories, after consideration of advances from customers, exceeded the level experienced in 1999. CASH FLOW FROM INVESTING ACTIVITIES Investing activities include: acquisitions of, investments in and divestitures of businesses; purchases of property, plant and equipment, net of disposals; net investments in marketable securities that are not held for trading purposes; and accounts receivable from leases and third-party loans (financing receivables). Net investments in marketable securities that are not held for trading purposes and financing receivables are summarized in the table above as "other investing activities" and increases in these amounts reflect cash outflows. Net cash used in investing activities decreased by $495 million to $1,218 million in 2001 from $1,713 million in 2000. Net cash used in investing activities decreased by $323 million to $1,713 million in 2000 from $2,036 million in 1999. 80 Net cash flow resulting from purchases of, investments in, and divestitures of businesses, and discontinued operations ("business combinations") changed by $836 million to $505 million used in 2001 from $331 million provided in 2000. In 2001, cash used for acquisitions of new businesses totaled $578 million (including $284 million, related to the acquisition of Entrelec) and cash used for discontinued operations totaled $210 million, mainly in the settlement of claims resulting from the asbestos litigation. These cash outflows were only partially offset by disposals of businesses for an amount of $283 million. In 2000, cash used for acquisitions totaling $893 million was more than offset by cash from discontinued operations ($949 million, primarily relating to the divestiture of our remaining interest in ABB ALSTOM POWER and our nuclear power business) and disposals ($275 million, primarily relating to the disposal of our 50% shareholding in ABB ALSTOM POWER), which amounted to $1,224 million. Purchases of property, plant and equipment, net of disposals, increased by $294 million to $609 million in 2001 from $315 million in 2000. This increase resulted from reduced proceeds from property, plant and equipment disposals and a return to historical acquisition levels. Purchases of property, plant and equipment, net of disposals, decreased by $36 million in 2000 from $351 million in 1999. Cash used in other investing activities decreased by $466 million to $314 million in 2001 as compared to $780 million in 2000. This decrease primarily resulted from a higher level of net proceeds from the sale of marketable securities that are not held for trading purposes, which amounted to $593 million from $53 million in 2000. The increase more than offset a higher level of investments in financing receivables, which increased to $907 million in 2001 from $833 million in 2000 due to a higher level of project financing activity during most of the year. Cash used in other investing activities increased by $459 million to $780 million in 2000 as compared to $321 million in 1999. This increase primarily resulted from a lower level of net proceeds from sales of marketable securities that are not held for trading purposes, which decreased by $281 million from $334 million in 1999 to $53 million in 2000. The increase also reflects a higher level of investment in financing receivables, which increased to $833 million in 2000 from $655 million in 1999. CASH FLOW FROM FINANCING ACTIVITIES Our financing activities primarily include net borrowings, both from the issuance of debt securities and directly from banks, treasury and capital stock transactions, and payment of dividends. Net cash provided by financing activities increased by $1,069 million to $677 million provided in 2001 as compared to $392 million used in 2000. Cash provided by long-term borrowings, net of repayments, increased by $3,361 million to $2,708 million provided in 2001 as compared to $653 million repaid in 2000. This was partially offset by a decrease of $678 million in cash flow from borrowings with maturities of 90 days or less from $609 million cash provided in 2000 to $69 million cash used in 2001. During 2001, we used $1,393 million of cash for the purchase of our shares for treasury, offset by proceeds of options to purchase our shares. In April 2001, we paid dividends of $502 million with respect to 2000. Net cash used in financing activities decreased by $795 million in 2000 to $392 million from $1,187 million in 1999. The decrease was primarily due to a decrease in the level of net repayments of other borrowings to $653 million in 2000 from $908 million in 1999. The net decrease also reflects a higher level of borrowings, particularly borrowings with a maturity of 90 days or less, at year-end 2000 as compared to year-end 1999. During 2000, our net sales of treasury shares and put options provided net cash of $244 million. We hold some of our shares in treasury to provide shares for delivery upon exercise of warrants in future years under our management incentive plan. We used $165 million in cash in 81 1999 to purchase our shares for this purpose. We paid dividends of $531 million and $503 million in 2000 and 1999, respectively. RELATED AND CERTAIN OTHER PARTIES ABB has participations in joint ventures and affiliated companies, which are accounted for using the equity method. Many of these entities have been established to perform specific functions, such as constructing, operating and maintaining a power plant. In addition to our investment, we may provide products to the project, may act as contractor of the project and may operate the finished product. The entity created generally would receive revenues either from the sale of the final product or from selling the output generated by the product. The revenue usually is defined by a long-term contract with the end user of the output. Our risk with respect to these entities is substantially limited to the carrying value of the companies on our consolidated balance sheet. The balance sheet carrying value for the equity accounted companies at December 31, 2001 and 2000 was $718 million and $682 million, respectively. Included in financing receivables is notes receivable from related parties at December 31, 2001 and 2000 of $234 million and $239 million, respectively. Notes receivable from related parties amounted to $198 million at March 31, 2002. Loans granted to equity accounted companies are contained in these amounts. We retained obligations for performance and other guarantees related to the power generation businesses we contributed to the ABB ALSTOM POWER joint venture. In addition, in connection with a power plant construction project in a business sold to ALSTOM POWER N.V., one of our subsidiaries has issued an advance payment guarantee towards a bank holding funds which are to be drawn down by a consortium led by a subsidiary of ALSTOM POWER. The guarantee was approximately $370 million at December 31, 2001. ALSTOM and its subsidiaries have primary responsibility for performing the obligations that are the subject of the guarantees. In connection with the sale to ALSTOM of our interest in the joint venture in May 2000, ALSTOM and ALSTOM POWER have undertaken to fully indemnify us against any claims arising under such guarantees. As of May 31, 2002, there have been no material claims made under these guarantees. In connection with the sale of our nuclear business to British Nuclear Fuels ("BNFL") in 2000, one of our subsidiaries retained obligations under surety bonds relating to the performance by the nuclear business under certain contracts entered into prior to the sale to BNFL. Pursuant to the purchase agreement under which the nuclear business was sold, BNFL is required to indemnify us for any costs and liabilities incurred by us with respect to such bonds. Our total liability under these bonds at December 31, 2001 is approximately $700 million. As of May 31, 2002, there have been no material claims made under these surety bonds. We do not expect to incur significant losses under these surety bonds. EXCHANGE All our local subsidiaries report their financial results in their respective local currencies, and our Consolidated Financial Statements are reported in U.S. dollars. Accordingly, balance sheet items are translated into U.S. dollars using year-end exchange rates, while income statement and cash flow items are translated using average exchange rates for the year. We have commercial activities denominated in all major currencies, in particular U.S. dollars, Swiss francs, Euro, Scandinavian currencies, and Japanese yen. In 2001, the Euro continued to weaken against the U.S. dollar, reaching an exchange rate of 0.88 at the end of 2001, with the deterioration in the first half recovering in part in the second half of 2001. The average exchange 82 rate for the year was 0.89. The Swiss franc also declined versus the U.S. dollar in the first half of the year, reaching a low of 0.55 in May and June 2001, with a recovery in the fourth quarter of 2001 reaching an exchange rate of 0.62. However, the Swiss franc declined slightly, closing the year at 0.59. The average Swiss franc exchange rate for 2001 was 0.59. In 2000, the Euro weakened against the U.S. dollar from its opening level of 1.00 to a closing exchange rate of 0.93. The average exchange rate for 2000 was also 0.93. The Swiss franc also declined versus the U.S. dollar in 2000, from an opening level of 0.63 to a year-end closing exchange rate of 0.61. Exchange gains (losses), net, amounted to losses of $5 million, $3 million and $28 million in 2001, 2000 and 1999, respectively, and were recorded as interest expense. Exchange gains (losses), net, includes the re-measurement of certain currencies into functional currencies and the costs of hedging certain balance sheet exposures. With respect to cash flows, exchange differences recorded are the result of translating cash and equivalents from year-end to average exchange rates. In 2001 and 2000, this translation resulted in a reduction of $72 million and $84 million, respectively, to our total cash flow. IMPACT OF INFLATION AND CHANGING PRICES Inflation affects our operations in some markets. However, the majority of our revenues, costs and income are derived from economies which have been characterized by low inflation in recent years. In high-inflation environments, we are generally able to increase prices to counteract the inflationary effects of increasing costs and to generate sufficient cash flows to maintain our productive capability. ENVIRONMENTAL CONTINGENCIES AND RETAINED LIABILITIES All of our operations, but particularly our manufacturing operations, are subject to comprehensive environmental laws and regulations. Violations of these laws could result in fines, injunctions (including orders to cease the violating operations and to improve the condition of the environment in the affected area or to pay for such improvements) or other penalties. In addition, environmental permits are required for our manufacturing facilities (for example, with respect to wastewater discharge). In most countries in which we operate, environmental permits must be renewed on a regular basis and we must submit reports to environmental authorities. These permits may be revoked, renewed or modified by the issuing authorities at their discretion and in compliance with applicable laws. We have implemented formal environmental management systems at nearly all of our manufacturing sites in accordance with the international environmental management standard ISO 14001, and we believe that we are in substantial compliance with environmental laws, regulations and permits in the various jurisdictions in which we operate, except for such instances of non-compliance that, in the aggregate, are not reasonably likely to be material. In a number of jurisdictions, including the United States, we may be liable for environmental contamination at our present or former facilities, or at sites at which hazardous substances generated by our operations were disposed of. In the United States, the Environmental Protection Agency and various state agencies are responsible for regulating environmental matters. These agencies have identified companies in the ABB Group as potentially responsible parties for the costs of cleaning up hazardous substances at a number of sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, the Resource Conservation and Recovery Act and other federal and state environmental laws. As of December 31, 2001, companies within the ABB Group had been named as potentially responsible parties with respect to seven 83 locations, primarily involving soil and groundwater contamination. We do not believe that our aggregate liability in connection with these sites will be material. Generally, our liability with regard to any specific site will depend on the number of potentially responsible parties, their relative contributions of hazardous substances or wastes to the site and their financial viability, as well as on the nature and extent of the contamination. Nevertheless, such laws commonly impose liability that is strict, joint and several, so that any one party may be liable for the entire cost of cleaning up a contaminated site. In addition, we have retained liability for certain specific environmental remediation costs at two sites in the United States that were operated by our nuclear business, which has been sold to British Nuclear Fuels. Pursuant to the purchase agreement with British Nuclear Fuels, we have retained all of the environmental liabilities associated with our Combustion Engineering subsidiary's Windsor, Connecticut facility and a portion of the environmental liabilities associated with our ABB CE Nuclear subsidiary's Hematite, Missouri facility. The primary environmental liabilities associated with these sites relate to the costs of remediating radiological contamination upon decommissioning the facilities. Such costs are not payable until a facility is taken out of use and generally are incurred over a number of years. Although it is difficult to predict with accuracy the amount of time it may take to remediate radiological contamination upon decommissioning, based on information that British Nuclear Fuels has made publicly available, we believe that it may take approximately six years for this remediation at the Hematite site, from the time of decommissioning. With regard to the Windsor site, we believe the remediation may take until 2008. British Nuclear Fuels has notified the Nuclear Regulatory Commission of its intention to decommission the Hematite facility in 2003. British Nuclear Fuels decommissioned the Windsor facility in 2001 and the process of remediation has begun. At the Windsor site, we believe that a significant portion of such remediation costs will be the responsibility of the U.S. government pursuant to the Atomic Energy Act and the Formerly Used Site Environmental Remediation Action Program because such costs relate to materials used by Combustion Engineering in its research and development work on, and fabrication of, nuclear fuel for the United States Navy. As a result of the sale of the nuclear business, in April 2000 we established a reserve of $300 million in connection with estimated remediation costs related to these facilities. During 2001, approximately $6 million was expended on remediation of the Windsor site. Estimates of the future costs of environmental compliance and liabilities are imprecise due to numerous uncertainties. Such costs are affected by the enactment of new laws and regulations, the development and application of new technologies, the identification of new sites for which we may have remediation responsibility and the apportionment of remediation costs among, and the financial viability of, responsible parties. In particular, the exact amount of the responsibility of the U.S. government for the Windsor site cannot reasonably be estimated. It is possible that final resolution of environmental matters may require us to make expenditures in excess of our expectations, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Although final resolution of such matters could have a material effect on our consolidated results of operations in a particular reporting period in which the expenditure is incurred, we believe that these expenditures should not have a material adverse effect on our consolidated financial position. We retain ownership of Combustion Engineering, Inc., a subsidiary that formerly conducted part of our divested power generation business and which now owns commercial real estate which it leases to third parties. Combustion Engineering is a co-defendant, together with third parties, in numerous lawsuits pending in the United States in which the plaintiffs claim damages for personal injury arising from exposure to or use of equipment which contained asbestos that Combustion Engineering supplied, primarily during the 1970s and before. Other ABB Group entities are sometimes named as defendants in asbestos claims. These claims, however, are insignificant 84 compared to the Combustion Engineering claims and have not had, and are not expected to have, a material impact on our consolidated financial position or consolidated results of operations. As of December 31, 2001 and 2000, reserves of $940 million and $590 million, respectively, were recorded in respect of asbestos claims and related defense costs. These reserves do not reflect probable insurance recoveries on those claims. We also recorded assets of approximately $150 million and $160 million at December 31, 2001 and 2000, respectively, for probable insurance recoveries, which were established with respect to the claims reserved against. During 2001, Combustion Engineering experienced a significant increase in the level of new claims and higher total and per-claim settlement costs as compared to recent years. This resulted in an increase in the reserves for potential asbestos liabilities by $470 million. Cash payments to resolve Combustion Engineering's asbestos claims were $136 million, $125 million and $67 million in 2001, 2000 and 1999, respectively. During the first quarter of 2002, approximately 14,300 new claims were filed against Combustion Engineering, a decrease of 5 percent compared to the fourth quarter of 2001. Approximately 13,500 claims were settled during the period, of which more than 50 percent were settled without payment. Settlement costs prior to reimbursement were approximately $51 million, up from $37 million in the first quarter of 2001. As a result of intensified efforts to identify and settle valid claims and dispute claims that appear baseless, despite the number of new claims filed, the number of pending claims remained at approximately 94,000 at March 31, 2002. The ultimate cost of asbestos claims is difficult to estimate with any degree of certainty due to the nature and number of variables associated with asbestos claims. Future consolidated operating results will continue to reflect the effect of changes in estimated claims settlement costs resulting from actual claim activity as well as changes in available insurance coverage. It is reasonably possible that expenditures could be made in excess of established reserves, in a range of amounts that cannot reasonably be estimated. Although the final resolution of any such matters could have a material impact on our reported consolidated results for a particular reporting period, we believe it should not have a material adverse effect on our consolidated financial condition or liquidity. Please see Note 16 to the Consolidated Financial Statements contained elsewhere in this annual report. 85 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES BOARD OF DIRECTORS In accordance with Swiss law, the board of directors of a Swiss corporation is ultimately responsible for the policies and management of the corporation. The board also appoints the executive officers and authorized signatories of the corporation and supervises the management of the corporation. The board of directors may delegate the conduct of day-to-day business operations to individual directors or to third persons, such as an executive committee. Our articles of incorporation stipulate that the board of directors must consist of not fewer than seven and no more than 13 members at any time. Swiss law and our articles of incorporation also provide that each director must be a shareholder of ABB. Directors are elected for terms of one year by the shareholders in a shareholders' meeting. Members of the board of directors whose terms of office have expired are immediately eligible for reelection. The board of directors appoints its Chairman and one or more Vice Chairmen as well as the persons entrusted with our management and representation, whom the board of directors is also responsible for removing. The following table sets forth the names and the years of birth of our directors and their current positions with ABB.
NAME BORN CURRENT POSITION - ---- -------- ---------------- Jurgen Dormann............................... 1940 Chairman Jorgen Centerman............................. 1951 Director; President and Chief Executive Officer Roger Agnelli................................ 1958 Director Martin Ebner................................. 1945 Director Hans Ulrich Maerki........................... 1946 Director Michel de Rosen.............................. 1951 Director Dr. Bernd W. Voss............................ 1939 Director Jacob Wallenberg............................. 1956 Director
In connection with our group reconfiguration in 1999, a new board of directors was elected on June 26, 1999 to serve the newly created ABB Ltd. The following biographical information regarding our board members refers to June 26, 1999, the beginning of their service for ABB Ltd. Where applicable, these biographies also note the years of service our board members provided to ABB Asea Brown Boveri Ltd, the former parent company of the ABB Group. JURGEN DORMANN has been the Chairman of ABB's board of directors since November 2001 and has been a member of ABB's board of directors since June 26, 1999. From 1998 to 1999, he served as a member of the board of directors of ABB Asea Brown Boveri Ltd. He is the chairman of the supervisory board of Aventis. Mr. Dormann is also a member of the boards of directors of Allianz and IBM Corporation. Mr. Dormann is a German citizen. JORGEN CENTERMAN has been a member of ABB's board of directors since March 20, 2001. He has been our President and Chief Executive Officer since January 1, 2001. From September 1998, he was our Executive Vice President responsible for our Automation Segment. From 1993 to 1998, he was Business Area Manager for our global Automation and Drives operations. Previously, he headed the Process Automation business area, headquartered in Stamford, Connecticut. He joined Asea AB in 1976. He is a member of the board of directors of b-business partners B.V. Mr. Centerman is a Swedish citizen. ROGER AGNELLI was elected to ABB's board of directors at the annual general meeting of shareholders on March 12, 2002. He is the President and Chief Executive Officer of Companhia Vale do Rio Doce. Mr. Agnelli is a Brazilian citizen. MARTIN EBNER has been a member of ABB's board of directors since June 26, 1999. From March 1999 to June 1999, he served as a member of the board of directors of ABB Asea Brown 86 Boveri Ltd. He is also chairman of the board of directors of BZ Group Holding and Lonza Group. Mr. Ebner is a Swiss citizen. MICHEL DE ROSEN was elected to ABB's board of directors at the annual general meeting of shareholders on March 12, 2002. He is chairman of the supervisory board of Paul Capital Partners Royalty Fund, and is a member of the board of directors of Innaphase and Ursinus College. He is the President and Chief Executive Officer of ViroPharma, Inc. Mr. de Rosen is a French citizen. HANS ULRICH MAERKI was elected to ABB's board of directors at the annual general meeting of shareholders on March 12, 2002. He is the chairman of IBM Europe/Middle East/Africa and is chairman of the board of directors of Mikron Holding AG. Mr. Maerki is a Swiss citizen. DR. BERND W. VOSS was elected to ABB's board of directors at the annual general meeting of shareholders on March 12, 2002. He is a member of the supervisory boards of Dresdner Bank AG, Continental AG, E.ON AG, KarstadtQuelle AG, Preussag AG, Quelle AG, Wacker Chemie GmbH and Allianz AG, and chairman of the board of directors of Bankhaus Reuschel & Co. Dr. Voss is a German citizen. JACOB WALLENBERG has been a member of ABB's board of directors since June 26, 1999. From March 1999 to June 1999, he served as a member of the board of directors of ABB Asea Brown Boveri Ltd. He is also a chairman of the board of directors of Skandinaviska Enskilda Banken, vice-chairman of Investor AB, the Knut and Alice Wallenberg Foundation, Atlas Copco, SAS and Electrolux, and a member of the boards of directors of the Confederation of Swedish Enterprise and the Nobel Foundation. Mr. Wallenberg is a Swedish citizen. Messrs. Gerhard Cromme, Robert A. Jeker and Edwin Somm, members of the board of directors during 2001, did not stand for re-election at the Annual General Meeting of Shareholders on March 12, 2002. SENIOR OFFICERS EXECUTIVE COMMITTEE The executive committee is responsible for our day-to-day management and for the formulation of major strategic and commercial decisions. The members of the executive committee are appointed and removed by the board of directors. The following table sets forth the names and the years of birth of the members of the executive committee, their current positions with us and the dates of their initial appointment to their current positions.
YEAR OF NAME BORN CURRENT POSITION APPOINTMENT - ---- -------- ---------------------------------------------- ----------- Jorgen Centerman............... 1951 President and Chief Executive Officer 2001 Gorm Gundersen................. 1944 Executive Vice President, Head of Oil, Gas and 1998 Petrochemicals Division Bernhard Jucker................ 1954 Executive Vice President, Head of Automation 2002 Technology Products Division Dinesh C. Paliwal.............. 1957 Executive Vice President, Head of Industries 2001 Division Jan Secher..................... 1957 Executive Vice President, Head of Group 2002 Processes Division Richard Siudek................. 1946 Executive Vice President, Head of Utilities 2001 Division Peter Smits.................... 1951 Executive Vice President, Head of Power 2001 Technology Products Division Peter Voser.................... 1958 Executive Vice President and Chief Financial 2002 Officer
JORGEN CENTERMAN. For Mr. Centerman's biography, see above under "--Board of Directors." 87 GORM GUNDERSEN has been our Executive Vice President responsible for our Oil, Gas and Petrochemicals Division since September 1998. From 1990 to September 1998, he served as an Executive Vice President at Asea Brown Boveri A/S, a Norwegian subsidiary. Mr. Gundersen is a Norwegian citizen. BERNHARD JUCKER has been our Executive Vice President responsible for our Automation Technology Products Division since April 2002. From 2000 to April 2002, he was the head of the Drives and Power Electronics business area within the Automation Technology Products Division. From 1998 to 2000, he was the Business Unit Manager for our global electrical low-voltage motors and machines. From 1991 to 1998, he was the Business Unit Manager for our global electrical machines business. Mr. Jucker is a Swiss citizen. DINESH C. PALIWAL has been our Executive Vice President responsible for our Industries Division since April 2002. Between January 1, 2001 and April 2002, he was our Executive Vice President responsible for our Process Industries division. From 1999, he was responsible for our worldwide activities in the Automation Segment for the paper, printing, metals, mining and cement industries. From 1998 to 1999, he was responsible for our worldwide activities in the Automation Segment for the pulp, paper and printing industries. From 1994 to 1998, he was Vice-President responsible for our automation activities in process industries in China and Northeast Asia. From 1990 to 1994, he was Director of Marketing and Sales for our automation activities for the paper industry in Asia. Prior to 1990, he held several positions in sales and project management. Mr. Paliwal is an Indian citizen. JAN SECHER has been our Executive Vice President responsible for our Group Processes Division since April 2002. From January 2001 to April 2002, he was our Executive Vice President responsible for our Manufacturing and Consumer Industries Division. From 2000, he was President of our Flexible Automation business area. In 1999, he was Executive Vice President at ABB AB. From July 1998 to April 1999, he was President at ABB Satt AB. From April 1998 to December 1999, he was President at ABB Automation Systems AB. From July 1997 to March 1998, he was Vice President and Division Manager at ABB Industrial Systems AB. From 1994 to 1997, he was Vice President and Division Manager at ABB Industry K.K. From 1991 to 1994, he was General Manager at ABB Automation AB. Mr. Secher is a Swedish citizen. RICHARD SIUDEK has been our Executive Vice President responsible for our Utilities Division since January 1, 2001. From 1998, he was Country Segment Manager in the United States for the Transmission and Distribution Segments. From 1996 to 1998, he was Business Area Manager responsible for our worldwide activities in nuclear power. From 1991 to 1996, he was President and Vice President of ABB Combustion Engineering. Prior to joining us in 1991, he served as Marketing Manager at Westinghouse Electric Corporation, served various positions in marketing and sales at Westinghouse Nuclear Europe, SA, and served as a Scientific Officer at United Kingdom Atomic Energy Authority. Mr. Siudek is a citizen of the United States. PETER SMITS has been our Executive Vice President responsible for the Power Technology Products Division since January 1, 2001. From 1998, he was Senior Vice President, Business Area Manager Distribution Transformers, at ABB T&D Ltd. From 1994 to 1998, he was President and Country Manager at Asea Brown Boveri SA. From 1990 to 1994, he served as President at Pfleiderer Verkehrstechnik GmbH. From 1988 to 1990, he held several positions at Asea Brown Boveri AG, was Vice-President at ABB Schaltanlagen GmbH and was Business Unit Manager for worldwide substations activities in the our High-Voltage Switchgear business area. From 1980 to 1988, he held several positions at Asea Lepper GmbH. From 1979 to 1980, he served as Divisional Export Sales Manager at Vossen GmbH. From 1978 to 1979, he served as Assistant Accountant in Auditing at Peat, Marwick, Mitchell & Co. (KPMG). Mr. Smits is a German citizen. 88 PETER VOSER was appointed our Executive Vice President and Chief Financial Officer in March 2002. Mr. Voser was Chief Financial Officer of Shell Europe Oil Products from 1999 until early 2001, when he became Chief Financial Officer of Shell Oil Products. Mr. Voser is a Swiss citizen. GROUP SENIOR OFFICERS The following table sets forth the names of our Group senior officers, their current positions with us and the dates of their initial appointment to their current positions.
YEAR OF NAME CURRENT POSITION APPOINTMENT - ---- ---------------- ----------- Markus Bayegan................. Chief Technology Officer 2001 Beat Hess...................... General Counsel, Head of Group Function Legal and 2001 Compliance Sune Karlsson.................. Head of Group Function Large Projects 2001 Alfred Storck.................. Head of Group Function Corporate Finance and Taxes 2001
MARKUS BAYEGAN has been our Chief Technology Officer since January 2001. From 2000 until our realignment in January 2001, he was Executive Vice President responsible for our research and development activities worldwide. From 1998 to 2000, he served as Senior Corporate Officer for our group research and development activities worldwide. From 1994 to 1998, he served as Senior Vice President of Technology for our Building Technologies Segment. From 1987 to 1998, he served as president of ABB Corporate Research, A/S, a Norwegian subsidiary. From 1985 to 1998, he was Professor in Electronics Manufacturing at the Norwegian Institute of Technology. Prior to joining us, he was employed by EB Corporation, a Norwegian electromechanical and telecommunication company that we acquired. Mr. Bayegan is a Norwegian citizen. BEAT HESS has been our General Counsel since 1988. He assumed his position after the merger of BBC Brown Boveri AG and Asea AB in 1988. In January 2001, he was appointed Head of Group Function Legal and Compliance and has acted as the Secretary of the ABB Ltd Board of Directors since 1998. Mr. Hess is a Swiss citizen. SUNE KARLSSON has been our Head of Group Function Large Projects since January 2001. From 1997 until 2000, he was our Executive Vice President and Member of the Group Executive Committee responsible for the Power Transmission and Distribution Segments. From 1992 until 1996, he was Executive Vice President of Power Transmission ABB Germany and responsible for Customer Focus Program ABB worldwide. From 1988 until 1992, he was Executive Vice President of Power Transmission ABB Germany and Business Area Manager of ABB Power Transformers. In 1988, he was President of ABB Transformers, Ludvika and Business Area Manager of ABB Power Transformers. From 1985 until 1988, he was President of Transformer Operations and Business Area Manager of Asea Transformers in Asea Ludvika. From 1983 until 1985, he was General Manager of Transformer Operations in Asea Lepper, Bad Honnef. Previously, from 1980 until 1983, he was Production Manager of Transformers Division in Asea Ludvika. From 1972 until 1980, he worked for Asea Vasteras as Project, Planning and Workshop Manager. Mr. Karlsson is a Swedish citizen. ALFRED STORCK has been our Group Tax Officer since 1988 (merger of BBC Brown Boveri AG and Asea AB). In 1997, Alfred Storck assumed in addition the position as head of Corporate Finance. In January 2001, he was appointed Head of Group Function Corporate Finance and Taxes. Mr. Storck is a German citizen. 89 DUTIES OF DIRECTORS AND OFFICERS The directors and officers of a Swiss corporation are bound, as specified in the Swiss Federal Code of Obligations, to perform their duties with all due care, to safeguard the interests of the corporation in good faith, and to extend equal treatment to shareholders in like circumstances. The Swiss Federal Code of Obligations does not specify what standard of due care is required of the directors of a corporate board. However, it is generally held in Swiss doctrine and jurisprudence that the directors must have the requisite capability and skill to fulfill their function, and must devote the necessary time to the discharge of their duties. Moreover, the directors must exercise all due care that a prudent and diligent director would have taken in like circumstances. Finally, the directors may not take any actions that may be harmful to the corporation. Our articles of incorporation do not provide for the retirement or non-retirement of directors under an age-limit requirement. EXERCISE OF POWERS The directors as well as other persons authorized to act on behalf of a Swiss corporation may perform all legal acts on behalf of the corporation which the business purpose may entail. Pursuant to court practice, the directors may take any action that is not outright excluded by the business purpose of the corporation. In so doing, however, the directors must still pursue the duty of due care and the duty of good faith described above. The board of directors must extend equal treatment to its shareholders in like circumstances. Our articles of incorporation do not contain provisions concerning a director's power, in the absence of an independent quorum, to vote compensation to themselves or any members of their body. CONFLICTS OF INTEREST Swiss law does not have a general provision on conflicts of interest. However, the Swiss Federal Code of Obligations requires directors and officers to safeguard the interests of the corporation and, in this connection, imposes a duty of care and good faith on directors and officers. This rule is generally understood as disqualifying directors and officers from participating in decisions, other than in the shareholders' meeting, that directly affect them. However, our articles of incorporation do not limit our directors' power to vote on a proposal, arrangement or contract in which the director is materially interested. Directors and officers are personally liable to the corporation for any breach of these provisions. In addition, Swiss law contains provisions under which the members of the board of directors and all persons engaged in the management of ABB are liable to the company, to each shareholder and to the company's creditors for damages caused by any intentional or negligent violation of their duties. CONFIDENTIALITY Confidential information obtained by directors and officers of a corporation in such capacity must be kept confidential during and after their term of office. SANCTIONS If directors and officers transact on behalf of the corporation with BONA FIDE third parties in violation of their statutory duties, the transaction is nevertheless valid as long as it is not outright excluded by the corporation's business purpose. Directors and officers acting in violation of their statutory duties--whether transacting with BONA FIDE third parties or performing any other acts on behalf of the company--may, however, become liable to the corporation, its shareholders and (in bankruptcy) the creditors for damages. The liability is joint and several, but the courts may apportion the liability among the directors in accordance with their degree of culpability. 90 In addition, Swiss law contains a provision under which payments made to a shareholder or a director or any person(s) associated therewith other than at arm's length must be repaid to the company if the shareholder or director was acting in bad faith. If the board of directors lawfully delegated the power to carry out day-to-day management to a different corporate body, E.G., the executive board, it is not liable for the acts of the members of that different corporate body. Instead, the directors can only be held liable for their failure to properly select, instruct and supervise the members of that different corporate body. COMPENSATION For the year ended December 31, 2001, the persons who served as members of our board of directors and executive committee received an aggregate amount of CHF 20,848,500 ($12,560,851 at December 31, 2001) as compensation for services in all capacities. This includes compensation accrued with respect to the 2001 fiscal year but paid during the 2002 fiscal year, and excludes the pension and other benefits paid to our former chief executive officer, Goran Lindahl, in 2001 described below under "Recent Developments." BOARD OF DIRECTORS For the period from the Annual General Meeting in 2001 to the Annual General Meeting in 2002, board members' compensation was fixed as follows: - Chairman: CHF 1,500,000 (reduced in November 2001 to CHF 1,000,000) - Vice Chairman: CHF 400,000 - Member: CHF 250,000 - Committee Member: CHF 50,000 Payments to board members are made in May and November of each year. Board members receive at least 50% (and may elect to receive a higher ratio) of their compensation in shares. In 2001, over 90% of the compensation received by directors was received in shares and as of December 31, 2001, a total of 247,887 shares were held for the account of active board members. The aggregate annual gross compensation paid to board members in shares and cash amounted to CHF 3,150,000 ($1,897,819 at December 31, 2001). Board members do not receive pension benefits and are not eligible to participate in our management incentive plan. EXECUTIVE COMMITTEE Members of the executive committee receive annual base compensation. In addition, they are eligible for annual bonus compensation, which depends on the performance of the individual area of responsibility of each executive committee member and of the ABB Group and, in certain cases, on a qualitative appreciation of a member's achievements. In 2001, the persons who served on the executive committee received an aggregate of CHF 17,698,500 ($10,663,032 at December 31, 2001) in base compensation and bonus. For 2001, compensation to our president and chief executive officer consisted of a base salary of CHF 1,500,000 and a bonus amount of CHF 1,500,000, and total compensation to the other members of the executive committee amounted to CHF 14,698,500 ($8,855,585 at December 31, 2001), including bonus amounts relating to 2001 performance that were paid in 2002. In addition to receiving annual base and bonus compensation, members of the executive committee may participate in a management incentive plan providing for subscription to warrants or warrant appreciation rights. In 2001, members of the executive committee received warrants 91 representing the future right to acquire 1,000,000 shares and warrant appreciation rights representing the future right to receive the cash equivalent to the market price of 7,500,000 warrants. Executive committee members also enjoy pension benefits in accordance with Swiss social security legislation and, depending on seniority, certain additional benefits under supplementary benefit programs. More than 75% of our pension obligations with respect to executive committee members are funded, and we have reserved for the remaining obligations on our balance sheet. On average, yearly pension payments to members of the executive committee do not exceed 50% of their remuneration when retiring from their position with ABB at pension age. In 2001, we incurred costs for pension contributions of CHF 12,099,517 ($7,195,583 at December 31, 2001) with respect to pension benefits for executive committee members. Executive committee members receive customary additional benefits such as a company car and health insurance compensation, which are not material in the aggregate. RECENT DEVELOPMENTS In February 2002, our board of directors completed a reassessment of certain pension and other benefits of former chief executive officers Percy Barnevik and Goran Lindahl. Mr. Barnevik received approximately CHF 148 million (approximately $88 million) of pension benefits following his resignation as chief executive officer in 1996, and Mr. Lindahl was to receive approximately CHF 85 million (approximately $51 million) of pension and other benefits following his resignation as chief executive officer in 2000. The board's reassessment followed a detailed review of these payments, and the board determined that restitution should be sought of amounts paid and amounts still payable should be withheld. In March 2002, we reached agreements with Mr. Barnevik who agreed to return CHF 90 million (approximately $54 million) to us, and with Mr. Lindahl who agreed that his pension and other benefits would be reduced by CHF 47 million (approximately $28 million). These amounts will be recorded in our earnings during the year ended December 31, 2002 and were determined through actuarial calculations, external benchmarking of European chief executive officer compensation and negotiations. In this paragraph, amounts in Swiss francs have been translated into U.S. dollars at a rate of $1.00 = CHF 1.6743, the average of the noon buying rates for Swiss francs in March 2002. We believe that the compensation and pension levels of our current ABB Group executives comply with prevailing European practices, and we have recently established a Nomination and Compensation Committee to monitor our compensation practices. See "--Board Practices." 92 MANAGEMENT INCENTIVE PLAN We have a management incentive plan under which approximately 1,000 key employees received warrants and warrant appreciation rights for no consideration over the course of six launches from 1998 to 2001. The warrants are exercisable for shares at a predetermined price, not less than the fair market value as of the date of grant. Participants may also sell the warrants rather than exercise the right to purchase shares. Equivalent warrants are listed on the SWX Swiss Exchange, which facilitates valuation and transferability of warrants granted under the management incentive plan. Each warrant appreciation right entitles the holder to an amount in cash equal to the market price of one equivalent warrant on the SWX Swiss Exchange. Warrant appreciation rights are not transferable. Participants may exercise or sell warrants or exercise warrant appreciation rights only during the 30 days immediately following publication of our interim or annual results. No exercise or sale is permitted until after the vesting period, which is three years from date of grant, although vesting restrictions can be waived in the event of death, disability or divorce. All warrants and warrant appreciation rights expire six years from the date of grant. As of May 31, 2002, the warrants outstanding represented the participants' future right to acquire 19,642,951 of our shares, including the future right of the current members of our executive committee to acquire an aggregate of 1,877,562 shares. Also on that date, the warrant appreciation rights represented the participants' future right to receive the cash equivalent to the market price of 100,792,320 warrants, including the future right of the current members of our executive committee to receive the cash equivalent to the market price of 7,281,250 warrants. In order to meet our obligations under outstanding and exercisable warrants, we held 1,507,870 shares in treasury as of May 31, 2002. In addition, as of May 31, 2002, the board of directors has allocated 40,000,000 contingent shares in support of the management incentive plan. We generally hold sufficient cash settled call options to meet our obligations under outstanding warrant appreciation rights. We held 100,792,320 cash settled call options as of May 31, 2002, in connection with the exercise of warrant appreciation rights outstanding under the management incentive plan. The amounts of warrants outstanding include those instruments held by employees of ABB ALSTOM POWER, a discontinued operation. Under the terms and conditions of the management incentive program, employees of ABB ALSTOM POWER retain their entitlements in the management incentive plan. Currently 10,538,000 warrants representing the right to purchase 6,832,839 shares and 8,520,000 warrant appreciation rights are exercisable. The following table sets forth the number of warrants outstanding under the management incentive plan as of May 31, 2002.
WARRANTS EXERCISE RATIO NUMBER OF SHARES LAUNCH (YEAR) OUTSTANDING (WARRANTS:SHARES) UNDERLYING WARRANTS EXERCISE PRICE (CHF) EXPIRATION DATE - ------------- ----------- ----------------- ------------------- -------------------- --------------- 1 (1998) 4,743,000(1) 1:0.6484 3,075,361(1) 30.89 01/15/04 2 (1998) 5,795,000(1) 1:0.6484 3,757,478(1) 25.54 12/10/04 3 (1999) 4,648,060 1:0.2000 929,612 37.50 06/10/05 4 (1999) 15,115,000 1:0.2000 3,023,000 41.25 11/11/05 5 (2000) 21,150,000 1:0.2000 4,230,000 53.00 06/13/06 6 (2001) 23,137,500 1:0.2000 4,627,500 17.00 12/10/07
- ------------------------ (1) All of the warrants from Launch 1 and 2, representing the right to purchase 6,832,839 shares, are currently exercisable. 93 The following table sets forth the number of warrant appreciation rights outstanding under the management incentive plan as of May 31, 2002.
WARRANTS APPRECIATION RIGHTS LAUNCH (YEAR) OUTSTANDING(1) EXPIRATION DATE - ------------- ---------------------------- --------------- 1 (1998) 3,542,000 01/14/04 2 (1998) 4,978,000 12/09/04 3 (1999) 592,320 06/09/05 4 (1999) 19,150,000 11/10/05 5 (2000) 33,895,000 06/12/06 6 (2001) 38,635,000 12/09/07
- ------------------------ (1) Each warrant appreciation right represents a participant's future right to receive the cash equivalent of the equivalent market price of warrants exercisable at the following exercise ratios and prices:
EXERCISE RATIO EXERCISE PRICE LAUNCH (YEAR) (WARRANTS: SHARES) (CHF) - ------------- ----------------------- -------------- 1 (1998) 1:0.6484 30.89 2 (1998) 1:0.6484 25.54 3 (1999) 1:0.2000 37.50 4 (1999) 1:0.2000 41.25 5 (2000) 1:0.2000 53.00 6 (2001) 1:0.2000 17.00
SHARE OWNERSHIP As of May 31, 2002, the current members of our board of directors and executive committee owned an aggregate of 141,906 shares, representing less than 1% of our total shares outstanding. As discussed above, the current members of our executive committee own warrants representing the future right to acquire an aggregate of 1,877,562 shares, representing the right to acquire less than 1% of our total shares outstanding. The members of our board of directors are not entitled to participate in our management incentive plan. Share amounts provided in this section do not include the shares beneficially owned by BZ Group Holding Limited, of which Mr. Ebner is chairman. See "Item 7. Major Shareholders and Related Party Transactions--Major Shareholders." BOARD PRACTICES Scheduled board meetings take place five times per year. Extraordinary meetings are held each year as necessary. During 2001, six board meetings were held. Written documentation covering the various items of the agenda for each board meeting is sent out in advance to each board member in order to allow the member time to study the respective matters prior to the meetings. Decisions made at the board meetings are recorded in written minutes of the meetings. In the first quarter of 2002, our board of directors established two committees, the Finance and Audit Committee and the Nomination and Compensation Committee. The committees are to present their findings to the board. The Finance and Audit Committee oversees the financial reporting processes and accounting practices, evaluates the independence, objectivity and effectiveness of external and internal auditors, reviews audit results and monitors compliance with the laws and regulations governing the preparation of our financial statements, and assesses the processes relating to our risk management and internal control systems. Mr. Voss is the Chairman of the Finance and Audit Committee, and Messrs. Wallenberg and Agnelli are members. 94 The Nomination and Compensation Committee develops and maintains a regular succession scheme for board membership and the Chief Executive Officer position and nominates candidates for these positions. It further develops compensation guidelines and reviews benefit plans for the members of the executive committee and for senior staff and assesses the specific compensation received by the members of the board of directors and the executive committee. Mr. Dormann is the Chairman of the Nomination and Compensation Committee, and Messrs. Ebner and Maerki are members. Mr. Centerman has an agreement with ABB that provides for benefits upon termination of his employment. Under the terms of the agreement, either Mr. Centerman or ABB may terminate his employment by giving 12 months' written notice. If Mr. Centerman's employment is terminated by ABB, he will continue to receive compensation for a period of two years from the date on which notice is given, amounting to his base salary at the time of the notice and a yearly incentive bonus based on his average incentive bonus for the two years preceding the year in which notice is given. Except as described above, no director has a service contract with us providing for benefits upon termination of employment. EMPLOYEES A breakdown of employees by geographic region for the years ended December 31, 2001, 2000 and 1999 is as follows:
REGION 2001 2000 1999 - ------ -------- -------- -------- Europe................................................. 102,500 105,500 104,500 The Americas........................................... 27,000 27,500 28,500 Asia................................................... 16,500 17,500 18,500 Middle East and Africa................................. 10,500 10,500 10,000 ------- ------- ------- Total.................................................. 156,500 161,000 161,500 ======= ======= =======
As of March 31, 2002, we employed approximately 151,800 people. Some of our employees are represented by labor unions or are the subject of collective bargaining agreements. We believe that our employee relations are good. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS MAJOR SHAREHOLDERS To our knowledge, as of June 1, 2002, the following person held 5% or more of our total share capital:
TOTAL PERCENTAGE OF NAME AMOUNT OWNED SHARE CAPITAL - ---- ------------ ------------- BZ Group Holding Limited(1)..................... 133,777,434 11.1%
- ------------------------ (1) BZ Group Holding Limited filed a Schedule 13G on February 14, 2002, reporting ownership of the number of shares indicated above. Mr. Ebner, a member of our board of directors, is the Chairman of BZ Group Holding Limited. This does not include 32,223 shares owned by Mr. Ebner as an individual and earned as compensation for services as a member of our board of directors. See "Item 8. Directors, Senior Management and Employees--Board of Directors--Compensation." Under the articles of incorporation of ABB Ltd, each registered share represents one vote. Major shareholders do not have different voting rights. To our knowledge, we are not directly or indirectly owned or controlled by any government or by any other corporation or person. 95 Under the Swiss Stock Exchange Act, shareholders and groups of shareholders acting in concert who reach, exceed or fall below the thresholds of 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of the voting rights of a Swiss listed corporation must notify the corporation and the exchange(s) in Switzerland on which such shares are listed of such holdings in writing within four trading days, whether or not the voting rights can be exercised. Following receipt of such a notification, the corporation must inform the public within two trading days. An additional disclosure requirement exists under the Swiss Federal Code of Obligations, according to which we must disclose individual shareholders and groups of shareholders and their shareholdings if they hold more than 5% of all voting rights and we know or have reason to know of such major shareholders. Such disclosures must be made once a year in the notes to the financial statements as published in our annual report. At May 15, 2002, we had approximately 241,000 shareholders. Approximately 800 were U.S. holders, of which approximately 600 were record holders. Based on the share register, U.S. record holders (including holders of American Depositary Shares) held approximately 1.6% of the total number of shares issued, including treasury shares, at that date. RELATED PARTY TRANSACTIONS In the normal course of our industrial activities, we sell products and derive certain other revenues from companies in which we hold an equity interest. The revenues derived from these transactions are not material for ABB Ltd. In addition, in the normal course of our industrial activities, we purchase products from companies in which we hold an equity interest. The amounts involved in these transactions are not material for ABB Ltd. Also, in the normal course of our industrial activities, we will engage in transactions with businesses that we have divested. We believe that the terms of the transactions we conduct with these companies are negotiated on an arm's length basis. At December 31, 2001, ABB Ltd had granted loans to unconsolidated related parties amounting to approximately $234 million. Notes receivable from related parties amounted to $198 million at March 31, 2002. At March 31, 2002, ABB had a note receivable of $42 million with Termobarranquilla S.A. Empresa de Servicios Publicos, Colombia, an equity accounted company in which ABB holds a 29% interest. All other loans with related parties amounted to less than $30 million at that date. In June 2000, we entered into a share subscription agreement to acquire a 42% interest in b-business partners B.V., a venture capital fund formed to invest in and develop business-to-business e-commerce companies across Europe. Pursuant to the terms of the agreement, we committed to invest a total of $278 million, of which $69 million was paid in 2000 and $134 million was paid during the first half of 2001. In December 2001, Investor AB, another founding shareholder of the fund, acquired 90% of our investment and capital commitments for approximately book value, or $166 million in cash. After this transaction, b-business partners repurchased 50% of all its outstanding shares, which resulted in a return of capital to us of $10 million. After these transactions, we retain a 4% investment in b-business partners and we are committed to provide additional capital to it of $3 million. Further, b-business partners retains a put right to cause us to repurchase 150,000 shares of b-business partners at a cost of approximately $13 million. At the time of these transactions, Percy Barnevik, the former chairman of the board of directors of ABB, was the chairman of Investor AB. Jorgen Centerman, our President and Chief Executive Officer, is a member of the board of directors of b-business partners. In December 2001 we entered into, and in April 2002 we amended and restated, a $3,000 million 364-day revolving credit facility. Skandinaviska Enskilda Banken is one of the lenders under the credit facility with a $155 million commitment representing approximately 5% of the total commitment available to us under the credit facility. Mr. Jacob Wallenberg, a member of our board of directors, is the chairman of the board of directors of Skandinaviska Enskilda Banken. 96 ITEM 8. FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION See "Item 18. Financial Statements" for a list of financial statements contained in this annual report. LEGAL PROCEEDINGS We are involved in legal proceedings from time to time incidental to the ordinary conduct of our business. These proceedings principally involve matters relating to warranties, personal injury, damage to property, environmental liabilities and intellectual property rights. We retain ownership of Combustion Engineering, Inc., a subsidiary that formerly conducted part of our divested power generation business and which now owns commercial real estate which it leases to third parties. Combustion Engineering is a co-defendant, together with third parties, in numerous lawsuits pending in the United States in which the plaintiffs claim damages for personal injury arising from exposure to or use of equipment which contained asbestos that Combustion Engineering supplied, primarily during the 1970s and before. It can be expected that additional asbestos-related claims will continue to be asserted. The ultimate cost of these claims is difficult to estimate with any degree of certainty due to the nature and number of variables associated with these claims. Some of the factors affecting the reliability of estimating the potential cost of claims are the rate at which new claims are filed, the impact of court rulings and legislative action, the extent of the claimants' association with Combustion Engineering's or other defendants' products, equipment or operations, the type and severity of the disease suffered by the claimant, the method of resolution of such cases, the financial condition of other defendants and the availability of insurance to recover the costs, until the policy limits are exhausted. As of December 31, 2001, there were approximately 94,000 cases pending (2000: 66,000) against Combustion Engineering, which amount includes 15,000 claims that we treat as settled but under which there are continuing payments (2000: 8,500). Approximately 55,000 new claims were made in 2001 (2000: 39,000) and approximately 27,000 claims were resolved in 2001 (2000: 34,000). In 2001, the average payment per claim in which a payment was made was $6,069 which represented a 26% increase in the average payment per claim of $4,833 in 2000. Approximately $12.8 million, $10.5 million and $8.2 million in administration and defense costs were incurred in 2001, 2000 and 1999, respectively. In response to the increase in asbestos claims, Combustion Engineering has intensified its efforts to identify the claims that are valid and the claims that appear to be invalid. Combustion Engineering generally settles valid claims and, increasingly, will challenge claims that appear to be invalid. The level of invalid claims appears to be increasing. This change in approach, in part, explains the reasons for the decrease in claims settled in 2001 and the increase in the per claim settlement amount. Other ABB Group entities are sometimes named as defendants in asbestos claims. These claims are insignificant compared to the Combustion Engineering claims and have not had, and are not expected to have, a material impact on our financial position or results of operations. Based on information provided by our insurance carriers, as of December 31, 2001, there were approximately 7,500 cases pending (2000: 6,000) against these entities. Approximately 1,900 new claims were made against these entities in 2001 (2000: 700) and approximately 200 such claims were resolved in 2001 (2000: 150). A reserve is maintained to cover estimated costs for the asbestos claims and an asset is recorded representing estimated insurance reimbursement. The reserve represents management's estimate of the costs associated with asbestos claims, including defense costs, based on historical claims trends, available industry information and incidence rates of new claims. As a result of changes in management's expectations regarding the foreseeable future that claims would continue 97 to be incurred, the estimates were modified in 1999 to extend the period over which current and future claims were expected to be settled from 7 to 11 years. This revision better reflected anticipated claim settlement costs in light of the number and type of claims being filed at that time and the allocation of such claims to all available insurance policies. As a result of that revision, an additional accrual of approximately $300 million was recorded in 1999 which is included in the results of discontinued operations. During 2000, the level of new claims and settlement costs increased as compared to previous levels. Consequently, a charge of approximately $70 million was recorded in 2000, which is included in the results of discontinued operations, related to higher costs than were expected during that period. Based on the significant increase in new claims and settlement costs experienced in 2001 described above, an additional charge of $470 million was recorded in 2001, which is included in the results of discontinued operations. Because of the uncertainty as to the causes of the substantial increase in claims filed against Combustion Engineering in recent periods, the estimation of future claims to be resolved is subject to substantially greater uncertainty. At December 31, 2001 and 2000, reserves of approximately $940 million and $590 million, respectively, were recorded for all asbestos-related claims. Receivables of $150 million and $160 million at December 31, 2001 and 2000, respectively, were recorded for probable insurance recoveries with respect to such claims. Allowances against the insurance receivables are established at such time as it becomes likely that insurance recoveries are not probable. Cash payments to resolve Combustion Engineering's asbestos claims were $136 million, $125 million and $67 million in 2001, 2000 and 1999, respectively. It is expected that Combustion Engineering's insurers will reimburse approximately $43 million and $48 million, respectively, of payments made to resolve Combustion Engineering's asbestos claims in 2001 and 2000, respectively. During the first quarter of 2002, approximately 14,300 new claims were filed against Combustion Engineering, a decrease of 5 percent compared to the fourth quarter of 2001. Approximately, 13,500 claims were settled during the period, of which more than 50 percent were settled without payment. Settlement costs prior to reimbursement were approximately $51 million, up from $37 million in the first quarter of 2001. As a result of intensified efforts to identify and settle valid claims and dispute claims that appear baseless, despite the number of new claims filed, the number of pending claims remained at approximately 94,000 at March 31, 2002. Estimating the insurance recovery is inherently uncertain and depends on a number of factors, including the potential for disputes over coverage issues with the insurance carriers, the principles of law which would be likely to apply in resolving such disputes, the amount which will be received under agreements which settled such disputes in prior periods, the timing and amount of asbestos claims which may be made in the future, the financial solvency of the underlying insurance providers and the amount which may be paid to settle or otherwise dispose of those claims. These factors are beyond our control and changes in these factors could materially affect Combustion Engineering's insurance recoveries. Our management has considered the financial viability and legal obligations of Combustion Engineering's insurance carriers and concluded that, except for those insurers that have become or may become insolvent, the insurers will continue to fund their portion of the claims costs relating to asbestos litigation settlements. Accordingly, the expected amounts of insurance recoveries are recognized on an undiscounted basis. Combustion Engineering will fund defense costs. Over time, as available coverage under Combustion Engineering's insurance policies is utilized against asbestos claims payments, the portion of the cost of resolving asbestos claims that will be recovered under Combustion Engineering's insurance policies will be reduced. Future operating results will continue to reflect the effect of changes in estimated claims costs resulting from actual claim activity as well as changes in available insurance coverage. It is reasonably possible that expenditures could be made, in excess of established reserves, in a range 98 of amounts that cannot reasonably be estimated. Although the final resolution of any such matters could have a material impact on our reported results for a particular reporting period, we believe the litigation should not have a material adverse effect on our consolidated financial condition or liquidity. ABB Barranquilla, a subsidiary of our Equity Ventures subsidiary, is an equity investor in Termobarranquilla S.A., Empresa de Servicios Publicos (TEBSA), which owns a Colombian independent power generation project known as Termobarranquilla. The other shareholders of TEBSA include Corporacion Electrica de la Costa Atlantica (CORELCA), a government-owned Colombian electric utility. CORELCA also purchases the electricity produced from the Termobarranquilla project. In addition to our equity investment, our former power generation business was engineering, procurement and construction contractor for Termobarranquilla. The project was awarded to us and another company, as joint bidders, after a competitive bidding process in 1994. The co-bidder manages the operation and maintenance of the facility. We entered into agreements with the co-bidder for a sharing and reallocation of a portion of the amounts paid to us and to the co-bidder under the engineering, procurement and construction contract and the operation and maintenance contract. These agreements were not disclosed at the time to CORELCA. They also were not disclosed at the time to the lenders who provided financing to TEBSA for the project, including U.S. Overseas Private Investment Corporation and U.S. Export Import Bank, as required pursuant to the lending documents. We have been engaged in ongoing discussions of this matter with the project lenders and the other shareholders of TEBSA since September 2000. Although we cannot yet be certain what the outcome of the discussions will be, to date there has been no indication that this matter will lead to a significant dispute between us and CORELCA or the project lenders. To date, TEBSA has met its payment obligations to the project lenders. ABB Barranquilla has invested $67.7 million in TEBSA and has a contingent commitment to invest up to an additional $21 million if TEBSA cannot meet its obligations. In April 2001, pursuant to an agreement with the Antitrust Division of the U.S. Department of Justice, one of our subsidiaries, ABB Middle East and Africa Participations AG entered a guilty plea in the Federal District Court for the Northern District of Alabama to violating the antitrust laws by agreeing with other contractors to the coordination of bids on, and allocation among themselves of, a number of construction projects in Egypt, primarily in the late 1980s and early 1990s, that were financed by agencies of the U.S. government. We cooperated fully in this investigation and provided information to the Antitrust Division. Our subsidiary ABB SUSA, which bid on a number of the projects in question, concluded an agreement with the Civil Division of the Department of Justice to resolve civil claims related to this matter. In connection with these resolutions, we agreed to pay a fine and civil damages in a total amount of approximately $63 million. In accordance with Accounting Principles Board Opinion No. 21, INTEREST ON RECEIVABLES AND PAYABLES, the discounted present value of this settlement amount of approximately $57 million was recognized in our financial statements for the period ended December 31, 2000. These matters did not have a material adverse effect on our consolidated financial position. DIVIDENDS AND DIVIDEND POLICY See "Item 3. Key Information--Dividends and Dividend Policy." SIGNIFICANT CHANGES Except as otherwise described in this annual report, there has been no significant change in our financial position since December 31, 2001. 99 ITEM 9. THE OFFER AND LISTING MARKETS The shares of the newly created ABB Ltd have been listed on the SWX Swiss Exchange, the London Stock Exchange and the Frankfurt Stock Exchange since June 28, 1999, the Stockholm Stock Exchange since June 22, 1999 and the New York Stock Exchange (in the form of American Depositary Shares, or ADSs) since April 6, 2001. Our ADSs are issued under a deposit agreement with Citibank, N.A. as depositary. Each ADS represents one share. TRADING HISTORY The principal market for our shares is virt-x, where our shares are traded under the symbol "ABBN." Our ADSs are traded on the New York Stock Exchange under the symbol "ABB." The table below sets forth, for the periods indicated, the reported high and low closing sale prices for the shares on virt-x and for the ADSs on the New York Stock Exchange.
NEW YORK VIRT-X STOCK EXCHANGE ---------------------- ---------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- (CHF) (U.S. $) ANNUAL HIGHS AND LOWS 1999 (from June 28, 1999)................................................... 48.69 33.94 2000........................................................................ 54.50 37.94 2001........................................................................ 44.38 10.00 18.95(1) 6.48(1) QUARTERLY HIGHS AND LOWS 2000 First Quarter....................................... 54.50 43.00 Second Quarter...................................... 54.00 44.50 Third Quarter....................................... 52.56 40.38 Fourth Quarter...................................... 43.56 37.94 2001 First Quarter....................................... 44.38 28.63 Second Quarter...................................... 33.10 25.00 18.95(1) 14.20(1) Third Quarter....................................... 27.60 10.20 15.33 6.91 Fourth Quarter...................................... 19.05 10.00 11.45 6.48 2002 First Quarter....................................... 18.30 11.00 11.11 6.60 MONTHLY HIGHS AND LOWS 2001 December............................................ 19.05 15.00 11.33 9.40 2002 January............................................. 18.30 14.75 11.11 8.65 February............................................ 14.50 11.00 8.50 6.60 March............................................... 14.75 12.00 8.85 7.34 April............................................... 15.75 12.60 9.50 7.84 May................................................. 15.35 14.10 9.77 8.86 June (through June 25).............................. 14.25 12.15 9.04 8.30
- ------------------------ (1) From April 6, 2001. 100 LISTING ON THE SWX SWISS EXCHANGE AND TRADING ON VIRT-X Our shares are listed on the main board of the SWX Swiss Exchange and are included in the Swiss Market Index, a capitalization-weighted index of the shares of 27 large Swiss corporations currently traded on virt-x. We are subject to the regulations and listing rules of the SWX Swiss Exchange. The SWX Swiss Exchange was founded in 1993 as the successor to the local stock exchanges of Zurich, Basel and Geneva. Trading in foreign equities and derivatives began in December 1995. In August 1996, the SWX Swiss Exchange introduced full electronic trading in Swiss equities, derivatives and bonds. The aggregate value of trading activity of Swiss shares, investment funds, warrants, and bonds as well as other non-Swiss shares, warrants and bonds on the SWX Swiss Exchange was in excess of CHF 1,000 billion in 2001. As of December 31, 2001, the equity securities of 412 corporations, including 149 foreign corporations, were listed and traded on the SWX Swiss Exchange. virt-x plc (formerly Tradepoint Financial Networks plc), a pan-European blue chip trading platform based in London, was created in 2001 as a collaboration among the SWX Swiss Exchange and a consortium of internationally active investment banks and financial services companies (called the TP Consortium) to provide an efficient and cost effective pan-European equities market. virt-x is a Recognized Investment Exchange supervised by the Financial Services Authority in the United Kingdom. The SWX Swiss Exchange and the TP Consortium each hold 38.9% of the issued share capital of virt-x plc, the remaining 22.2% are publicly held. All trading in the 27 stocks included in the Swiss Market Index, including ABB, has been transferred to virt-x. The trading of these stocks is conducted in Swiss francs. virt-x uses the SWX Swiss Exchange trading platform and network under a facilities management agreement. Most of the systems operation and development capability is outsourced to the SWX Swiss Exchange in Switzerland. Trading begins each business day at 9:00 a.m. (CET) and continues until 5:30 p.m. (CET). At 5:20 p.m. (CET) the exchange moves into "Closing Auction" status. The closing auction stops at 5:30 p.m. (CET). Orders can be placed up to 10:00 p.m. (CET) and again from 6:00 a.m. (CET) onwards. Members register incoming orders from their customers in their trading system. These orders are forwarded to the relevant trader and checked, or fed directly into the trading system by the trader. From here they are submitted to the central exchange system of virt-x, which acknowledges receipt of the order, assigns a time stamp to it and verifies its formal correctness. Depending on the type of transaction, the orders are also transmitted to data vendors (such as Reuters, Bloomberg and Telekurs). In the fully automated exchange system in use at virt-x, buy and sell orders are matched according to clearly defined matching rules. Regardless of their size or origin, incoming orders are executed in the order of price (first priority) and time received (second priority). Transactions take place through the automatic matching of orders. Each valid order of at least one share is entered and listed according to its price. In general, orders placed at the best price (known as "market orders") are executed first followed by orders placed with a price limit (known as "limit orders"). If several orders are listed at the same price, they are executed in the order of the time they were entered. Any transaction executed under the rules of virt-x must be reported. On order book executions are automatically and immediately reported by the trading system. There are separate provisions for the delayed reporting of certain qualifying trades. Individual elements of portfolio trades must be reported within one hour while block trades and enlarged risk trades must be reported when the business is substantially (80%) completed, or by 5:30 p.m. (CET) on the day of trade, unless the 101 trade is agreed after 4:30 p.m. (CET), when the trade must be reported by 5:30 p.m. (CET) the following business day. Block trades and enlarged risk trades are subject to minimum trade size criteria. All other transactions must be reported within three minutes except when the transaction is conducted in a SWX Swiss Exchange listed security, where the trade must be reported within 30 minutes. virt-x trades can be settled by CREST, SIS SegaInterSettle AG or Euroclear. Members may employ one, two or a combination of all three depositories to settle their virt-x transactions. Each depository maintains its unique service offering and facilitates settlements between each other by real time links. Exchange transactions are usually settled on a T+3 basis, meaning that delivery against payment of exchange transactions occurs three days after the trade date. Where any settlement is due to take place on a day on which the central bank for the currency in which the transaction is conducted is closed, the settlement due date is adjusted to be the next business day after the currency holiday. The traded prices of all securities are constantly monitored. As soon as the difference between two successive trade prices is greater than a specific predefined value, a brief trading suspension, called "stop trading," is automatically triggered. The triggering parameters and length of a stop trading differ according to the security. ITEM 10. ADDITIONAL INFORMATION DESCRIPTION OF SHARE CAPITAL AND ARTICLES OF INCORPORATION This section summarizes the material provisions of our articles of incorporation and the Swiss Code of Obligations relating to our shares. The description is only a summary and is qualified in its entirety by our articles of incorporation, a copy of which has been filed with the Securities and Exchange Commission, and by Swiss statutory law. REGISTRATION AND BUSINESS PURPOSE We were registered as a corporation (AKTIENGESELLSCHAFT) in the commercial register of the Canton of Zurich (Switzerland) on March 5, 1999, under the name of "New ABB Ltd." Our business purpose as set forth in Article 2 of our articles of incorporation is to hold interests in business enterprises, particularly in enterprises active in the area of industry, trade and services. We may acquire, encumber and exploit real estate and intellectual property rights in Switzerland and abroad and may also finance other companies. We may engage in all types of transactions and may take all measures that appear appropriate to promote, or that are related to, our purpose. THE SHARES Our shares are registered shares with a par value of CHF 2.50 each. The shares are fully paid and non-assessable. Each share carries one vote in our general shareholders' meeting. Voting rights may be exercised only after a shareholder has been recorded in our share register (AKTIENBUCH) as a shareholder with voting rights, or with Vardepapperscentralen VPC AB (which we refer to as "VPC") in Sweden, which maintains a subregister of our share register. Registration with voting rights is subject to the restrictions described under "--Transfer of Shares." The shares are not issued in certificated form and are held in collective custody at SIS SegaInterSettle AG. Shareholders do not have the right to request printing and delivery of share certificates (AUFGEHOBENER TITELDRUCK), but may at any time request us to issue a confirmation of the number of registered shares held. 102 THE SHARE SPLIT In 2001, the Swiss Code of Obligations was amended to enable Swiss companies to reduce the former minimal par value of shares from CHF 10 to CHF .01. At our annual general meeting held on March 20, 2001, our shareholders approved a share split in a four-for-one ratio to reduce the nominal value of our shares from CHF 10 each to CHF 2.50 each. We effected the share split on May 7, 2001. CAPITAL STRUCTURE ISSUED AND OUTSTANDING SHARES Our current issued and outstanding share capital (including, in accordance with Swiss law, our treasury shares) is CHF 3,000,023,580 divided into 1,200,009,432 fully paid registered shares, par value CHF 2.50 per share. CONDITIONAL CAPITAL Our share capital may be increased in an amount not to exceed CHF 100,000,000 by the issuance of up to 40,000,000 fully paid registered shares with a par value of CHF 2.50 per share (a) through the exercise of conversion rights and/or warrants granted in connection with the issuance on national or international capital markets of bonds or similar debt instruments by ABB or one of our group companies and/or (b) through the exercise of warrant rights granted to our shareholders. The increase in our share capital referred to in clause (a) is limited to an amount of up to CHF 75,000,000 and the increase referred to in clause (b) is limited to an amount of up to CHF 25,000,000. The preemptive rights of the shareholders will be excluded in connection with the issuance of convertible or warrant-bearing bonds or similar debt instruments. The then current owners of conversion rights and/or warrants will be entitled to subscribe for the new shares. The conditions of the conversion rights and /or warrants will be determined by the board of directors. The acquisition of shares through the exercise of conversion rights and/or warrants and each subsequent transfer of the shares will be subject to the transfer restrictions of the articles of incorporation. In connection with the issue of convertible or warrant-bearing bonds or similar debt instruments, the board of directors will be authorized to restrict or deny the advance subscription rights of shareholders if those debt issues are for the purpose of financing the acquisition of an enterprise, parts of an enterprise or participations. If the board of directors denies advance subscription rights, the convertible bond or warrant issues will be made at the then prevailing market conditions (including the standard dilution protection provisions in accordance with market practice) and the new shares will be issued pursuant to the relevant convertible bond or warrant issue conditions. Conversion rights may be exercised during a maximum 10-year period, and warrants may be exercised during a maximum 7-year period, in each case from the date of the respective debt issue. The conversion or warrant price must at least equal the average of the most recent price for the shares on the SWX Swiss Exchange during the five business days preceding determination of the definitive issue conditions for the relevant convertible bond or warrant issues. Our share capital may be increased in an amount not to exceed CHF 100,000,000 by the issuance of up to 40,000,000 fully paid registered shares with a par value of CHF 2.50 per share by the issuance of new shares to employees of ABB and our group companies. The preemptive and advance subscription rights of our shareholders will be excluded. The shares or rights to subscribe for shares will be issued to employees pursuant to one or more regulations to be issued by the board of directors, taking into account performance, functions, levels of responsibility and profitability criteria. We may issue shares or subscription rights to employees at a price lower than that quoted on the stock exchange. The acquisition of shares within the context of employee share 103 ownership and each subsequent transfer of the shares will be subject to the transfer restrictions of our articles of incorporation. TRANSFER OF SHARES The transfer of shares is effected by corresponding entry in the books of a bank or depository institution following an assignment in writing by the selling shareholder and notification of such assignment to us by the bank or depository institution. The transfer of shares also requires that the purchaser file a share registration form in order to be registered in our share register (AKTIENBUCH) as a shareholder with voting rights. Failing such registration, the purchaser may not be able to participate in or vote at shareholders' meetings, but will be entitled to dividends and liquidation proceeds. Shares and associated pecuniary rights may only be pledged to the depository institution that administers the book entries of those shares for the account of the shareholder. A purchaser of shares will be recorded in our share register with voting rights upon disclosure of its name and address. However, we may decline a registration with voting rights if the shareholder does not declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such declaration, it will be registered as a shareholder without voting rights. If persons fail to expressly declare in their registration application that they hold the shares for their own accounts (the "nominees"), the board of directors may still enter such persons in the share register with the right to vote, provided that the nominee has entered into an agreement with the board of directors concerning his status, and further provided the nominee is subject to a recognized bank or financial market supervision. After having given the registered shareholder or nominee the right to be heard, the board of directors may cancel registrations in the share register retroactive to the date of registration if such registrations were made on the basis of incorrect information. The relevant shareholder or nominee will be informed immediately as to the cancellation. The board of directors will regulate the details and issue the instructions necessary for compliance with the preceding regulations. In special cases, it may grant exemptions from the rule concerning nominees. Acquirors of registered shares who have chosen to have their shares registered in the share register with VPC do not have to present any written assignment from the selling shareholder nor may they be requested to file a share registration form or declare that they have acquired the shares in their own name and for their own account in order to be registered as a shareholder with voting rights. However, in order to be entitled to vote at a shareholders' meeting those acquirors need to be entered in the VPC share register in their own name no later than 10 calendar days prior to the meeting. Uncertificated shares registered with VPC may be pledged in accordance with Swedish law. SHAREHOLDERS' MEETINGS Under Swiss law, the annual general meeting of shareholders must be held within six months after the end of our fiscal year, December 31. Annual general meetings are convened by the board of directors or, if necessary, by the statutory auditors. The board of directors is further required to convene an extraordinary general meeting if so resolved by the shareholders in an annual general meeting or if so requested by shareholders holding in aggregate at least 10% of our nominal share capital. A shareholders' meeting is convened by publishing a notice in the Swiss Official Gazette of Commerce (SCHWEIZERISCHES HANDELSAMTSBLATT) at least 20 days prior to the meeting. One or more shareholders whose combined holdings represent an aggregate par value of at least CHF 1,000,000 may request in writing 40 calendar days prior to a general meeting of shareholders that specific items and proposals be included on the agenda and voted on at the next shareholders' meeting. 104 There is no provision in our articles of incorporation requiring a quorum for the holding of shareholders' meetings. Resolutions generally require the approval of an "absolute majority" of the shares represented at a shareholders' meeting (i.e., a majority of the shares represented at the shareholders' meeting with abstentions having the effect of votes against the resolution). Shareholders' resolutions requiring a vote by absolute majority include: - adoption and amendment of the articles of incorporation; - election of members of the board of directors, the auditors, the group auditors and the special auditors referred to below; - approval of the annual report and the consolidated financial statements; - approval of the annual financial statements and decision on the allocation of profits shown on the balance sheet, in particular with regard to dividends; - granting discharge to the members of the board of directors and the persons entrusted with management; and - passing resolutions as to all matters reserved to the authority of the shareholders' meeting by law or under the articles of incorporation or that are submitted to the shareholders' meeting by the board of directors to the extent permitted by law. A resolution passed with a qualified majority of at least two-thirds of the shares represented at a shareholders' meeting is required for: - a modification of the purpose of ABB Ltd; - the creation of shares with increased voting powers; - restrictions on the transfer of registered shares and the removal of those restrictions; - restrictions on the exercise of the right to vote and the removal of those restrictions; - an authorized or conditional increase in share capital; - an increase in share capital through the conversion of capital surplus, through an in-kind contribution or in exchange for an acquisition of property, and the grant of special benefits; - the restriction or denial of preemptive rights; - a transfer of our place of incorporation; and - our dissolution without liquidation. In addition, the introduction or abolition of any provision in the articles of incorporation providing for a qualified majority must be resolved in accordance with such qualified majority voting requirements. At shareholders' meetings, shareholders can be represented by proxy, but only by their legal representative; another shareholder with the right to vote, a corporate body (ORGANVERTRETER), an independent proxy (UNABHANGIGER STIMMRECHTSVERTRETER) or a depository institution (DEPOTVERTRETER). All shares held by one shareholder may be represented by only one representative. Votes are taken on a show of hands unless a secret ballot is required by the general meeting of shareholders or the presiding officer. The presiding officer may arrange for resolutions and elections to be carried out by electronic means. As a result, resolutions and elections carried out by electronic means will be deemed to have the same effect as secret ballots. 105 NET PROFITS AND DIVIDENDS Swiss law requires that we retain at least 5% of our annual net profits as general reserves for so long as these reserves amount to less than 20% of our nominal share capital. Any net profits remaining in excess of those reserves are at the disposal of the shareholders' meeting. Under Swiss law, we may pay dividends only if we have sufficient distributable profits from previous business years, or if our reserves are sufficient to allow distribution of a dividend. In either event, dividends may be paid out only after approval by the shareholders' meeting. The board of directors may propose that a dividend be paid out, but cannot itself set the dividend. The auditors must confirm that the dividend proposal of the board of directors conforms with statutory law. In practice, the shareholders' meeting usually approves the dividend proposal of the board of directors. Dividends are usually due and payable after the shareholders' resolution relating to the allocation of profits has been passed in accordance with announcements by ABB and the resolutions of the shareholders' meeting. Under Swiss law, the statute of limitations in respect of dividend payments is five years. Dividends not collected within five years after their due date accrue to ABB and will be allocated to our general reserves. PREEMPTIVE RIGHTS Shareholders of a Swiss corporation have certain preemptive rights to subscribe for new shares issued in connection with capital increases in proportion to the nominal amount of their shares held. A resolution adopted at a shareholders' meeting with a supermajority of two-thirds of the shares represented may, however, repeal, limit or suspend (or authorize the board of directors to repeal, limit or suspend) preemptive rights for cause or may delegate such resolution to the board of directors. Cause includes an acquisition of a business or a part thereof, an acquisition of a participation in a company or the grant of shares to employees. BORROWING POWER Neither Swiss law nor our articles of incorporation restrict in any way our power to borrow and raise funds. The decision to borrow funds is taken by or under the direction of the board of directors, and no shareholders' resolution is required. Our articles of incorporation do not contain provisions concerning borrowing powers exercisable by our directors or how such borrowings could be varied. REPURCHASE OF SHARES Swiss law limits a corporation's ability to hold or repurchase its own shares. We and our subsidiaries may only repurchase shares if we have sufficient free reserves to pay the purchase price, and if the aggregate nominal value of such shares does not exceed 10% of our nominal share capital. Furthermore, we must create a special reserve on our balance sheet in the amount of the purchase price of the acquired shares. Such shares held by us or our subsidiaries do not carry any rights to vote at shareholders' meetings, but are entitled to the economic benefits applicable to the shares generally and are considered to be "outstanding" under Swiss law. At our annual general meeting held on March 20, 2001, our shareholders approved a share repurchase in the amount of CHF 60,000,000, corresponding to 6,000,000 shares (24,000,000 shares after implementation of the share split), which corresponds to approximately 2% of our nominal share capital. This share repurchase took place exclusively on the SWX Swiss Exchange and was completed in May 2001. At our annual general meeting held on March 12, 2002, our shareholders took notice that such shares will not be cancelled and become treasury shares. 106 Our board of directors has resolved that our treasury shares may be used for delivery upon conversion of the 4.625% convertible unsubordinated bonds issued in May 2002. We may make additional purchases of shares for treasury from time to time in the future. Treasury shares are available for issuance to satisfy obligations under the Management Incentive Plan and for other corporate purposes. NOTICES Written communication by us to our shareholders will be sent by ordinary mail to the last address of the shareholder or authorized recipient entered in the share register. To the extent that personal notification is not mandated by law, all communications to the shareholders are validly made by publication in the Swiss Official Gazette of Commerce (SCHWEIZERISCHES HANDELSAMTSBLATT). Notices required under the Listing Rules of the SWX Swiss Exchange will be published in two Swiss newspapers in German and French. We or the SWX Swiss Exchange may also disseminate the relevant information on the online exchange information systems. DURATION, LIQUIDATION AND MERGER Our duration is unlimited. We may be dissolved at any time by a shareholders' resolution which must be passed by (1) an absolute majority of the shares represented at the meeting in the event we are to be dissolved by way of liquidation, or (2) a supermajority of two-thirds of the shares represented at the meeting in other events (E.G., in a merger where we are not the surviving entity). Dissolution by court order is possible if we become bankrupt, or if shareholders holding at least 10% of the share capital can establish cause for dissolution. Under Swiss law, any surplus arising out of a liquidation of a corporation (after the settlement of all claims of all creditors) is distributed to the shareholders in proportion to the paid-up nominal value of shares held. DISCLOSURE OF PRINCIPAL SHAREHOLDERS Under the Swiss Stock Exchange Act, shareholders and groups of shareholders acting in concert who reach, exceed or fall below the thresholds of 5%, 10%, 20%, 33 1/3%, 50% or 66 2/3% of the voting rights of a Swiss listed corporation must notify the corporation and the exchange(s) in Switzerland on which such shares are listed of such holdings in writing within four trading days, whether or not the voting rights can be exercised. Following receipt of such a notification, the corporation must inform the public within two trading days. An additional disclosure requirement exists under the Swiss Federal Code of Obligations, according to which we must disclose individual shareholders and groups of shareholders and their shareholdings if they hold more than 5% of all voting rights and we know or have reason to know of such major shareholders. Such disclosures must be made once a year in the notes to the financial statements as published in our annual report. MANDATORY OFFERING RULES Under the Swiss Stock Exchange Act, shareholders and groups of shareholders acting in concert who acquire more than 33 1/3% of the voting rights of a listed Swiss company have to submit a takeover bid to all remaining shareholders. This mandatory offer obligation may be waived under certain circumstances, in particular if another shareholder owns a higher percentage of voting rights than the acquiror. A waiver from the mandatory bid rules is granted by the Swiss Takeover Board or the Swiss Federal Banking Commission. If no waiver is granted, the mandatory takeover bid must be made pursuant to the procedural rules set forth in the Swiss Stock Exchange Act and the implementing ordinances. 107 Our articles of incorporation do not provide for any alterations of the bidder's obligations under the Swiss Stock Exchange Act. CANCELLATION OF REMAINING EQUITY SECURITIES Under Swiss law, any offeror who has made a tender offer for the shares of a Swiss target company and who, as a result of such offer, holds more than 98% of the voting rights of the target company, may petition the court to cancel the remaining equity securities. The corresponding petition must be filed against the target company within three months after the lapse of the exchange offer period. The remaining shareholders may join in the proceedings. If the court orders cancellation of the remaining equity securities, the target company will reissue the equity securities and deliver such securities to the offeror against performance of the exchange offer for the benefit of the holders of the cancelled equity securities. DIRECTORS AND OFFICERS For further information regarding the material provisions of our articles of incorporation and the Swiss Code of Obligations regarding directors and officers, see "Item 6. Directors, Senior Management and Employees--Duties of Directors and Officers." AUDITORS The auditors are subject to confirmation by the shareholders at the annual general meeting on an annual basis. Ernst & Young AG, Zurich and KPMG Klynveld Peat Marwick Goerdeler SA, Zurich were appointed jointly as independent auditors for the years ended December 31, 2000 and 1999. At our annual general meeting held on March 20, 2001, our shareholders elected Ernst & Young AG as independent auditors for the year ended December 31, 2001. At the annual general meeting held on March 12, 2002, our shareholders reelected Ernst & Young AG as auditors. In addition, at the annual general meetings held in 2001 and 2002, our shareholders elected OBT Treuhand AG as special auditors to issue special review reports required in connection with capital increases (if any). The special auditors are subject to confirmation by the shareholders at the annual general meeting on an annual basis. MATERIAL CONTRACTS $3 BILLION REVOLVING CREDIT FACILITY. On December 18, 2001, we and certain of our principal finance subsidiaries entered into a revolving credit agreement with Barclays Capital, Credit Suisse First Boston and Salomon Brothers International Limited as Mandated Lead Managers, CSFB as Facility Agent and certain financial institutions acting as lenders. On April 30, 2002, we amended and restated the credit agreement pursuant to an amendment agreement dated April 25, 2002. Under the credit agreement, the lenders have made available to us a $3 billion committed 364-day multicurrency revolving credit facility to be used for general corporate purposes, including to pay down commercial paper maturing in 2002. Our principal finance subsidiaries have guaranteed the indebtedness under the credit facility. The amendment to the credit agreement removed a credit rating trigger that required renegotiation of the credit facility if our credit ratings were downgraded below certain levels. The interest rate on amounts borrowed under the credit agreement will range between 0.60% and 2.50% over LIBOR, depending on our credit ratings. The credit agreement contains affirmative and negative covenants including financial covenants addressing gross indebtedness, minimum interest coverage and minimum net worth. The credit agreement also includes events of default, pursuant to which the amount made available under the credit facility could be declared immediately due and payable. These events of default include non-payment of interest, principal or fees, certain uncured breaches of the credit agreement, cross default to other 108 indebtedness, bankruptcy or insolvency and material adverse changes. For more information, see Note 24 to the Consolidated Financial Statements. ALSTOM SETTLEMENT. Pursuant to a Share Purchase and Settlement Agreement, dated as of March 31, 2000, among ABB Ltd, ALSTOM and ABB ALSTOM Power N.V., as amended by the Amendment to Share Purchase and Settlement Agreement, dated as of May 11, 2000 (which we refer to collectively as the Settlement Agreement), ALSTOM purchased our 50% interest in the joint venture ABB ALSTOM Power N.V. for a cash payment of E1.25 billion. The Settlement Agreement provided for the termination of various joint venture agreements, the execution of various releases, the settlement of certain disputed items in relation to the joint venture, the unwinding of various financial arrangements between ABB ALSTOM Power N.V. and the ABB Group, the prospective transfer to the joint venture of various assets and liabilities required to have been transferred to the joint venture under the original joint venture agreements, the transfer to us of certain subsidiaries of the joint venture, various payments among members of the ALSTOM group and the ABB Group in connection with the foregoing transactions (separate from the purchase price mentioned above), indemnification and the execution of various ancillary documents. The transaction was consummated on May 11, 2000. SALE AGREEMENT FOR NUCLEAR BUSINESS. On December 21, 1999, our subsidiary, ABB Handels-Und Verwaltungs AG, entered into an agreement to sell our nuclear business to British Nuclear Fuels plc for $485 million. Under the agreement, we have undertaken not to compete with the divested business during a 7-year period ending April 28, 2007. We have agreed to indemnify British Nuclear Fuels against, among other things, certain environmental and other liabilities arising from specific sites operated by the nuclear business and certain tax liabilities of the nuclear business. These potential liabilities are described under "Item 3. Key Information--Risk Factors--We are subject to liabilities arising out of our discontinued operations and we could be required to make payments in respect of these retained liabilities in excess of established reserves." The transaction was consummated on April 28, 2000. The above descriptions of the material provisions of the referenced agreements do not purport to be complete and are subject to, and qualified in their entirety by reference to, the agreements which have been filed as Exhibits 4.1, 4.2 and 4.3 to this annual report. EXCHANGE CONTROLS Other than in connection with government sanctions imposed on Iraq, Yugoslavia, UNITA (Angola), Myanmar, Afghanistan and Libya (currently suspended) there are currently no government laws, decrees or regulations in Switzerland that restrict the export or import of capital, including, but not limited to, Swiss foreign exchange controls on payments of dividends, interest or liquidation procedures, if any, to non-resident holders of shares. In addition, there are no limitations imposed by Swiss law or our articles of association on the right of non-residents or non-citizens of Switzerland to hold or vote our shares. For further information on limitations on being entered into ABB's share register as a shareholder with voting rights, see "--Description of Share Capital and Articles of Incorporation--Transfer of Shares." 109 TAXATION The following is a summary of the material Swiss and United States federal income tax consequences of the purchase, ownership and disposition of our shares or American Depositary Shares. SWISS TAXES WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS Dividends paid and similar cash or in-kind distributions that we make to a holder of shares or ADSs (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax at a rate of 35%. We must withhold the tax from the gross distribution and pay it to the Swiss Federal Tax Administration. OBTAINING A REFUND OF SWISS WITHHOLDING TAX FOR U.S. RESIDENTS The Convention Between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, which entered into force on December 19, 1997 and which we will refer to in the following discussion as the Treaty, allows U.S. resident individuals or U.S. corporations to seek a refund of the Swiss withholding tax paid on dividends in respect of our shares. U.S. resident individuals and U.S. corporations holding less than 10% of the voting rights in respect of our shares are entitled to seek a refund of withholding tax to the extent the tax withheld exceeds 15% of the gross dividend. U.S. corporations holding 10% or more of the voting rights of our shares are entitled to seek a refund of withholding tax to the extent the tax withheld exceeds 5% of the gross dividend. Claims for refunds must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, 3003 Bern, Switzerland. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I for individuals). This form may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source. STAMP DUTIES UPON TRANSFER OF SECURITIES The sale of shares, whether by Swiss resident or non-resident holders, may be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act. In addition to the stamp duty, the sale of shares by or through a member of the SWX Swiss Exchange may be subject to a stock exchange levy equal to 0.02%. UNITED STATES TAXES The following is a summary of the material U.S. federal income tax consequences of the ownership of shares or ADSs. This summary does not purport to address all of the tax considerations that may be relevant to a decision to purchase, own or dispose of shares or ADSs. This summary assumes that holders are initial purchasers of shares or ADSs and will hold shares or ADSs as capital assets. This summary does not address tax considerations applicable to holders that may be subject to special tax rules, such as dealers or traders in securities or currencies, partnerships owning shares or ADSs, tax-exempt entities, banks, insurance companies, holders that own (or are deemed to own) at least 10% or more (by voting power or value) of the stock of ABB, investors whose functional currency is not the U.S. dollar, and persons that will hold shares or ADSs as part of a position in a straddle or as part of a hedging or conversion transaction for U.S. tax purposes. This discussion does not address aspects of U.S. taxation other than U.S. federal 110 income taxation, nor does it address state, local or foreign tax consequences of an investment in shares or ADSs. This summary is based (1) on the Internal Revenue Code of 1986, as amended, U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this registration statement and (2) in part, on representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. The U.S. tax laws and the interpretation thereof are subject to change, which change could apply retroactively and could affect the tax consequences described below. For purposes of this summary, a U.S. holder is a beneficial owner of shares or ADSs that, for U.S. federal income tax purposes, is: - a citizen or resident of the United States; - a corporation created or organized in or under the laws of the United States or any state, including the District of Columbia; - an estate if its income is subject to U.S. federal income taxation regardless of its source; or - a trust if such trust validly has elected to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a U.S. court can exercise primary supervision over its administration and (2) one or more U.S. persons have the authority to control all of its substantial decisions. A non-U.S. holder is a beneficial owner of shares or ADSs that is not a U.S. holder. EACH PROSPECTIVE PURCHASER SHOULD CONSULT THE PURCHASER'S TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF ACQUIRING, OWNING OR DISPOSING OF SHARES OR ADSS. OWNERSHIP OF ADSS IN GENERAL For U.S. federal income tax purposes, a holder of ADSs generally will be treated as the owner of the shares represented by the ADSs. The U.S. Treasury Department has expressed concern that depositaries for American depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of those receipts or shares. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Swiss taxes and sourcing rules described below could be affected by future actions that may be taken by the U.S. Treasury Department. DISTRIBUTIONS If you are a U.S. holder, for U.S. federal income tax purposes, the gross amount of any distribution (other than certain distributions, if any, of shares distributed to all shareholders of ABB, including holders of ADSs) made to you with respect to shares or ADSs, including the amount of any Swiss taxes withheld from the distribution, will constitute dividends to the extent of ABB's current and accumulated earnings and profits (as determined under U.S. federal income tax principles), and will be included in your gross income as ordinary income. These dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. If distributions with respect to shares or ADSs exceed ABB's current and accumulated earnings and profits as determined under U.S. federal income tax principles, the excess would be treated first as a tax-free return of capital to the extent of your adjusted tax basis in the shares or ADSs. Any amount in excess of the amount of the dividend and the return of capital would be treated as capital gain. ABB does not maintain calculations of its earnings and profits under U.S. federal income tax principles. 111 If you are a U.S. holder, dividends paid in Swiss francs, including the amount of any Swiss taxes withheld from the dividends, will be included in your gross income in an amount equal to the U.S. dollar value of the Swiss francs calculated by reference to the spot exchange rate in effect on the day the dividends are includible in income. In the case of ADSs, dividends generally are includible in income on the date they are received by the depositary, regardless of whether the payment is in fact converted into U.S. dollars at that time. If dividends paid in Swiss francs are converted into U.S. dollars on the day they are includible in income, you generally should not be required to recognize foreign currency gain or loss with respect to the conversion, if you are a U.S. holder. However, any gains or losses resulting from the conversion of Swiss francs between the time of the receipt of dividends paid in Swiss francs and the time the Swiss francs are converted into U.S. dollars will be treated as ordinary income or loss to you, as the case may be, if you are a U.S. holder. The amount of any distribution of property other than cash will be the fair market value of the property on the date of distribution. If you are a U.S. holder, you will have a basis in any Swiss francs received as a refund of Swiss withholding taxes equal to a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt of the dividend on which the tax was withheld. (See "--Obtaining a Refund of Swiss Withholding Tax for U.S. Residents" above). If you are a U.S. holder, dividends received by you with respect to shares or ADSs will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by ABB generally will constitute passive income, or, in the case of certain U.S. holders, financial services income. The rules relating to the determination of the U.S. foreign tax credit are complex, and, if you are a U.S. holder, you should consult your tax advisor to determine whether and to what extent you would be entitled to this credit. Alternatively, if you are a U.S. holder, you may elect to claim a U.S. tax deduction, instead of a foreign tax credit, for such Swiss tax, but only for a year in which you elect to do so with respect to all foreign income taxes. Subject to the discussion below under "Backup Withholding and Information Reporting," if you are a non-U.S. holder of shares or ADSs, you generally will not be subject to U.S. federal income or withholding tax on dividends received on shares or ADSs, unless the dividends are effectively connected with the conduct by you of a trade or business in the United States, or the dividends are attributable to a permanent establishment or fixed base that is maintained in the United States if that is required by an applicable income tax treaty as a condition for subjecting a non-U.S. holder to U.S. taxation on a net income basis. In such cases, you will be taxed in the same manner as a U.S. holder. Moreover, if you are a corporate non-U.S. holder, you may be subject, under certain circumstances, to an additional branch profits tax on any effectively connected dividends at a 30% rate, or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate. SALE OR EXCHANGE OF SHARES OR ADSS If you are a U.S. holder that holds shares or ADSs as capital assets, you generally will recognize capital gain or loss for U.S. federal income tax purposes upon a sale or exchange of your shares or ADSs in an amount equal to the difference between your adjusted tax basis in the shares or ADSs and the amount realized on their disposition. If you are a noncorporate U.S. holder, the maximum marginal U.S. federal income tax rate applicable to the gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if your holding period for the shares or ADSs exceeds one year and, in the case of shares or ADSs acquired on or after January 1, 2001, will be further reduced if your holding period exceeds five years. If you are a U.S. holder, the gain or loss, if any, recognized by you generally will be treated as U.S. source income or 112 loss, as the case may be, for U.S. foreign tax credit purposes. Certain limitations exist on the deductibility of capital losses for U.S. federal income tax purposes. If you are a U.S. holder and you receive any foreign currency on the sale of shares or ADSs, you may recognize U.S. source ordinary income or loss as a result of currency fluctuations between the date of the sale of the shares or ADS, as the case may be, and the date the sales proceeds are converted into U.S. dollars. Subject to the discussion below under "Backup Withholding and Information Reporting," if you are a non-U.S. holder of shares or ADSs, you generally will not be subject to U.S. federal income or withholding tax on gain realized on the sale or exchange of your shares or ADSs unless (1) the gain is effectively connected with the conduct by you of a trade or business in the United States, or the gain is attributable to a permanent establishment or fixed base that is maintained in the United States if that is required by an applicable income tax treaty as a condition for subjecting a non-U.S. holder to U.S. taxation on a net income basis, or (2) if you are an individual non-U.S. holder, you are present in the United States for 183 days or more in the taxable year of the sale or exchange and certain other conditions are met. Moreover, if you are a corporate non-U.S. holder, you may be subject, under certain circumstances, to an additional branch profits tax on any effectively connected gains at a 30% rate, or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate. BACKUP WITHHOLDING AND INFORMATION REPORTING U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain noncorporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, shares or ADSs made within the United States to a holder of shares or ADSs (other than an exempt recipient, including a corporation, a payee that is a non-U.S. holder that provides an appropriate certification, and certain other persons). A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, shares or ADSs within the United States to you, unless you are an exempt recipient, if you fail to furnish your correct taxpayer identification number or otherwise fail to establish an exception from backup withholding tax requirements or otherwise fail to establish an exception from backup withholding. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is furnished to the U.S. Internal Revenue Service. The backup withholding tax rate is 30% for years 2002 and 2003, 29% for years 2004 and 2005 and 28% for years 2006 through 2010. In the case of payments made within the United States to a foreign simple trust, foreign grantor trust, or foreign partnership (other than payments to a foreign simple trust, foreign grantor trust, or foreign partnership that qualifies as a withholding foreign trust or withholding foreign partnership within the meaning of the income tax regulations and payments to a foreign simple trust, foreign grantor trust, or foreign partnership that are effectively connected with the conduct of a trade or business in the United States), the beneficiaries of the foreign simple trust, the persons treated as the owners of the foreign grantor trust or the partners of the foreign partnership, as the case may be, will be required to provide the certification discussed above in order to establish an exemption from backup withholding tax and information reporting requirements. Moreover, if you are a non-U.S. holder, a payor or middleman may rely on a certification provided by you only if the payor or middleman does not have actual knowledge or a reason to know that any information or certification stated in the certificate is incorrect. THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP OF SHARES OR ADSS. PROSPECTIVE PURCHASERS OF SHARES OR ADSS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS. 113 DOCUMENTS ON DISPLAY We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at prescribed rates at the Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Further information on the operation of the public reference room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the Commission. Our annual reports and some of the other information we submit to the Commission may be accessed through this web site. In addition, material that we file can be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK DISCLOSURE The continuously evolving financial markets and the dynamic business environment expose us to changes in foreign exchange, interest rate, and other market price risks. We have developed and implemented comprehensive policies, procedures, and controls to identify, mitigate and monitor financial risk on a firm-wide basis. To efficiently aggregate and manage financial risk that could impact our financial performance, we operate a system of Treasury Centers, which are part of ABB Financial Services. Our Treasury Centers provide an efficient source of liquidity, financing, risk management, and other global financial services to our industrial companies. Prior to the halting of proprietary trading activities on June 19, 2002, the Treasury Centers had the authority to accept a limited degree of market risk in order to benefit from favorable market price movements. Any acceptance of market risk by the Treasury Centers is subject to clearly defined exposure and risk limits that we monitor in real-time and document in written policies approved by senior management of ABB Ltd. The Treasury Centers maintain risk management control systems to monitor foreign exchange, interest rate, equity, and other financial risks and related financial positions. Positions are monitored using a number of analytical techniques including market value, sensitivity analysis, and Value-at-Risk. The following quantitative analyses are based on sensitivity analysis tests, which assume simultaneous shifts in exchange rates against ABB's positions, as well as parallel shifts in interest rate yield curves. CURRENCY FLUCTUATIONS AND FOREIGN EXCHANGE RISK It is our policy to identify and manage all transactional foreign exchange exposures to minimize risk. With the exception of some ABB Financial Services subsidiaries and to the extent certain operating subsidiaries are domiciled in high inflation environments, the functional currency of each of our companies is considered to be its local currency and our companies are required to hedge all contracted foreign exchange exposures against their local currency. These transactions are undertaken mainly with ABB Treasury Centers. We have foreign exchange transaction exposures related to our global operating and financing activities in currencies other than the functional currency in which our entities operate. Specifically, we are exposed to foreign currency risk related to future earnings, assets, or liabilities denominated in foreign currencies. The most significant currency exposures relate to operations in Sweden, Switzerland and Germany. In addition, the Group is exposed to the currency risk associated with translating its functional currency financial statements into its reporting currency, which is the U.S. dollar. 114 Our industrial companies are responsible for identifying their foreign currency exposures and entering into intercompany hedge contracts with the Treasury Centers, where legally possible, or external transactions to hedge this risk. The intercompany transactions have the effect of transferring the industrial companies' currency risk to the Treasury Centers, but create no additional market risk to our consolidated results. According to our policy, material net currency exposures are hedged. Exposures are primarily hedged with forward foreign exchange contracts. The majority of the foreign exchange hedge instruments have, on average, a maturity of less than twelve months. The Treasury Centers also hedge currency risks associated with their financing of other ABB companies. As of December 31, 2001 and December 31, 2000, the net fair value of financial instruments with exposure to foreign currency rate movements was $497 million and $480 million, respectively. The potential loss in fair value for such financial instruments from a hypothetical 10% move in foreign exchange rates against our position would be approximately $416 million and $515 million for December 31, 2001 and December 31, 2000, respectively. The analysis reflects the aggregate adverse foreign exchange impact associated with transaction exposures, as well as translation exposures where appropriate. Our sensitivity analysis assumes a simultaneous shift in exchange rates against the position and as such assumes an unlikely adverse case scenario. Exchange rates rarely move in the same direction. Therefore, the assumption made may overstate the impact of changing rates on assets and liabilities denominated in a foreign currency. The underlying trade-related transaction exposures of the industrial companies are not included in the quantitative analysis. This represents a significant limitation of the quantitative risk analysis. If these underlying transaction exposures were included, they would tend to have an offsetting effect on the potential loss in fair value detailed above. INTEREST RATE RISK We are exposed to interest rate risk due to our financing, investing and liquidity management activities. Our industrial companies primarily invest excess cash with and receive funding from our Treasury Centers on an arm's length basis. It is our policy that the primary third party funding and investing activities, as well as the monitoring and management of the resulting interest rate risk, are the responsibility of the Treasury Centers. The Treasury Centers adjust the duration of their overall funding portfolio through derivative instruments in order to better match underlying assets and liabilities, as well as minimize the cost of capital. The Treasury Centers also actively support the management of the interest sensitive investments and customer-financing portfolios, which may include the use of derivatives, to provide the industrial companies and our external customers with access to necessary liquidity, as well as maximize interest income. As of December 31, 2001 and December 31, 2000, the net fair value of interest rate sensitive instruments was $(2,801) million and $(1,933) million, respectively. The potential loss in fair value for such financial instruments from a hypothetical 100 basis point parallel shift in interest rates against ABB's position (or a multiple of 100 basis points where 100 basis points is less than 10% of the applicable interest rate) would be approximately $30 million and $82 million for December 31, 2001 and December 31, 2000, respectively. Leases are not included as part of the sensitivity analysis. This represents a material limitation of the analysis. While the sensitivity analysis reflects interest rate sensitivity of the funding for the lease portfolio held by ABB Financial Services, a corresponding change in the lease portfolio was not considered in the sensitivity analysis model. As a result, the overall impact on the fair value of financial instruments from a hypothetical change in interest rates may be overstated. 115 TRADING ACTIVITIES Prior to June 19, 2002, our financial policies permitted ABB Financial Services, through its system of Treasury Centers, to engage in a limited degree of proprietary trading activities. Our policies do not permit any trading activities outside of these Treasury Centers. Trading is conducted in financial instruments that are actively traded in global financial markets such as forward foreign exchange contracts, swap transactions, options, as well as futures traded on regulated exchanges. As discussed above, the Treasury Centers had the authority to accept a limited degree of market risk subject to clearly defined risk management polices and trading limits. Each Treasury Center had dedicated capital associated with its trading activities, which was approved by its board of directors or supervisory board. Financial risks are measured and monitored real-time and reported daily to senior management. All Treasury Centers have transaction tracking, valuation, and risk measurement systems, as well as dedicated risk managers, to monitor and control the proprietary trading activities. Our internal audit function, which is independent of ABB Financial Services and reports directly to the head of the Group internal audit, perform regular reviews of trading activities to ensure that trading is performed within established policies and limits and that there are appropriate internal control procedures in place. The level of exposure accepted by the Treasury Centers is impacted by the market environment and expectation for future market price movements but our policy provides that it can never exceed the clearly defined limits. In addition, the Treasury Centers' stop loss policies require liquidation of positions when the mark-to-market loss arising from changes in market conditions exceeds those pre-defined limits. The table below details the net fair value of market price sensitive instruments, as well as the potential loss in fair value for such financial instruments from a hypothetical 10% adverse change in market rates:
DECEMBER 31, 2001 DECEMBER 31, 2000 ---------------------------------- ---------------------------------- LOSS FROM 10% LOSS FROM 10% ADVERSE CHANGE IN ADVERSE CHANGE IN NET FAIR VALUE MARKET PRICES NET FAIR VALUE MARKET PRICES -------------- ----------------- -------------- ----------------- ($ IN MILLIONS) ($ IN MILLIONS) Foreign exchange............... $126.7 $3.8 $294.0 $45.2 Interest rates................. 135.6 25.5 (83.0) 2.3
116 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not applicable. ITEM 15. [RESERVED] ITEM 16. [RESERVED] PART III ITEM 17. FINANCIAL STATEMENTS We have elected to provide financial statements and the related information pursuant to Item 18. ITEM 18. FINANCIAL STATEMENTS See pages F-1 to F-54 and pages S-1 to S-3, which are incorporated herein by reference. (a) Independent Auditors' Reports. (b) Consolidated Income Statements for the years ended December 31, 2001, 2000 and 1999. (c) Consolidated Balance Sheets as of December 31, 2001 and 2000. (d) Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999. (e) Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999. (f) Notes to Consolidated Financial Statements. (g) Independent Auditors' Reports on Financial Statement Schedule. (h) Schedule II--Valuation and Qualifying Accounts. 117 ITEM 19. EXHIBITS 1.1 Articles of Incorporation of ABB Ltd as amended to date. 2.1 Form of Amended and Restated Deposit Agreement, by and among ABB Ltd, Citibank, N.A., as Depositary, and the holders and beneficial owners from time to time of the American Depositary Shares issued thereunder (including as an exhibit the form of American Depositary Receipt). Incorporated by reference to Exhibit (a)(i) to Post-Effective Amendment No. 1 on Form F-6 (File No. 333-13346) filed by ABB Ltd on May 7, 2001. 2.2 Form of American Depositary Receipt (included in Exhibit 2.1). 2.3 EMTN Amended and Restated Fiscal Agency Agreement, dated May 30, 2001, between ABB International Finance Limited, ABB Finance Inc., ABB Capital B.V., Banque Generale du Luxembourg S.A., The Chase Manhattan Bank and Banque Generale du Luxembourg (Suisse) S.A. 2.4 EMTN Deed of Covenant, dated March 10, 1993 by ABB International Finance N.V. 2.5 EMTN Deed of Covenant, dated March 10, 1993 by ABB Finance Inc. 2.6 EMTN Deed of Covenant, dated March 10, 1993 by ABB Capital B.V. The total amount of long-term debt securities of ABB Ltd authorized under any other instrument does not exceed 10% of the total assets of the ABB Group on a consolidated basis. ABB Ltd hereby agrees to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long-term debt of ABB Ltd or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. 4.1 Share Purchase and Settlement Agreement dated as of March 31, 2000 among ABB Ltd, ALSTOM and ABB ALSTOM POWER N.V., as amended. 4.2 Purchase Agreement, dated as of December 21, 1999, between ABB Handels-Und Verwaltungs AG, as Seller, and British Nuclear Fuels plc, as Purchaser, as amended. 4.3 $3,000,000,000 Multicurrency Revolving Credit Agreement dated December 18, 2001, as amended and restated on April 30, 2002, pursuant to an amendment agreement dated April 25, 2002 for ABB Ltd. and Certain Subsidiaries of ABB Ltd., as Borrowers and Guarantors, with Barclays Capital, Credit Suisse First Boston and Salomon Brothers International Limited, as Mandated Lead Arrangers, and Credit Suisse First Boston as Facility Agent. 8.1 Subsidiaries of ABB Ltd as of December 31, 2001.
118 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. ABB LTD By: /s/ PETER VOSER ----------------------------------------- Name: Peter Voser Title: Executive Vice President and Chief Financial Officer By: /s/ HANS ENHORNING ----------------------------------------- Name: Hans Enhorning Title: Group Vice President
Date: June 27, 2002 119 ABB LTD INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Reports............................... F-2 Consolidated Income Statements for the years ended December 31, 2001, 2000 and 1999.......................... F-6 Consolidated Balance Sheets as of December 31, 2001 and 2000...................................................... F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.................................................. F-8 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999...... F-9 Notes to Consolidated Financial Statements.................. F-10
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of ABB Ltd: We have audited the accompanying consolidated balance sheet of ABB Ltd as of December 31, 2001, and the related consolidated income statement, statement of cash flows and statement of changes in stockholders' equity, for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of certain of the Company's wholly-owned subsidiaries located in the United States and Bermuda, which statements reflect total assets constituting 23% and total revenues constituting 20% of the related consolidated totals as of and for the year ended December 31, 2001. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for these subsidiaries, is based solely on the reports of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ABB Ltd at December 31, 2001, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the consolidated financial statements, in 2001 the Company changed its method of accounting for derivative financial instruments. /S/ ERNST & YOUNG AG Zurich, Switzerland February 11, 2002, except as to Note 24, as to which the date is May 31, 2002 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors ABB Holdings Inc.: We have audited the accompanying consolidated balance sheet of ABB Holdings Inc. and subsidiaries (a direct wholly-owned subsidiary of ABB Asea Brown Boveri Ltd.) as of December 31, 2001, and the related consolidated statements of operations, stockholder's equity, and cash flows for the year then ended (not presented separately 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ABB Holdings Inc. and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Stamford, Connecticut February 1, 2002 F-3 INDEPENDENT AUDITORS' REPORT To the Board of Directors Scandinavian Reinsurance Company Limited: We have audited the accompanying balance sheet of Scandinavian Reinsurance Company Limited at December 31, 2001 and the related statements of loss and comprehensive loss, changes in shareholder's deficit and cash flows for the year then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 financial statements referred to above present fairly, in all material respects, the financial position of Scandinavian Reinsurance Company Limited at December 31, 2001 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The Company restated retained earnings at the beginning of the current year to reflect the change discussed in Note 2 (d) to the financial statements (not presented separately herein). /s/ KPMG Chartered Accountants Hamilton, Bermuda January 31, 2002 F-4 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of ABB Ltd: We have audited the accompanying consolidated balance sheet of ABB Ltd as of December 31, 2000, and the related consolidated income statements, statements of cash flows and statements of changes in stockholders' equity, for each of the two years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United States 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ABB Ltd at December 31, 2000, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with United States generally accepted accounting principles. /S/ KPMG KLYNVELD PEAT /s/ ERNST & YOUNG AG MARWICK GOERDELER SA Zurich, Switzerland Zurich, Switzerland February 11, 2001 February 11, 2001
F-5 ABB LTD CONSOLIDATED INCOME STATEMENTS
YEAR ENDED DECEMBER 31, ------------------------------------ 2001 2000 1999 -------- -------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................... $23,726 $22,967 $24,356 Cost of sales............................................... (18,708) (17,222) (18,457) ------- ------- ------- Gross profit................................................ 5,018 5,745 5,899 Selling, general and administrative expenses................ (4,397) (4,417) (4,682) Amortization expense........................................ (236) (219) (189) Other income (expense), net................................. (106) 276 94 ------- ------- ------- Earnings before interest and taxes.......................... 279 1,385 1,122 Interest and dividend income................................ 568 565 608 Interest and other finance expense.......................... (802) (644) (708) ------- ------- ------- Income from continuing operations before taxes and minority interest......................................... 45 1,306 1,022 Provision for taxes......................................... (105) (377) (343) Minority interest........................................... (70) (48) (36) ------- ------- ------- Income (loss) from continuing operations.................... (130) 881 643 Income (loss) from discontinued operations, net of tax...... (510) 562 717 Extraordinary gain on debt extinguishment, net of tax....... 12 -- -- Cumulative effect of change in accounting principles (SFAS 133), net of tax.................................... (63) -- -- ------- ------- ------- Net income (loss)........................................... $ (691) $ 1,443 $ 1,360 ======= ======= ======= Weighted average shares outstanding......................... 1,132 1,180 1,184 Dilutive potential shares................................... 3 5 3 ------- ------- ------- Diluted weighted average shares outstanding................. 1,135 1,185 1,187 ======= ======= ======= Basic earnings (loss) per share: Income (loss) from continuing operations.................. $ (0.11) $ 0.74 $ 0.54 Net income (loss)......................................... $ (0.61) $ 1.22 $ 1.15 Diluted earnings (loss) per share: Income (loss) from continuing operations.................. $ (0.11) $ 0.74 $ 0.54 Net income (loss)......................................... $ (0.61) $ 1.22 $ 1.15
See accompanying notes to consolidated financial statements. F-6 ABB LTD CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------- 2001 2000 --------- --------- (IN MILLIONS, EXCEPT SHARE DATA) Cash and equivalents........................................ $ 2,767 $ 1,397 Marketable securities....................................... 2,946 4,209 Receivables, net............................................ 8,368 8,328 Inventories, net............................................ 3,075 3,192 Prepaid expenses and other.................................. 2,358 1,585 ------- ------- Total current assets........................................ 19,514 18,711 Financing receivables, non-current.......................... 4,263 3,875 Property, plant and equipment, net.......................... 3,003 3,243 Goodwill and other intangible assets, net................... 3,299 3,155 Investments and other....................................... 2,265 1,978 ------- ------- Total assets................................................ $32,344 $30,962 ======= ======= Accounts payable, trade..................................... $ 3,991 $ 3,375 Accounts payable, other..................................... 2,710 2,363 Short-term borrowings and current maturities of long-term borrowings................................................ 4,747 3,587 Accrued liabilities and other............................... 7,587 6,127 ------- ------- Total current liabilities................................... 19,035 15,452 Long-term borrowings........................................ 5,043 3,776 Pension and other related benefits.......................... 1,688 1,790 Deferred taxes.............................................. 1,360 1,528 Other liabilities........................................... 2,989 2,924 ------- ------- Total liabilities........................................... 30,115 25,470 Minority interest........................................... 215 321 Stockholders' equity: Capital stock and additional paid-in capital, par value CHF 2.50, 1,280,009,432 shares authorized, 1,200,009,432 shares issued........................................... 2,028 2,082 Retained earnings......................................... 3,435 4,628 Accumulated other comprehensive loss...................... (1,699) (1,122) Less: Treasury stock, at cost (86,875,616 and 16,532,932 shares at December 31, 2001 and 2000, respectively)..... (1,750) (417) ------- ------- Total stockholders' equity.................................. 2,014 5,171 ------- ------- Total liabilities and stockholders' equity.................. $32,344 $30,962 ======= =======
See accompanying notes to consolidated financial statements. F-7 ABB LTD CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- (IN MILLIONS) OPERATING ACTIVITIES Income (loss) from continuing operations.................... $ (130) $ 881 $ 643 ADJUSTMENTS TO RECONCILE INCOME (LOSS) FROM CONTINUING OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization............................. 787 836 795 Restructuring provisions.................................. 45 (73) (52) Pension and post-retirement benefits...................... 1 (57) (38) Deferred taxes............................................ (89) 102 10 Net gain from sale of property, plant and equipment....... (23) (247) (47) Other..................................................... 109 (119) (147) Changes in operating assets and liabilities: Marketable securities (trading)......................... 72 10 151 Trade receivables....................................... 65 77 (328) Inventories............................................. (106) (136) (7) Trade payables.......................................... 736 266 433 Other assets and liabilities, net....................... 726 (518) 162 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 2,193 1,022 1,575 ------- ------- ------- INVESTING ACTIVITIES Changes in financing receivables............................ (907) (833) (655) Purchases of marketable securities (other than trading)..... (3,280) (2,239) (973) Purchases of property, plant and equipment.................. (761) (553) (839) Acquisitions of businesses (net of cash acquired)........... (578) (893) (1,720) Proceeds from sales of marketable securities (other than trading).................................................. 3,873 2,292 1,307 Proceeds from sales of property, plant and equipment........ 152 238 488 Proceeds from sales of businesses (net of cash disposed).... 283 275 356 ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES....................... (1,218) (1,713) (2,036) ------- ------- ------- FINANCING ACTIVITIES Changes in borrowings with maturities of 90 days or less.... (69) 609 383 Increases in other borrowings............................... 9,357 3,626 3,570 Repayment of other borrowings............................... (6,649) (4,279) (4,478) Treasury and capital stock transactions..................... (1,393) 244 (165) Dividends paid.............................................. (502) (531) (503) Other....................................................... (67) (61) 6 ------- ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 677 (392) (1,187) ------- ------- ------- Net cash provided by (used in) discontinued operations...... (210) 949 723 Effects of exchange rate changes on cash and equivalents.... (72) (84) (100) ------- ------- ------- NET CHANGE IN CASH AND EQUIVALENTS.......................... 1,370 (218) (1,025) Cash and equivalents--beginning of year..................... 1,397 1,615 2,640 ------- ------- ------- Cash and equivalents--end of year........................... $ 2,767 $ 1,397 $ 1,615 ======= ======= ======= Interest paid............................................... $ 702 $ 647 $ 793 Taxes paid.................................................. 273 273 251
See accompanying notes to consolidated financial statements. F-8 ABB LTD CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(1) FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
ACCUMULATED OTHER COMPREHENSIVE LOSS --------------------------------------- CAPITAL UNREALIZED STOCK GAIN (LOSS) AND FOREIGN ON MINIMUM ADDITIONAL CURRENCY AVAILABLE- PENSION PAID-IN RETAINED TRANSLATION FOR-SALE LIABILITY CAPITAL EARNINGS ADJUSTMENT SECURITIES ADJUSTMENT ---------- -------- ----------- ----------- ----------- (IN MILLIONS) Balance at January 1, 1999........... $ 2,037 $ 2,859 $ (779) $157 $(283) Comprehensive income: Net income......................... 1,360 Foreign currency translation adjustments...................... (226) Effect of change in fair value of available-for-sale securities, net of tax of $39................ (90) Minimum pension liability adjustments, net of tax of $7.... 190 Total comprehensive income......... Dividends paid....................... (503) Purchase of treasury stock........... Purchase of non-tendered ABB AB stock(2)........................... Issuance of ABB Ltd stock(3)......... 34 ------- ------- -------- ---- ----- Balance at December 31, 1999......... 2,071 3,716 (1,005) 67 (93) Comprehensive income: Net income......................... 1,443 Foreign currency translation adjustments...................... (152) Effect of change in fair value of available-for-sale securities, net of tax of $7................. 20 Minimum pension liability adjustments, net of tax of $21... 41 Total comprehensive income........... Dividends paid....................... (531) Purchase of treasury stock........... Sale of treasury stock and put options............................ 11 ------- ------- -------- ---- ----- Balance at December 31, 2000......... 2,082 4,628 (1,157) 87 (52) COMPREHENSIVE LOSS: NET LOSS........................... (691) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS...................... (365) EFFECT OF CHANGE IN FAIR VALUE OF AVAILABLE-FOR-SALE SECURITIES, NET OF TAX OF $16................ (128) MINIMUM PENSION LIABILITY ADJUSTMENTS, NET OF TAX OF $1.... 3 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES, NET OF TAX OF $17........................... CHANGE IN DERIVATIVES QUALIFYING AS CASH FLOW HEDGES, NET OF TAX OF $18........................... TOTAL COMPREHENSIVE LOSS:.......... DIVIDENDS PAID....................... (502) PURCHASE OF TREASURY STOCK........... SALE OF TREASURY STOCK............... (101) CALL OPTIONS......................... 47 ------- ------- -------- ---- ----- BALANCE AT DECEMBER 31, 2001......... $ 2,028 $ 3,435 $ (1,522) $(41) $ (49) ACCUMULATED OTHER COMPREHENSIVE LOSS -------------------------------- UNREALIZED GAIN TOTAL (LOSS) OF ACCUMULATED CASH-FLOW OTHER TOTAL HEDGE COMPREHENSIVE TREASURY STOCKHOLDERS' DERIVATIVES LOSS STOCK EQUITY - ----------- -------------- -------- ------------- (IN MILLIONS) Balance at January 1, 1999........... $ -- $ (905) $ (286) $ 3,705 Comprehensive income: Net income......................... 1,360 Foreign currency translation adjustments...................... (226) (226) Effect of change in fair value of available-for-sale securities, net of tax of $39................ (90) (90) Minimum pension liability adjustments, net of tax of $7.... 190 190 ------- Total comprehensive income......... 1,234 Dividends paid....................... (503) Purchase of treasury stock........... (199) (199) Purchase of non-tendered ABB AB stock(2)........................... (438) (438) Issuance of ABB Ltd stock(3)......... 438 472 ----- -------- -------- ------- Balance at December 31, 1999......... -- (1,031) (485) 4,271 Comprehensive income: Net income......................... 1,443 Foreign currency translation adjustments...................... (152) (152) Effect of change in fair value of available-for-sale securities, net of tax of $7................. 20 20 Minimum pension liability adjustments, net of tax of $21... 41 41 ------- Total comprehensive income........... 1,352 Dividends paid....................... (531) Purchase of treasury stock........... (400) (400) Sale of treasury stock and put options............................ 468 479 ----- -------- -------- ------- Balance at December 31, 2000......... -- (1,122) (417) 5,171 COMPREHENSIVE LOSS: NET LOSS........................... (691) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS...................... (365) (365) EFFECT OF CHANGE IN FAIR VALUE OF AVAILABLE-FOR-SALE SECURITIES, NET OF TAX OF $16................ (128) (128) MINIMUM PENSION LIABILITY ADJUSTMENTS, NET OF TAX OF $1.... 3 3 ------- CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES, NET OF TAX OF $17........................... (41) (41) (41) CHANGE IN DERIVATIVES QUALIFYING AS CASH FLOW HEDGES, NET OF TAX OF $18........................... (46) (46) (46) ------- TOTAL COMPREHENSIVE LOSS:.......... (1,268) DIVIDENDS PAID....................... (502) PURCHASE OF TREASURY STOCK........... (1,615) (1,615) SALE OF TREASURY STOCK............... 282 181 CALL OPTIONS......................... 47 ----- -------- -------- ------- BALANCE AT DECEMBER 31, 2001......... $ (87) $ (1,699) $(1,750) $ 2,014
- ---------------------------------- (1) Retroactively restated to reflect the issuance of ABB Ltd shares in exchange for all issued shares of ABB AB and ABB AG in June 1999. (2) Purchase of 3% of issued stock of ABB AB (See Note 1). (3) Issuance of approximately 20 million shares of ABB Ltd, representing the equivalent number of shares purchased in (2) above (See Note 1). See accompanying notes to consolidated financial statements. F-9 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 1 THE COMPANY ABB Ltd is a leading global company in power and automation technologies organized in seven business divisions structured along customer groups, with each division having global responsibility for its business strategies and its manufacturing and product development activities, as applicable. Four end-user divisions serve end-user customers with systems, products and services. Two channel partner divisions serve external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators directly and the end-user customers indirectly through the end-user customer divisions. They are also responsible for all generic products in ABB. A financial services division provides services and project support for the other divisions as well as for external customers. In June 1999, ABB Ltd, a newly incorporated Swiss company, issued approximately 1,180 million registered shares to the stockholders of ABB AB, a Swedish publicly listed company, and ABB AG, a Swiss publicly listed company. As of that date, neither ABB AB nor ABB AG had operations or assets other than their respective 50% ownership interests in ABB Asea Brown Boveri Ltd. In exchange, the stockholders of ABB AB and ABB AG tendered all issued shares of the two companies except for 3% of total issued ABB AB stock. The stockholders of ABB AB who did not tender their shares for ABB Ltd shares received cash of $438 million in return for their shares of ABB AB and the equivalent number of registered shares of ABB Ltd (approximately 20 million) were sold to third parties, resulting in a total of 1,200 million issued shares of ABB Ltd as of June 28, 1999. The capital transaction to form ABB Ltd and create a single class of capital voting stock for the stockholders of ABB AB and ABB AG resulted in the following: BEFORE JUNE 28, 1999 AFTER JUNE 28, 1999 [LOGO] As of and for the six months ended June 28, 1999, the combined selected financial information of ABB AG and ABB AB included cash and marketable securities of $28 million, total liabilities of $1 million, interest and other income, net, of $9 million, and a special dividend by ABB AG of $179 million, excluding each company's respective ownership interest and equity in earnings of ABB Asea Brown Boveri Ltd. The combined assets and liabilities exclude $62 million related to the special dividend which was not yet able to be distributed to ABB AG stockholders. F-10 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed in the preparation of these consolidated financial statements. BASIS OF PRESENTATION The consolidated financial statements are prepared on the basis of United States (U.S.) generally accepted accounting principles and are presented in U.S. dollars ($) unless otherwise stated. Par value of capital stock is denominated in Swiss francs (CHF). The number of shares and earnings per share data in the consolidated financial statements have been presented as if ABB Ltd shares had been issued for all periods presented and as if the four-for-one split of ABB Ltd shares in May 2001 had occurred as of the earliest period presented. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts and subsidiaries of ABB Ltd and ABB Asea Brown Boveri Ltd (collectively, the "Company"). All significant intercompany balances have been eliminated in consolidation. The Company's investments in joint ventures and affiliated companies, which generally include companies that are 20% to 50% owned, are accounted for using the equity method. Accordingly, the Company's share of earnings of these companies is included in the determination of consolidated net income. Other investments are recorded at cost. USE OF ESTIMATES The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts reported for prior years in the notes to the consolidated financial statements have been reclassified to conform to the current year presentation. CONCENTRATIONS OF CREDIT RISK The Company sells a broad range of products, systems and services to a wide range of industrial and commercial customers throughout the world. Concentrations of credit risk with respect to trade receivables are limited due to a large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial position are performed and, generally, no collateral is required. The Company, as part of its financial services activities, offers a broad range of financial products. To monitor credit risk, such activities are regulated by specific policies and procedures including those for the identification, evaluation and mitigation of credit risks. Such policies and procedures also include measurements to develop and ensure the maintenance of a diversified portfolio through the active monitoring of counterparty, country and industry exposure. The concentration of credit risk is limited due to the large number of customers comprising the Company's portfolio. In general, for leasing and lending activities collateral is required. The nature of such collateral depends on the type of financial product that is offered but includes, for example, F-11 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) retention of title or mortgage on the equipment financed, or the assignment of rights under contracts. In the case of leasing, ownership of the equipment normally constitutes the main collateral. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. The Company invests excess cash in deposits with banks throughout the world and in other high quality, liquid marketable securities (such as commercial paper, government agency notes and asset-backed securities). The Company actively monitors its credit risk by routinely reviewing the credit worthiness of the investments held and by maintaining such investments in deposits or liquid securities. The Company has not incurred any credit losses related to such investments. The Company's exposure to credit risk on derivative financial instruments is the risk that a counterparty will fail to meet its obligations. To reduce this risk, the Company has credit policies which require the establishment and review of credit limits for individual counterparties. In addition, close-out netting agreements have been entered into with most counterparties. Close-out netting agreements are agreements which provide for the termination, valuation and net settlement of some or all outstanding transactions between two counterparties on the occurrence of one or more pre-defined trigger events. CASH AND EQUIVALENTS Cash and equivalents include highly liquid investments with original maturities of three months or less. MARKETABLE SECURITIES Debt and equity securities are classified as either trading or available-for-sale at the time of purchase and are carried at fair value. Debt and equity securities that are bought and held principally for the purpose of sale in the near term are classified as trading securities and unrealized gains and losses are included in the determination of net income. Unrealized gains and losses on available-for-sale securities are excluded from the determination of net income and are accumulated as a component of other comprehensive loss until realized. Realized gains and losses on available-for-sale securities are computed based upon historical cost of these securities applied using the specific identification method. Declines in fair values of available-for-sale investments that are other than temporary are included in the determination of net income. REVENUE RECOGNITION The Company has recognized revenues in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101), REVENUE RECOGNITION IN FINANCIAL STATEMENTS, since adoption on October 1, 2000. SAB 101 provides additional guidance on the application of previously existing U.S. generally accepted accounting principles to revenue recognition in financial statements. The Company recognizes substantially all revenues from the sale of manufactured products upon transfer of title including the risks and rewards of ownership to the customer which generally occurs upon shipment of products. On contracts for sale of manufactured products requiring installation which can only be performed by the Company, revenues are deferred until installation of F-12 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the products is complete. Revenues from short-term fixed-price contracts to deliver services are recognized upon completion of required services to the customer. Revenues from contracts which contain customer acceptance provisions are deferred until customer acceptance occurs or the contractual acceptance period has lapsed. Sales under long-term fixed-price contracts are recognized using the percentage-of-completion method of accounting. The Company principally uses the cost-to-cost or delivery events method to measure progress towards completion on contracts. Management determines the method to be used for each contract based on its judgment as to which method best measures actual progress towards completion. Anticipated costs for warranties on products are accrued upon sales recognition on the related contracts. Losses on fixed-price contracts are recognized in the period when they are identified and are based upon the anticipated excess of contract costs over the related contract sales. Sales under cost-reimbursement contracts are recognized as costs are incurred. Shipping and handling costs are recorded as a component of cost of sales. RECEIVABLES The Company accounts for the securitization of trade receivables in accordance with Statement of Financial Accounting Standards No. 140 (SFAS 140), ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which was issued in September 2000 and replaced, in its entirety, Statement of Financial Accounting Standards No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. SFAS 140 requires an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred and to derecognize financial assets when control has been surrendered in accordance with the criteria provided in SFAS 140. The Company adopted the disclosure requirements of SFAS 140 effective December 2000, and has applied the new accounting rules to transactions beginning in the second quarter of 2001, with no significant impact to the Company's financial position or results of operations. The Company accounts for the transfer of its receivables to Qualifying Special Purpose Entities (QSPEs) as a sale of those receivables to the extent that consideration other than beneficial interests in the transferred accounts receivable is received. The Company does not recognize the transfer as a sale unless the receivables have been put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership. In addition, the QSPEs must obtain the right to pledge or exchange the transferred receivables, and the Company cannot retain the ability or obligation to repurchase or redeem the transferred receivables. At the time the receivables are sold, the balances are removed from trade receivables and a retained interest or deferred purchase price component is recorded in other receivables. The retained interest is recorded at its estimated fair value. Costs associated with the sale of receivables are included in the determination of current earnings. From time to time, the Company may, in its normal course of business, sell receivables outside the securitization programs with or without recourse. Sales and transfers that do not meet the requirements of SFAS 140 are accounted for as secured borrowings. F-13 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are stated at the lower of cost (determined using either the first-in, first-out or the weighted average cost method) or market. Inventoried costs relating to percentage-of-completion contracts are stated at actual production costs, including overhead incurred to date, reduced by amounts identified with sales recognized. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived tangible and intangible assets are reviewed for impairment in accordance with Statement of Financial Accounting Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, when events or circumstances indicate the carrying amount of a long-lived asset may not be recoverable. Impairment is assessed by comparing an asset's net undiscounted cash flows expected to be generated over its remaining useful life to the asset's net carrying value. If impairment is indicated, the carrying amount of the asset is reduced to its estimated fair value. GOODWILL AND OTHER INTANGIBLE ASSETS The excess of cost over the fair value of net assets of acquired businesses is recorded as goodwill and has been amortized on a straight-line basis over periods ranging from 3 to 20 years. The cost of other acquired intangibles is amortized on a straight-line basis over their estimated useful lives, typically ranging from 3 to 10 years. In accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142), GOODWILL AND OTHER INTANGIBLE ASSETS, issued in June 2001, goodwill from acquisitions completed after June 30, 2001, is not amortized (see Note 2--New accounting standards). The total amount of goodwill recognized on acquisitions completed after June 30, 2001, was not significant. CAPITALIZED SOFTWARE COSTS The Company expenses costs incurred in the preliminary project stage, and thereafter capitalizes costs incurred in developing or obtaining software. Capitalized costs of software for internal use are accounted for in accordance with Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, and are amortized on a straight-line basis over the estimated useful life of the software, typically ranging from 3 to 5 years. Capitalized costs of a software product to be sold are accounted for in accordance with Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, and are carried at the lower of unamortized cost or net realizable value until the product is released to customers, at which time capitalization ceases and costs are amortized on a straight-line basis over the estimated life of the product. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost, less accumulated depreciation, using the straight-line method over the estimated useful lives of the assets as follows: 10 to 50 years for buildings and leasehold improvements, 3 to 15 years for machinery and equipment and 3 to 5 years for furniture and fixtures. F-14 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments to manage interest rate and currency exposures, and to a lesser extent commodity exposures, arising from its global operating, financing and investing activities. The Company's policies require that the industrial entities economically hedge all contracted foreign exposures, as well as at least fifty percent of the anticipated sales volume of standard products over the next twelve months. In addition, within limits determined by the Company's Board of Directors, derivative financial instruments are also used for proprietary trading purposes within the Company's Financial Services division. CHANGE IN ACCOUNTING PRINCIPLES On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by Statement of Financial Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133 and Statement of Financial Accounting Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, collectively referred to as "SFAS 133". These Statements require the Company to recognize all derivatives, other than certain derivatives indexed to the Company's own stock, on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through income. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in accumulated other comprehensive loss until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The Company accounted for the adoption of SFAS 133 as a change in accounting principle. Based on the Company's outstanding derivatives at January 1, 2001, the Company recognized the cumulative effect of the accounting change as a loss in the consolidated income statement of approximately $63 million, net of tax, (basic and diluted per share loss of $0.06) and a reduction to equity of $41 million, net of tax, in accumulated other comprehensive loss. Forward foreign exchange contracts are the primary instrument used to manage foreign exchange risk. Where forward foreign exchange contracts are designated as cash flow hedges under SFAS 133, changes in their fair value are recorded in the accumulated other comprehensive loss component of stockholders' equity, net of tax, until the hedged item is recognized in earnings. The Company also enters into forward foreign exchange contracts that serve as economic hedges of existing assets and liabilities. These are not designated as accounting hedges under SFAS 133 and, consequently, changes in their fair value are reported in earnings where they offset the gain or loss on the foreign currency denominated asset or liability. To reduce its interest rate and currency exposure arising from its funding activities and to hedge specific assets, the Company uses interest rate and currency swaps. Where interest rate swaps are designated as fair value hedges, the changes in value of the swaps are recognized in earnings, as are the changes in the value of the underlying assets or liabilities. Where such interest rate swaps do not qualify for the short cut method as defined under SFAS 133, any ineffectiveness is therefore included in earnings. Where interest rate swaps are designated as cash flow hedges, F-15 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) their change in value is recognized in the accumulated other comprehensive loss component of stockholders' equity, net of tax, until the hedged item is recognized in earnings. All other swaps, futures, options and forwards which are designated as effective hedges of specific assets, liabilities or committed or forecasted transactions are recognized in earnings consistent with the effects of hedged transactions. If the underlying hedged transaction is terminated early, the hedging derivative financial instrument is terminated simultaneously, with any gains or losses recognized immediately. Where derivative financial instruments have been designated as hedges of forecasted transactions, and such forecasted transactions become no longer probable of occurring, hedge accounting ceases and any derivative gain or loss previously included in the accumulated other comprehensive loss component of stockholders' equity is reclassified into earnings. PRIOR TO IMPLEMENTATION OF SFAS 133--YEARS 2000 AND 1999 Prior to January 1, 2001, instruments which were used as hedges had to be effective at reducing the risk associated with the exposure being hedged and had to be designated as a hedge at the inception of the contract. Accordingly, changes in market values of hedge instruments had to be highly correlated with changes in the market values of the underlying hedged items, both at inception of the hedge and over the life of the hedge contract. Any derivative that was not designated as a hedge, or was so designated but was ineffective, or was in connection with anticipated transactions, was marked to market and recognized in earnings. Gains and losses on foreign currency hedges of existing assets or liabilities were recognized in income consistent with the hedged item. Gains and losses on foreign currency hedges of firm commitments were deferred and recognized in income as part of the hedged transaction. Other foreign exchange contracts were marked to market and recognized in earnings. Interest rate and currency swaps that were designated as hedges of borrowings or specific assets were accounted for on an accrual basis and were recorded as an adjustment to the interest income or expense of the underlying asset or liability over its life. All other swaps, futures, options and forwards which were designated and effective hedges of specific assets, liabilities, or committed transactions, were recognized consistent with the effects of hedged transactions. If the underlying hedged transaction was terminated early, the hedging derivative financial instrument was terminated simultaneously, with any gains or losses recognized immediately. Gains or losses arising from early termination of a derivative financial instrument of an effective hedge were accounted for as adjustments to the basis of the hedged transaction. Derivative financial instruments used in the Company's trading activities were marked to market and recognized in earnings. BORROWINGS From time to time, the Company may, in the normal course of business, buy back portions of its debt securities. Such repurchases are accounted for as debt extinguishments in accordance with Statement of Financial Accounting Standards No. 4, REPORTING GAINS AND LOSSES FROM EXTINGUISHMENT OF DEBT--AN AMENDMENT OF APB OPINION NO. 30, irrespective of whether the securities are canceled or held as treasury securities. Gains or losses on extinguishment of debt which are material to the earnings of the Company are disclosed as extraordinary items, net of tax. If subsequently reissued, the reissue price becomes the new cost basis of the securities. INSURANCE The following accounting policies apply specifically to the Insurance business area. F-16 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMIUMS AND ACQUISITION COSTS Premiums are generally earned pro rata over the period coverage is provided and are reflected in revenues in the Consolidated Income Statement. Premiums earned include estimates of certain premiums due, including adjustments on retrospectively rated contracts. Premium receivables include premiums relating to retrospectively rated contracts that represent the estimate of the difference between provisional premiums received and the ultimate premiums due. Unearned premiums represent the portion of premiums written that is applicable to the unexpired terms of reinsurance contracts or certificates in force. These unearned premiums are calculated by the monthly pro rata method or are based on reports from ceding companies. Acquisition costs are costs related to the acquisition of new business and renewals. These costs are deferred and charged against earnings ratably over the terms of the related policy. PROFIT COMMISSION Certain contracts carry terms and conditions that result in the payment of profit commissions. Estimates of profit commissions are reviewed based on underwriting experience to date and, as adjustments become necessary, such adjustments are reflected in current operations. LOSS AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expenses are charged to operations as incurred and are reflected in cost of sales in the Consolidated Income Statement. The liabilities for unpaid loss and loss adjustment expenses, reflected in accrued liabilities, other, are determined on the basis of reports from ceding companies and underwriting associations, as well as on management's, including in-house actuaries', estimates including those for incurred but not reported losses, salvage and subrogation recoveries. Inherent in the estimates of losses are expected trends of frequency, severity and other factors that could vary significantly as claims are settled. Accordingly, ultimate losses could vary from the amounts provided for in these consolidated financial statements. FEES Contracts that neither result in the transfer of insurance risk nor the reasonable possibility of significant loss to the reinsurer are accounted for as financing arrangements rather than reinsurance. Consideration received for such contracts is reflected as accounts payable, other, and are amortized on a pro rata basis over the life of the contract. FUNDS WITHHELD Under the terms of certain reinsurance agreements, the ceding reinsurer retains a portion of the premium to provide security for expected loss payments. The funds withheld are generally invested by the ceding reinsurer and earn an investment return that becomes additional funds withheld. REINSURANCE The Company seeks to reduce the loss that may arise from catastrophes and other events that may cause unfavorable underwriting results by reinsuring certain levels of risks with other insurance enterprises or reinsurers. Reinsurance contracts are accounted for by reducing premiums earned by F-17 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) amounts paid to the reinsurers. Recoverable amounts are established for paid and unpaid losses and loss adjustment expense ceded to the reinsurer. Amounts recoverable from the reinsurer are estimated in a manner consistent with the claim liability associated with the reinsurance policy. Contracts where it is not reasonably possible that the reinsurer may realize a significant loss from the insurance risk generally do not meet the conditions for reinsurance accounting and are recorded as deposits. TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS The functional currency for most of the Company's operations is the applicable local currency. The translation from the applicable functional currencies into the Company's reporting currency is performed for balance sheet accounts using exchange rates in effect at the balance sheet date, and for income statement accounts using average rates of exchange prevailing during the year. The resulting translation adjustments are excluded from the determination of net income and are accumulated as a component of other comprehensive loss until the entity is sold or substantially liquidated. Foreign currency transactions, such as those resulting from the settlement of foreign currency denominated receivables or payables, are included in the determination of net income, except as related to intra-Company loans that are equity-like in nature with no reasonable expectation of repayment which are accumulated as a component of other comprehensive loss. In highly inflationary countries, monetary balance sheet positions in local currencies are converted into U.S. dollars at the year-end rate. Fixed assets are kept at historical U.S. dollar values from acquisition dates. Sales and expenses are converted at the exchange rates prevailing upon the date of the transaction. All translation gains and losses from restatement of balance sheet positions are included in the determination of net income. TAXES Deferred taxes are accounted for by using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realizable. Generally, deferred taxes are not provided on the unremitted earnings of subsidiaries as it is expected that these earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. Deferred taxes are provided in situations where the Company's subsidiaries plan to make future dividend distributions. RESEARCH AND DEVELOPMENT Research and development costs were $654 million, $703 million and $865 million in 2001, 2000 and 1999, respectively. These costs are included in selling, general and administrative expenses as incurred. F-18 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE Basic earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing income by the weighted-average number of shares outstanding during the year, assuming that all potentially dilutive securities were exercised and that any proceeds from such exercises were used to acquire shares of the Company's stock at the average market price during the year or the period the securities were outstanding, if shorter. Potentially dilutive securities comprise outstanding written put options, for which net share settlement at average market price of the Company's stock was assumed, if dilutive, and outstanding written call options and the securities issued under the Company's management incentive plan, to the extent the average market price of the Company's stock exceeded the exercise prices of such instruments (see Notes 20 and 21). NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, which, together with SFAS 142 modify the accounting for business combinations, goodwill and identifiable intangible assets. SFAS 141 requires the Company to account for all business combinations initiated after June 30, 2001, under the purchase method. Under SFAS 142, certain intangible assets will be recognized separately from goodwill, and will be amortized over their useful lives. The Company is required to test all goodwill for impairment as of January 1, 2002, and record a transition adjustment if impairment exists. The Company does not expect to record a material transition adjustment in connection with such impairment testing in 2002. After January 1, 2002, goodwill will no longer be amortized but will be charged to operations when specified tests indicate that the goodwill is impaired. The Company recognized goodwill amortization expense of $191 million, $174 million and $155 million in 2001, 2000 and 1999, respectively. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which modifies the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The Company will adopt this Statement effective January 1, 2003. The Company has not yet determined the impact, if any, that this Statement will have on its financial position or results of operations. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144), ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This Statement modifies the discontinued operations guidance of Accounting Principles Board Opinion 30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS, and supersedes SFAS No. 121, while retaining certain requirements of SFAS No. 121 regarding impairment loss recognition and measurement. In addition, SFAS 144 provides additional accounting and reporting guidance for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The Company will adopt this Statement on January 1, 2002. The Company has not yet determined the impact, if any, this Statement will have on its financial position or results of operations, although the Company expects to present more disposals as discontinued operations subsequent to adoption of SFAS 144. F-19 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 3 BUSINESS COMBINATIONS ELSAG BAILEY In October 1998, the Company entered into an agreement to acquire all of the outstanding shares of Elsag Bailey Process Automation N.V. ("Elsag Bailey"). The transaction has been accounted for as a purchase. The Company's consolidated financial statements include Elsag Bailey's results of operations since January 14, 1999, the transaction closing date. The cash purchase price of $1,562 million was allocated to the identified assets acquired and liabilities assumed based upon their estimated fair values as follows: Tangible assets acquired.................................... $1,260 Liabilities assumed......................................... (1,767) Identified intangible assets................................ 379 Goodwill.................................................... 1,690 ------ $1,562 ======
The Company recorded a $141 million liability in its purchase price allocation for restructuring costs, comprised of involuntary employee terminations and severance. The Elsag Bailey integration restructuring was substantially complete at the end of 2000. In August 1999, the Company sold certain business operations of Elsag Bailey involved in the manufacture and sale of gas chromatograph and mass spectrometer products. The net gain on disposal of $41 million has been recorded as an adjustment to the allocation of the original purchase price. B-BUSINESS PARTNERS B.V. In June 2000, the Company entered into a share subscription agreement to acquire 42% interest in b-business partners B.V. Pursuant to the terms of the agreement, the Company committed to invest a total of $278 million, of which $69 million was paid in 2000 and $134 million was paid during the first half of 2001. In December 2001, Investor AB acquired 90 percent of the Company's investment in b-business partners B.V. for approximately book value, or $166 million in cash. Immediately after this transaction, b-business partners B.V. repurchased 50% of its outstanding shares from all investors, which resulted in a return of capital to the Company of $10 million. As of December 31, 2001, the Company retains a 4% investment in b-business partners B.V. and is committed to provide additional capital to b-business partners B.V. of $3 million. Further, b-business partners B.V. retains a put right to compel the Company to repurchase 150,000 shares of b-business partners B.V. at a cost of approximately $13 million. ENTRELEC GROUP In June 2001, the Company completed the acquisition, through an open-market tender, of Entrelec Group, a France-based supplier of industrial automation and control products operating in 17 countries. The cash purchase price of the acquisition was approximately $284 million. The excess of the purchase price over the fair value of the assets acquired totaled to $294 million and has been recorded as goodwill. The transaction has been accounted for as a purchase. Included in the purchase price allocation was an amount of $21 million for a restructuring of the business. The F-20 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 3 BUSINESS COMBINATIONS (CONTINUED) Company's consolidated financial statements include Entrelec's result of operations since June 20, 2001, the transaction closing date. OTHER ACQUISITIONS AND INVESTMENTS During 2001, 2000 and 1999, the Company invested $179 million, $896 million and $218 million, respectively, in 60, 61 and 74 new businesses, joint ventures and affiliated companies. Of these transactions, 10, 24 and 24, respectively, represented acquisitions accounted for as purchases and accordingly, the results of operations of the acquired businesses have been included in the Company's consolidated financial statements from the respective acquisition dates. The aggregate purchase price of these acquisitions during 2001, 2000 and 1999 was $45 million, $416 million and $190 million, respectively. The aggregate excess of the purchase price over the fair value of the net assets acquired totaled $29 million, $447 million and $137 million, respectively, and has been recorded as goodwill. Assuming these acquisitions had occurred on the first day of the year prior to their purchase, the pro forma consolidated results of operations for those years would not have materially differed from reported amounts either on an individual or an aggregate basis. OTHER DIVESTITURES In the ordinary course of business, the Company periodically divests businesses and investments not considered by management to be aligned with its focus on activities with high growth potential. The results of operations of the divested businesses are included in the Company's consolidated results of operations through the date of disposition. During 2001, 2000 and 1999, the Company sold several operating units and investments for total proceeds of $117 million, $281 million and $311 million, respectively, and recognized a net gain of $34 million, $201 million and $132 million, respectively. Such amounts are included in other income (expense), net. Income from continuing operations before taxes and minority interest from these operations was not material in 2001, 2000 and 1999. NOTE 4 DISCONTINUED OPERATIONS In a series of transactions during 2000, the Company disposed of its Power Generation segment, which included its investment in ABB ALSTOM POWER NV (the "Joint Venture") and its nuclear technology business. The Company sold its nuclear technology business to British Nuclear Fuels PLC in April 2000 and its 50% interest in the Joint Venture to ALSTOM SA (ALSTOM) in May 2000. The Company disposed of its Transportation segment in the first quarter of 1999. As a result of these transactions, the Company's consolidated financial statements present the net assets and results of operations of these segments as discontinued operations. In connection with the sale of its 50% interest in the Joint Venture to ALSTOM in May 2000, the Company received cash proceeds of $1,197 million and recognized a gain of $734 million ($713 million, net of tax), which includes $136 million of accumulated foreign currency translation losses. In connection with the sale of the nuclear technology business to British Nuclear Fuels PLC in April 2000, the Company received cash proceeds of $485 million and recognized a gain of $55 million ($17 million, net of tax). The net gain from the sale of the nuclear technology business reflects a $300 million provision for estimated environmental remediation. These gains were also offset by operating losses associated with these businesses. F-21 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 4 DISCONTINUED OPERATIONS (CONTINUED) Effective June 30, 1999, the Company formed the Joint Venture with ALSTOM by contributing certain assets and businesses of its power generation business. Upon formation of the Joint Venture, the Company received cash boot and recognized a corresponding gross gain of $1,500 million ($1,339 million, net of tax). The Company accounted for its 50% ownership in the Joint Venture as an equity investment through the date of disposal. For the six-month period ended December 31, 1999, the Company recognized net losses of $99 million for its share of the results of the Joint Venture's operations. In the first quarter of 1999, the Company sold its 50% interest in ABB Daimler-Benz Transportation GmbH (ADtranz), a rail transportation joint venture, to DaimlerChrysler for cash consideration of $472 million. Upon disposal of its investment, the Company realized a net gain of $464 million. Operating results of the discontinued businesses are summarized as follows:
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Revenues.................................................... $ -- $ 120 $ 3,813 Costs and expenses.......................................... (496) (258) (4,889) Loss before taxes........................................... (496) (138) (1,076) Tax benefit (expense)....................................... (14) (7) 157 ----- ----- ------- Net loss from discontinued operations....................... (510) (145) (919) Net loss from equity accounted investments, net of tax benefit of $15 million and tax expense of $51 million in 2000 and 1999, respectively............................... -- (23) (168) Gain from dispositions of discontinued operations, net of tax expense of $59 million and $161 million in 2000 and 1999, respectively........................................ -- 730 1,804 ----- ----- ------- Income (loss) from discontinued operations, net of tax...... $(510) $ 562 $ 717 ===== ===== =======
The loss before taxes in 2001 includes a charge of $470 million related to the increase in management's estimate of future asbestos-related claims (see Note 16). The loss before taxes in 1999 includes charges for contract loss provisions recorded in accordance with the Company's periodic review of such provisions of approximately $560 million, primarily related to technical difficulties with a new model of gas turbine. The loss before taxes in 1999 also includes other costs of approximately $300 million principally related to the increase in management's estimate of future asbestos-related claims (see Note 16). Basic and diluted per share loss from discontinued operations were both $0.45 in 2001, compared to basic and diluted per share income from discontinued operations of $0.48 and $0.61 in 2000 and 1999, respectively. F-22 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 5 MARKETABLE SECURITIES Marketable securities consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Trading.................................................... $ 545 $ 676 Available-for-sale......................................... 2,401 3,533 ------ ------ Total...................................................... $2,946 $4,209 ====== ======
Available-for-sale securities classified as marketable securities consist of the following:
UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE -------- ---------- ---------- ---------- At December 31, 2001: Equity securities................... $ 681 $ 22 $(276) $ 427 ------ ---- ----- ------ Debt securities: U.S. government obligations....... 655 12 (12) 655 European government obligations... 437 1 (2) 436 Corporate......................... 388 4 (2) 390 Asset-backed...................... 3 -- -- 3 Other............................. 450 41 (1) 490 ------ ---- ----- ------ Total debt securities............. 1,933 58 (17) 1,974 ------ ---- ----- ------ $2,614 $ 80 $(293) $2,401 ====== ==== ===== ====== At December 31, 2000: Equity securities................... $ 593 $ 53 $(139) $ 507 ------ ---- ----- ------ Debt securities: U.S. government obligations....... 800 21 (3) 818 European government obligations... 549 8 (4) 553 Corporate......................... 231 3 (1) 233 Asset-backed...................... 667 1 (1) 667 Other............................. 723 32 -- 755 ------ ---- ----- ------ Total debt securities............. 2,970 65 (9) 3,026 ------ ---- ----- ------ $3,563 $118 $(148) $3,533 ====== ==== ===== ======
F-23 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 5 MARKETABLE SECURITIES (CONTINUED) At December 31, 2001, contractual maturities of the above available-for-sale debt securities consist of the following:
FAIR COST VALUE -------- -------- Less than one year......................................... $ 454 $ 459 One to five years.......................................... 1,032 1,044 Six to ten years........................................... 299 313 Due after ten years........................................ 148 158 ------ ------ Total...................................................... $1,933 $1,974 ====== ======
Gross realized gains on available-for-sale securities were $78 million, $39 million and $87 million in 2001, 2000 and 1999, respectively. Gross realized losses on available-for-sale securities were $39 million, $27 million and $32 million in 2001, 2000 and 1999, respectively. The net change in unrealized gains and losses in fair values of trading securities was not significant in 2001 or 2000. At December 31, 2001 and 2000, the Company pledged $848 million and $1,099 million, respectively, of marketable securities as collateral for certain bank borrowings, issued letters of credit, insurance contracts or other security arrangements. At December 31, 2001 and 2000, investments and other in the consolidated balance sheet includes $236 million and $263 million, respectively, of available-for-sale securities that are pledged in connection with the Company's pension plan in Sweden. These securities are comprised of European government and other debt securities recorded at their fair value of $161 million and $192 million, respectively, (including $3 million and $5 million, respectively, of unrealized gains) and equity securities recorded at their fair value of $75 million and $71 million, respectively (net of unrealized losses of $13 million and $9 million, respectively). NOTE 6 FINANCIAL INSTRUMENTS CASH FLOW HEDGES The Company enters into forward foreign exchange contracts to manage the foreign exchange risk of its operations. To a lesser extent the Company also uses commodity contracts to manage its commodity risks. Where such instruments are designated and qualify as cash flow hedges, the changes in their fair value are recorded in the accumulated other comprehensive loss component of stockholders' equity, until the hedged item is recognized in earnings. At such time, the respective amount in accumulated other comprehensive loss is released to earnings and is shown in either revenues or cost of sales consistent with the classification of the earnings impact of the underlying transaction being hedged. Any hedge ineffectiveness is therefore included in revenues and cost of sales but is not material for 2001. During 2001, the amount reclassified from accumulated other comprehensive loss to earnings, which represented derivative financial instrument losses, amounted to $130 million, net of taxes, of which $31 million, net of taxes, was associated with the transition adjustment at January 1, 2001. It is anticipated that during 2002, $67 million, net of taxes, of the amount included in accumulated F-24 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 6 FINANCIAL INSTRUMENTS (CONTINUED) other comprehensive loss at December 31, 2001, which represents derivative financial instrument losses, will be reclassified to earnings. Derivative financial instrument losses reclassified to earnings offset the gains on the items being hedged. While the Company's cash flow hedges are primarily hedges of exposures over the next eighteen months, the amount included in accumulated other comprehensive loss at December 31, 2001 includes hedges of certain exposures maturing up to 2007. FAIR VALUE HEDGES To reduce its interest rate and currency exposure arising from its funding activities and to hedge specific assets, the Company uses interest rate and currency swaps. Where such instruments are designated as fair value hedges, the changes in fair value of these instruments, as well as the changes in fair value of the underlying liabilities or assets, are recorded as offsetting gains and losses in the determination of earnings. The amount of hedge ineffectiveness for 2001 is not material. DISCLOSURE ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS The Company uses the following methods and assumptions in estimating fair values for financial instruments: CASH AND EQUIVALENTS, RECEIVABLES, ACCOUNTS PAYABLE, SHORT-TERM BORROWINGS AND CURRENT MATURITIES OF LONG-TERM BORROWINGS: The carrying amounts reported in the balance sheet approximate the fair values. MARKETABLE SECURITIES (INCLUDING TRADING AND AVAILABLE-FOR-SALE SECURITIES): Fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. FINANCING RECEIVABLES AND LOANS: Fair values are determined using discounted cash flow methodology based upon loan rates of similar instruments. The carrying values and estimated fair values of long-term loans granted at December 31, 2001 were $1,724 million and $1,745 million, respectively, and at December 31, 2000 were $1,469 million and $1,456 million, respectively. LONG-TERM BORROWINGS: Fair values are based on the present value of future cash flows discounted at estimated borrowing rates for similar debt instruments. The carrying values and estimated fair values of long-term borrowings at December 31, 2001 were $5,043 million and $5,056 million, respectively, and at December 31, 2000 were $3,776 million and $3,861 million, respectively. DERIVATIVE FINANCIAL INSTRUMENTS: Fair values are the amounts by which the contracts could be settled. These fair values are estimated by using discounted cash flow methodology based on available market data, option pricing models or by obtaining quotes from brokers. At December 31, 2001, the carrying values equal fair values. The fair values are disclosed in Note 9 and Note 14. At December 31, 2000, the total carrying value of derivatives used for both risk management and trading purposes amounted to a net liability of $72 million compared to a fair value of $165 million unrealized loss. F-25 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 6 FINANCIAL INSTRUMENTS (CONTINUED) NOTIONAL AMOUNTS AS OF DECEMBER 31, 2000 The notional values of outstanding derivative financial instruments as of December 31, 2000 for interest rate and currency swaps, and other fixed income contracts was $48,261 million, and for foreign exchange forward contracts and options was $38,129 million. The gross notional values indicated the extent of the Company's use of derivatives but did not reflect the Company's exposure to market or credit risk arising from such transactions. NOTE 7 RECEIVABLES Receivables consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Trade receivables........................................... $ 4,120 $4,289 Other receivables........................................... 3,435 3,168 Allowance................................................... (258) (234) ------- ------ 7,297 7,223 Unbilled receivables, net: Costs and estimated profits in excess of billings......... 2,082 1,769 Advance payments received................................. (1,011) (664) ------- ------ 1,071 1,105 ------- ------ $ 8,368 $8,328 ======= ======
Trade receivables include contractual retention amounts billed to customers of $135 million and $140 million at December 31, 2001 and 2000, respectively. Management expects the majority of related contracts will be completed and substantially all of the billed amounts retained by the customer will be collected within one year of the respective balance sheet date. Other receivables consist of V.A.T., claims, employee and customer-related advances, the current portion of direct finance and sales-type leases and other non-trade receivables. Costs and estimated profits in excess of billings represent sales earned and recognized under the percentage-of-completion method. Amounts are expected to be collected within one year of the respective balance sheet date. During 2001 and 2000, the Company sold trade receivables, to QSPEs unrelated to the Company, in revolving-period securitizations. The Company retains servicing responsibility relating to the sold receivables. Solely for the purpose of credit enhancement from the perspective of the QSPEs, the Company retains an interest in the sold receivables (retained interest). These retained interests are initially measured at estimated fair values, which the Company believes approximate historical carrying values, and are subsequently measured based on a periodic evaluation of collections and delinquencies. Given the short-term, lower-risk nature of the assets securitized, market movements in interest rates would not impact the carrying value of the Company's retained interests. An adverse F-26 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 7 RECEIVABLES (CONTINUED) movement in foreign currency rates could have an impact on the carrying value of these retained interests as the retained interest is denominated in the original currencies underlying the sold receivables. Due to the short-term nature of the receivables and economic hedges in place relating to currency movement risk, the impact has historically not been significant. The Company routinely evaluates its portfolio of trade receivables for risk of non-collection and records an allowance for doubtful debts to reflect the carrying value of its trade receivables at estimated net realizable value. Pursuant to the requirements of the revolving-period securitizations through which the Company securitizes certain of its trade receivables, the Company effectively bears the risk of potential delinquency or default associated with trade receivables sold or interests retained. Accordingly, in the normal course of servicing the assets sold, the Company evaluates potential collection losses and delinquencies and updates the estimated fair value of the Company's retained interests. The fair value of the retained interests at December 31, 2001, and December 31, 2000, was approximately $264 million and $214 million, respectively. In accordance with SFAS 140, ABB has not recorded a servicing asset as the Company believes it is not practicable to estimate this value given that verifiable data as to the fair value of the compensation and or cost related to servicing the types of the assets sold is not readily obtainable nor reliably estimable for the multiple geographic markets in which the entities selling receivables operate. During 2001 and 2000, the following cash flows were received from and paid to QSPEs:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Gross trade receivables sold to QSPEs....................... $ 5,515 $ 3,708 Collections made on behalf of and paid to QSPEs............. (5,343) (3,324) Loss on sale, liquidity and program fees.................... (33) (26) Increase in retained interests.............................. (53) (150) ------- ------- Net cash received from QSPEs during the year................ $ 86 $ 208 ======= =======
Cash settlement with the QSPEs takes place monthly on a net basis. Gross trade receivables sold represent the face value of all invoices sold during the year to the QSPEs. As the Company services the receivables, collection of the receivables previously sold is made on behalf of the QSPEs. The Company records a loss on sale, liquidity and program fees at the point of sale to the QSPEs. The total cost of $33 million and $26 million in 2001 and 2000, respectively, related to the securitization of trade receivables is included in the determination of current earnings. Changes in retained interests of $53 million and $150 million in 2001 and 2000, respectively, primarily result from increases in the volume of receivables sold during the year and changes in default and delinquency rates, offset by collections of the underlying receivables. F-27 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 7 RECEIVABLES (CONTINUED) The following table presents amounts associated with assets securitized at December 31, 2001 and 2000:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Total trade receivables..................................... $5,178 $5,207 Portion derecognized........................................ (789) (702) Gross retained interests, included in other receivables..... (269) (216) ------ ------ Trade receivables........................................... $4,120 $4,289 ====== ======
At December 31, 2001 and 2000, of the gross trade receivables sold, the total outstanding trade receivables amounted to $1,058 million and $918 million, respectively. At December 31, 2001 and 2000 an amount of $65 million and $49 million, respectively, was more than 90 days past due which, according to the terms of the programs, is deemed to be delinquent. In addition, during 2001, the Company sold or transferred to banks trade receivables outside of the above described securitization programs. Total receivables sold or transferred and derecognized from the balance sheet in accordance with SFAS 140 included in these transactions totaled approximately $71 million. The related costs, including the associated gains and losses, were not significant. NOTES 8 INVENTORIES Inventories, including inventories related to long-term contracts, consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Commercial inventories, net: Raw materials............................................. $1,063 $1,074 Work in process........................................... 1,483 1,471 Finished goods............................................ 386 373 ------ ------ 2,932 2,918 ------ ------ Contract inventories, net: Inventoried costs......................................... 380 387 Contract costs subject to future negotiation.............. 16 53 Advance payments received related to contracts............ (253) (166) ------ ------ 143 274 ------ ------ $3,075 $3,192 ====== ======
Contract costs subject to future negotiation represent pending claims for additional contract costs that management believes will be collectible. F-28 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 9 PREPAID EXPENSES AND OTHER Prepaid expenses and other current assets consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Prepaid expenses............................................ $ 520 $ 496 Deferred taxes.............................................. 517 530 Advances to suppliers and contractors....................... 242 221 Derivatives................................................. 865 225 Other....................................................... 214 113 ------ ------ $2,358 $1,585 ====== ======
NOTE 10 FINANCING RECEIVABLES Financing receivables consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Third-party loans receivable................................ $1,489 $1,230 Finance leases (see Note 15)................................ 2,072 1,895 Other....................................................... 702 750 ------ ------ $4,263 $3,875 ====== ======
Third-party loans receivable primarily represent financing arrangements provided to customers under long-term construction contracts as well as export financing and other activities. Not included in this balance at December 31, 2001 and 2000 are $113 million and $173 million, respectively, of assets pledged as security for financing arrangements. Included in finance leases at December 31, 2001 and 2000 are $445 million and $495 million, respectively, of assets pledged as security for other liabilities. Additionally, $114 million of assets were pledged as security for long-term borrowings at December 31, 2001. Other financing receivables at December 31, 2001 and 2000 include $355 million and $357 million, respectively, of assets pledged as security for other liabilities. Of these amounts, $53 million in each year are marketable securities. In addition, other financing receivables include notes receivable from affiliates of $234 million and $239 million at December 31, 2001 and 2000, respectively. During 2001, the Company sold or transferred to financial institutions financing receivables. These transfers included sales of finance lease receivables and sales of loan receivables. Total financing receivables sold or transferred and derecognized from the balance sheet in accordance with SFAS 140 included in these transactions totaled approximately $329 million, of which $70 million were sold to an affiliated company. The related costs of these transactions, including the associated gains and losses, were not significant. F-29 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 10 FINANCING RECEIVABLES (CONTINUED) The Company, in the normal course of its commercial lending business, has outstanding credit commitments which have not yet been drawn down by customers. The unused amount as of December 31, 2001, is approximately $208 million. NOTE 11 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Land and buildings.......................................... $ 2,303 $2,513 Machinery and equipment..................................... 4,534 4,683 Construction in progress.................................... 188 130 ------- ------ 7,025 7,326 Accumulated depreciation.................................... (4,022) (4,083) ------- ------ $ 3,003 $3,243 ======= ======
NOTE 12 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Goodwill.................................................... $ 3,588 $ 3,222 Other intangible assets..................................... 1,065 974 ------- ------- 4,653 4,196 Accumulated amortization.................................... (1,354) (1,041) ------- ------- $ 3,299 $ 3,155 ======= =======
Other intangible assets primarily include intangibles created through acquisitions, as well as capitalized software to be sold and for internal use, trademarks and patents. Consistent with the Company's policy of reassessing the carrying value of acquired intangible assets, a write-down of $40 million was recorded during 2001 in relation to goodwill of one of the Company's investments. The Company also recorded a write-down of $26 million related to software developed for internal use in 2001. NOTE 13 BORROWINGS The Company actively uses the capital markets to meet liquidity needs. Furthermore, the Company maintains credit lines with various banks worldwide for borrowing funds on a short or long-term basis. F-30 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 13 BORROWINGS (CONTINUED) SHORT-TERM BORROWINGS The Company's commercial paper and short-term debt financing consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Commercial paper (weighted-average interest rate of 2.7% and 5.9%)........... $3,297 $1,923 Other short-term debt (weighted-average interest rate of 4.6% and 6.0%)........... 983 1,163 Current portion of long-term borrowings (weighted-average interest rate of 4.6% and 5.0%)........... 467 501 ------ ------ $4,747 $3,587 ====== ======
Other short-term debt primarily represents short-term loans from various banks and repurchase agreements. Of the commercial paper outstanding at December 31, 2001, $2,050 million had maturities of less than 3 months, $913 million had maturities of 3 to 6 months and $334 million had maturities over 6 months. Commercial paper outstanding at December 31, 2000 had maturities of mainly less than 3 months. In mid December 2001, the Company entered into a syndicated $3 billion 364-day revolving credit facility, with the option to convert up to $1 billion of any outstanding amounts at the end of the period into one year term borrowings. The facility is for general corporate purposes including support for the Company's commercial paper issuance. In the event that the Company's long-term debt rating falls below either A3 or A- from Moody's and Standard & Poor's, respectively, the terms of the facility are required to be renegotiated. If, after such negotiations, the banks and the Company are unable to reach agreement on revised terms, the facility will be terminated. Commitment fees are paid on the unutilized portion of the facility and their level is dependent on the credit rating of the Company's long-term debt. At December 31, 2001, no amounts were outstanding under this facility. LONG-TERM BORROWINGS The Company utilizes a variety of derivative products to modify the characteristics of its long-term borrowings. The Company uses interest rate swaps to effectively convert certain fixed-rate long-term borrowings into floating rate obligations. For certain non-U.S. dollar denominated borrowings, the Company utilizes cross-currency swaps to effectively convert the borrowings into U.S. dollar obligations. As of January 1, 2001, upon the introduction of SFAS 133, the derivative instruments (primarily interest rate and cross-currency swaps), designated and qualifying as fair value hedges of the Company's borrowings have been recorded at their fair values under other assets and other liabilities together with other outstanding derivatives. At December 31, 2000, cross-currency swaps hedging borrowings were shown as part of the underlying transaction being hedged. As required by SFAS 133, borrowings which have been designated as being hedged by fair value hedges are stated at their respective fair values at December 31, 2001. F-31 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 13 BORROWINGS (CONTINUED) The following table summarizes the Company's long-term borrowings considering the effect of interest rate, currency and equity swaps:
DECEMBER 31, 2001 DECEMBER 31, 2000 ------------------------------- ------------------------------- NOMINAL EFFECTIVE NOMINAL EFFECTIVE BALANCE RATE RATE BALANCE RATE RATE -------- -------- --------- -------- -------- --------- Floating rate......................... $4,422 4.0% 2.7% $3,444 5.3% 5.4% Fixed rate............................ 1,017 5.3% 5.3% 611 4.6% 4.6% Putable bonds......................... -- -- -- 139 6.5% 6.5% Other................................. 71 1.5% 2.3% 83 6.7% 7.1% ------ ------ $5,510 $4,277 Current portion of long-term borrowings.......................... (467) 4.6% 2.9% (501) 5.0% 6.5% ------ ------ $5,043 $3,776 ====== ======
At December 31, 2001, maturities of long-term borrowings were as follows: Due in 2002................................................. $ 467 Due in 2003................................................. 1,492 Due in 2004................................................. 1,187 Due in 2005................................................. 1,299 Due in 2006................................................. 516 Thereafter.................................................. 549 ------ $5,510 ======
At December 31, 2001, approximately $1,800 million of the Company's long-term borrowings were denominated in U.S. dollars. During 2001, the Company repurchased, but did not cancel, outstanding bonds with a face value of $322 million. In connection with these repurchases, the Company recorded an extraordinary gain on extinguishment of debt of $12 million, which was not subject to tax effect, representing basic and diluted earnings per share of $0.01. In the period up to December 31, 2001, the Company subsequently reissued a portion of the repurchased bonds with a face value of $248 million. The reissue price has become the new cost basis of the bonds. F-32 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 14 ACCRUED LIABILITIES AND OTHER Accrued liabilities and other consists of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Insurance reserves.......................................... $2,175 $1,399 Contract-related reserves................................... 566 538 Accrued personnel costs..................................... 736 791 Taxes payable............................................... 506 471 Provisions for warranties................................... 409 413 Deferred taxes.............................................. 198 235 Interest.................................................... 380 445 Provisions for restructuring................................ 170 102 Derivatives................................................. 803 297 Other....................................................... 1,644 1,436 ------ ------ $7,587 $6,127 ====== ======
The Company's insurance reserves for unpaid claims and claim adjustment expenses are determined on the basis of reports from ceding companies, underwriting associations and management estimates. The Company continually reviews reserves for claims and claim adjustment expenses during the year and changes in estimates are reflected in net income. In addition, reserves are routinely reviewed by independent actuarial consultants. Prior to 2001, the Company presented a portion of its insurance reserves on a discounted basis, which estimated the present value of funds required to pay losses at future dates. The effect of the discounting was to decrease outstanding losses and loss adjustment reserves by $223 million at December 31, 2000. The reserves were discounted where anticipated future investment income was an integral part of the premium pricing for a particular product. During 2001, the timing and amount of premiums and claims payments being ceded to the Company in respect of prior years finite risk reinsurance contracts has changed. As the amount and timing of ceded claims payments cannot be reliably determined at December 31, 2001, the Company has not discounted its loss reserves. The Company believes that this variability in ceded loss payments will preclude the Company from discounting its loss reserves in the future until reliably determinable amounts and timing of these payments can be reestablished. Accordingly, at December 31, 2001 the insurance reserves have not been presented on a discounted basis, resulting in a charge to losses and loss adjustment expenses in the fourth quarter of 2001 of $295 million for the elimination of the effect of discounting. NOTE 15 LEASES LEASE OBLIGATIONS The Company's lease obligations primarily relate to real estate and office equipment. In the normal course of business, management expects most leases to be renewed or replaced by other leases. Minimum rent expense under operating leases was $242 million, $252 million and $275 million in 2001, 2000 and 1999, respectively. F-33 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 15 LEASES (CONTINUED) At December 31, 2001, future net minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year consist of the following: 2002........................................................ $ 269 2003........................................................ 225 2004........................................................ 189 2005........................................................ 152 2006........................................................ 141 Thereafter.................................................. 364 ------ $1,340 Sublease income............................................. (58) ------ $1,282 ======
INVESTMENTS IN LEASES The Financial Services division provides sales support to the Company's industrial entities' customers by means of lease financing and credit arrangements as well as other direct third-party lease financing. Investments in sales-type leases, leveraged leases and direct financing leases are included in financing receivables. The allowance for losses on lease financing receivables is determined based on loss experience and assessment of inherent risk. Adjustments to the allowance for losses are made to adjust the net investment in finance leases to the estimated collectible amount. The Company's non-current investments in direct financing, sales-type and leveraged leases consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Minimum lease payments receivable........................... $ 3,400 $ 2,972 Residual values............................................. 72 186 Unearned income............................................. (1,105) (1,050) ------- ------- 2,367 2,108 Leveraged leases............................................ 49 28 Allowance for losses........................................ (5) (6) ------- ------- 2,411 2,130 Current portion............................................. (339) (235) ------- ------- $ 2,072 $ 1,895 ======= =======
F-34 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 15 LEASES (CONTINUED) At December 31, 2001, minimum lease payments under direct financing and sales-type lease payments are scheduled to be received as follows: 2002........................................................ $ 594 2003........................................................ 537 2004........................................................ 394 2005........................................................ 408 2006........................................................ 219 Thereafter.................................................. 1,248 ------ $3,400 ======
NOTE 16 COMMITMENTS AND CONTINGENCIES GENERAL The Company is subject to various legal proceedings and claims which have arisen in the ordinary course of business that have not been finally adjudicated. It is not possible at this time for the Company to predict with any certainty the outcome of such litigation. However, except as stated below, management is of the opinion, based upon information presently available, that it is unlikely that any such liability, to the extent not provided for through insurance or otherwise, would have a material adverse effect in relation to the Company's consolidated financial position, liquidity or results of operations. ENVIRONMENTAL The Company is a participant in several legal and regulatory actions, which result from various U.S. and other federal, state and local environmental protection legislation as well as agreements with third parties. Provisions for such actions are accrued when the events are probable and the related costs can be reasonably estimated. Changes in estimates of such costs are recognized in the period determined. While the Company cannot estimate the impact of future regulations affecting these actions, management believes that the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, liquidity or results of operations. The Company records accruals for environmental matters based on its estimated share of costs in the accounting period in which responsibility is established and costs can be reasonably estimated. Environmental liabilities are recorded based on the most probable cost, if known, or on the estimated minimum cost, determined on a site-by-site basis. Revisions to the accruals are made in the period the estimated costs of remediation change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. The Company records a receivable if the estimated recoveries from insurers or other third parties are determined to be probable. PERFORMANCE GUARANTEES It is industry practice to use letters of credit, surety bonds and other performance guarantees on major projects, including long-term operation and maintenance contracts. Such guarantees may F-35 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED) include guarantees that a project will be completed or that a project or particular equipment will achieve defined performance criteria. The guarantors may include subsidiaries of ABB Ltd and/or ABB Ltd. Because such guarantees may not state a fixed or maximum amount, the aggregate amount of the Company's potential exposure under the guarantees cannot reasonably be estimated. Provisions are recorded in the consolidated financial statements at the time it becomes probable the Company will incur losses pursuant to a performance guarantee. Management does not expect to incur significant losses under these guarantees in excess of the Company's provisions. However, such losses, if incurred, could have a material impact on the Company's consolidated financial position, liquidity or results of operations. The Company retained obligations for guarantees of the type described above related to the power generation businesses contributed to the Joint Venture with ALSTOM. In addition, in connection with a power plant construction project in a business sold to ALSTOM POWER N.V. ("ALSTOM Power"), one of the Company's subsidiaries has issued an advance payment guarantee towards a bank holding funds which are to be drawn down by a consortium led by a subsidiary of ALSTOM Power. The guarantee is approximately $370 million at December 31, 2001. ALSTOM and its subsidiaries have primary responsibility for performing the obligations that are the subject of the guarantees. In connection with the sale to ALSTOM of the Company's interest in the Joint Venture in May 2000, ALSTOM and ALSTOM Power have undertaken to fully indemnify the Company against any claims arising under such guarantees. As of December 31, 2001, there have been no material claims made under these guarantees. In connection with the sale of its nuclear business to British Nuclear Fuels ("BNFL") in 2000, a subsidiary of the Company retained obligations under surety bonds relating to the performance by the nuclear business under certain contracts entered into prior to the sale to BNFL. Pursuant to the purchase agreement under which the nuclear business was sold, BNFL is required to indemnify the Company for any costs and liabilities incurred by the Company with respect to such bonds. The Company's total liability under these bonds at December 31, 2001 is approximately $700 million. As of December 31, 2001, there have been no material claims made under these surety bonds. Management does not expect to incur significant losses under these surety bonds. FINANCIAL GUARANTEES The Company's financial services business has guaranteed the obligations of certain third parties in return for a commission. These financial guarantees represent irrevocable assurances that the Company will make payment in the event that the third party fails to fulfill its obligations and the beneficiary under the guarantee records a loss under the terms of the guarantee agreement. The commissions collected are recognized as income over the life of the guarantee and the Company records a provision when it becomes aware of an event of default or a potential event of default occurs. At December 31, 2001, the Company has issued approximately $270 million of financial guarantees with maturity dates ranging from one to nineteen years. Management does not expect to incur significant losses under these contracts. CONTINGENCIES RELATED TO FORMER POWER GENERATION BUSINESSES The Company retains ownership of Combustion Engineering, Inc. ("Combustion Engineering"), a subsidiary that formerly conducted part of the divested power generation business and which now owns commercial real estate which it leases to third parties. Combustion Engineering is a F-36 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED) co-defendant, together with third parties, in numerous lawsuits pending in the United States in which the plaintiffs claim damages for personal injury arising from exposure to or use of equipment which contained asbestos that Combustion Engineering supplied, primarily during the 1970s and before. It can be expected that additional asbestos-related claims will continue to be asserted. The ultimate cost of these claims is difficult to estimate with any degree of certainty due to the nature and number of variables associated with unasserted claims. Some of the factors affecting the reliability of estimating the potential cost of claims are the rate at which new claims are filed, the impact of court rulings and legislative action, the extent of the claimants' association with Combustion Engineering's or other defendants' products, equipment or operations, the type and severity of the disease suffered by the claimant, the method of resolution of such cases, the financial condition of other defendants and the availability of insurance to recover the costs, until the policy limits are exhausted. As of December 31, 2001, there were approximately 94,000 cases pending (2000: 66,000) against Combustion Engineering. Approximately 55,000 new claims were made in 2001 (2000: 39,000) and approximately 27,000 claims were resolved in 2001 (2000: 34,000). In 2001, the average payment per claim in which a payment was made increased by 26% over 2000. Approximately $12.8 million, $10.5 million and $8.2 million in administration and defense costs were incurred in 2001, 2000 and 1999, respectively. Other ABB Group entities are sometimes named as defendants in asbestos claims. These claims are insignificant compared to the Combustion Engineering claims and have not had, and are not expected to have, a material impact on the Company's financial position or results of operations. A reserve is maintained to cover estimated costs for the asbestos claims and an asset is recorded representing estimated insurance reimbursement. The reserve represents management's estimate of the costs associated with asbestos claims, including defense costs, based upon historical claims trends, available industry information and incidence rates of new claims. As a result of changes in management's expectations regarding the foreseeable future over which claims would continue to be incurred, the estimates were modified in 1999 to extend the period over which current and future claims were expected to be settled from 7 to 11 years. This revision better reflected anticipated claim settlement costs in light of the number and type of claims being filed at that time and the allocation of such claims to all available insurance policies. As a result of the revision, an additional accrual of approximately $300 million was recorded in 1999 which is included in the results of discontinued operations. During 2000, the level of new claims and settlement costs increased as compared to previous levels. Consequently, a charge of approximately $70 million was recorded in 2000, which is included in the results of discontinued operations, related to higher costs than were expected during the period. Based on the significant increase in new claims and settlement costs experienced in 2001 described above, an additional charge of $470 million was recorded in 2001, which is included in the results of discontinued operations. Because of the uncertainty as to the causes of the increase in claims filed against Combustion Engineering in recent periods, the estimation of future claims to be resolved is subject to substantially greater uncertainty. At December 31, 2001 and 2000, reserves of approximately $940 million and $590 million, respectively, were recorded for all asbestos-related claims. Receivables of $150 million and F-37 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED) $160 million were recorded at December 31, 2001 and 2000, respectively, for probable insurance recoveries with respect to such claims. Allowances against the insurance receivables are established at such time as it becomes likely that insurance recoveries are not probable. Cash payments to resolve Combustion Engineering's asbestos claims were $136 million, $125 million and $67 million in 2001, 2000 and 1999, respectively. Future operating results will continue to reflect the effect of changes in estimated claims costs resulting from actual claim activity as well as changes in available insurance coverage. It is reasonably possible that expenditures could be made, in excess of established reserves, in a range of amounts that cannot reasonably be estimated. Although the final resolution of any such matters could have a material impact on the Company's reported results for a particular reporting period, management believes the litigation should not have a material adverse effect on the Company's consolidated financial condition or liquidity. CONTINGENCIES RELATED TO FORMER NUCLEAR POWER BUSINESS The Company retained liability for certain specific environmental remediation costs at two sites in the U.S. that were operated by its nuclear business, which has been sold to British Nuclear Fuels. Pursuant to the purchase agreement with British Nuclear Fuels, the Company has retained all of the environmental liabilities associated with its Combustion Engineering subsidiary's Windsor, Connecticut facility and a portion of the environmental liabilities associated with its ABB CE Nuclear subsidiary's Hematite, Missouri facility. The primary environmental liabilities associated with these sites relate to the costs of remediating radiological contamination upon decommissioning the facilities. Such costs are not payable until a facility is taken out of use and generally are incurred over a number of years. Although it is difficult to predict with accuracy the amount of time it may take to remediate radiological contamination upon decommissioning, based on information that British Nuclear Fuels has made publicly available, the Company believes that it may take approximately six years for remediation at the Hematite site, from the time of decommissioning. With respect to the Windsor site, the Company believes the remediation may take until 2008. British Nuclear Fuels has notified the Nuclear Regulatory Commission of its intention to decommission the Hematite facility in 2003. British Nuclear Fuels decommissioned the Windsor facility in 2001 and the process of remediation has begun. At the Windsor site, the Company believes that a significant portion of such remediation costs will be the responsibility of the U.S. government pursuant to the Atomic Energy Act and the Formerly Used Site Environmental Remediation Action Program because such costs relate to materials used by Combustion Engineering in its research and development work on, and fabrication of, nuclear fuel for the United States Navy. As a result of the sale of the nuclear business, in April 2000 the Company established a reserve of $300 million in connection with estimated remediation costs related to these facilities. During 2001, approximately $6 million was expended on remediation of the Windsor site. Prior to the sale of the nuclear businesses, the Company conducted and had intended to continue conducting activities at these two sites which would require maintaining the appropriate licenses from the U.S. Nuclear Regulatory Commission ("NRC"). As long as the NRC licenses were in force, the Company was not obligated, nor was it necessary, to remediate those sites. At the time of the sale of the nuclear business, there was substantial likelihood that the NRC licenses would be discontinued. These events would trigger the remediation for which the Company is liable. Therefore, the Company established the reserve at the time of such sale. F-38 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 16 COMMITMENTS AND CONTINGENCIES (CONTINUED) Estimates of the future costs of environmental compliance and liabilities are imprecise due to numerous uncertainties. Such costs are affected by the enactment of new laws and regulations, the development and application of new technologies, the identification of new sites for which the Company may have remediation responsibility and the apportionment of remediation costs among, and the financial viability of, responsible parties. In particular, the exact amount of the responsibility of the U.S. government for the Windsor site cannot reasonably be estimated. It is possible that final resolution of environmental matters may require the Company to make expenditures in excess of its expectations, over an extended period of time and in a range of amounts that cannot be reasonably estimated. Although final resolution of such matters could have a material effect on the Company's consolidated results of operations in a particular reporting period in which the expenditure is incurred, the Company believes that these expenditures should not have a material adverse effect on its consolidated financial position. NOTE 17 TAXES Provision for taxes consists of the following:
YEAR ENDED DECEMBER 31, -------------------------------------- 2001 2000 1999 -------- -------- -------- Current taxes on income................................. $171 $263 $333 Deferred taxes.......................................... (66) 114 10 Tax expense from continuing operations.................. 105 377 343 Tax (benefit) expense from discontinued operations...... 14 51 (47) ---- ---- ---- $119 $428 $296 ==== ==== ====
The Company operates in countries that have differing tax laws and rates. Consequently, the consolidated weighted-average effective rate will vary from year to year according to the source of earnings or losses by country.
YEAR ENDED DECEMBER 31, ------------------------------ 2001 2000 1999 -------- -------- -------- Reconciliation of taxes: Income from continuing operations before taxes and minority interest................................................. $ 45 $1,306 $1,022 Weighted-average tax rate.................................. 38.2% 37.2% 39.1% Taxes at weighted-average tax rate......................... 17 486 400 Items taxed at rates other than the weighted-average tax rate..................................................... 104 (67) 1 Non-deductible goodwill amortization....................... 59 55 58 Changes in valuation allowance............................. (30) (67) (144) Changes in enacted tax rates............................... 4 (42) 18 Other, net................................................. (49) 12 10 ----- ------ ------ Tax expense of continuing operations....................... $ 105 $ 377 $ 343 Effective tax rate for the year (see comment below)........ 233.6% 28.9% 33.6%
F-39 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 17 TAXES (CONTINUED) In 2001, the reconciling item "Other, net" of $49 million includes an amount of $50 million relating to adjustments with respect to the resolution of certain prior year tax matters. In 2001, the income from continuing operations before taxes and minority interest of $45 million includes an additional provision for insurance liabilities in an insurance subsidiary, located in a low tax jurisdiction (see Note 14). The above item "Items taxed at rates other than the weighted average tax rate" includes the tax effect of this provision when comparing the weighted average tax rate to the effective tax rate for the year. The effective tax rate applicable to income from continuing operations excluding the tax effect of this provision would be 30.9%. Deferred income tax assets and liabilities consist of the following:
DECEMBER 31, ------------------- 2001 2000 -------- -------- Deferred tax liabilities: Financing receivables..................................... $ (480) $ (512) Property, plant and equipment............................. (476) (282) Pension and other accrued liabilities..................... (264) (438) Insurance reserves........................................ (190) (233) Other..................................................... (148) (298) ------- ------- Total deferred tax liability................................ (1,558) (1,763) ------- ------- Deferred tax assets: Investments and other..................................... 14 19 Property, plant and equipment............................. 207 79 Pension and other accrued liabilities..................... 1,013 1,059 Unused tax losses and credits............................. 753 453 Other..................................................... 248 162 ------- ------- Total deferred tax asset.................................... 2,235 1,772 Valuation allowance......................................... (1,176) (777) ------- ------- Deferred tax asset, net of valuation allowance.............. 1,059 995 ------- ------- Net deferred tax liability.................................. $ (499) $ (768) ======= =======
Deferred tax assets and deferred tax liabilities can be allocated between current and non-current as follows:
DECEMBER 31, ----------------------------------------------- 2001 2000 ---------------------- ---------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT -------- ----------- -------- ----------- Deferred tax liability...................... $(198) $(1,360) $(235) $(1,528) Deferred tax asset, net..................... 517 542 530 465 ----- ------- ----- ------- Net deferred tax asset (liability).......... $ 319 $ (818) $ 295 $(1,063) ===== ======= ===== =======
The non-current deferred tax asset, net, is recorded in the balance sheet position "Investments and other". F-40 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 17 TAXES (CONTINUED) Certain entities of the group have deferred tax assets related to net operating loss carry-forwards and other items. Because recognition of these assets is uncertain, the group has established valuation allowances of $1,176 and $777 million as at December 31, 2001 and 2000, respectively. At December 31, 2001, net operating loss carry-forwards of $1,790 million and tax credits of $127 million are available to reduce future taxable income of certain subsidiaries, of which $1,216 million loss carry-forwards and $98 million tax credits expire in varying amounts through 2021 and the remainder do not expire. These carry-forwards are predominately related to the Company's U.S. and German operations. NOTE 18 OTHER LIABILITIES Other liabilities include advances from customers relating to long-term construction contracts of $789 million and $862 million at December 31, 2001 and 2000, respectively. The Company entered into tax advantaged leasing transactions with U.S. investors prior to 1999. Prepaid rents that have been received on these transactions are $355 million and $357 million at December 31, 2001 and 2000, respectively, and have been recorded as deposit liabilities. Net gains on these transactions are being recognized over the lease terms. In prior years, the Company entered into certain lease transactions which resulted in the recognition of a long-term liability of $445 million and $495 million at December 31, 2001 and 2000, respectively, and a corresponding receivable reflected in finance receivables for similar amounts. Under these lease structures, certain lessee payments have been assigned to banks which have financed these lease transactions. NOTE 19 EMPLOYEE BENEFITS The Company operates several pension plans, including defined benefit, defined contribution and termination indemnity, in accordance with local regulations and practices. These plans cover the majority of the Company's employees and provide benefits to employees in the event of death, disability, retirement or termination of employment. Certain of these plans are multi-employer plans. Some of these plans require employees to make contributions and enable employees to earn matching or other contributions from the Company. The funding policy of these plans is consistent with the local government and tax requirements. The Company has several pension plans which are not funded pursuant to local government and tax requirements. Defined benefit plans provide benefits primarily based on employees' years of service, age and salary. The cost and obligations from sponsoring defined benefit plans are determined on an actuarial basis using the projected unit credit method. This method reflects service rendered by the employees to the date of valuation and incorporates assumptions concerning employees' projected salaries. F-41 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 19 EMPLOYEE BENEFITS (CONTINUED) For the years ended December 31, 2001, 2000 and 1999, net periodic pension cost consists of the following:
PENSION BENEFITS OTHER BENEFITS ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- Service cost....................................... $ 186 $ 212 $ 254 $ 5 $ 5 $ 6 Interest cost...................................... 329 328 348 29 26 27 Expected return on plan assets..................... (308) (320) (319) -- -- -- Amortization of transition liability............... 9 11 16 8 8 11 Amortization of prior service cost................. 14 38 7 -- -- -- Recognized net actuarial (gain) loss............... 4 (1) 18 3 1 1 Other.............................................. (18) 10 11 -- -- 7 ----- ----- ----- --- --- --- $ 216 $ 278 $ 335 $45 $40 $52 ===== ===== ===== === === ===
The following tables set forth the change in benefit obligations, the change in plan assets and the funded status recognized in the consolidated financial statements at December 31, 2001 and 2000, for the Company's principal benefit plans:
PENSION BENEFITS OTHER BENEFITS ------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Benefit obligation at the beginning of year......... $6,312 $6,328 $ 390 $328 Service cost...................................... 186 212 5 5 Interest cost..................................... 329 328 29 26 Contributions from plan participants.............. 39 38 2 1 Benefit payments.................................. (394) (426) (36) (42) Benefit obligations of businesses acquired........ 9 58 -- -- Benefit obligations of businesses disposed........ (5) (81) -- (12) Actuarial (gain) loss............................. 45 123 51 78 Plan amendments and other......................... (3) 27 1 6 Exchange rate differences......................... (221) (295) (1) -- ------ ------ ----- ---- Benefit obligation at the end of year............... 6,297 6,312 441 390 ------ ------ ----- ---- Fair value of plan assets at the beginning of year.............................................. 4,843 4,788 -- -- Actual return on plan assets...................... (312) 276 -- -- Contributions from employer....................... 409 391 34 41 Contributions from plan participants.............. 39 38 2 1 Benefit payments.................................. (394) (426) (36) (42) Plan assets of businesses acquired................ 6 48 -- -- Plan assets of businesses disposed................ (1) (17) -- -- Other............................................. 15 (78) -- -- Exchange rate differences......................... (133) (177) -- -- ------ ------ ----- ---- Fair value of plan assets at the end of year........ 4,472 4,843 -- -- ------ ------ ----- ---- Unfunded amount..................................... 1,825 1,469 441 390 Unrecognized transition liability................... (10) (24) (86) (95) Unrecognized actuarial loss......................... (835) (199) (140) (91) Unrecognized prior service cost..................... (72) (87) (3) (3) ------ ------ ----- ---- Net amount recognized............................... $ 908 $1,159 $ 212 $201 ====== ====== ===== ====
F-42 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 19 EMPLOYEE BENEFITS (CONTINUED) The following amounts have been recognized in the Company's consolidated balance sheets at December 31, 2001 and 2000:
PENSION BENEFITS OTHER BENEFITS ------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Prepaid pension cost................................. $ (415) $ (242) $ -- $ -- Accrued pension cost................................. 1,410 1,505 212 201 Intangible assets.................................... (14) (13) -- -- Accumulated other comprehensive loss................. (73) (91) -- -- ------ ------ ---- ---- Net amount recognized................................ $ 908 $1,159 $212 $201 ====== ====== ==== ====
The pension and other related benefits liability reported in the consolidated balance sheet contains an accrual of $66 million and $84 million at December 31, 2001 and 2000, respectively, for employee benefits that do not meet the criteria of Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR PENSIONS or Statement of Financial Accounting Standards No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. There were no significant changes in the minimum pension liability in 2001. The changes in the minimum pension liability in 2000 and 1999 were primarily attributable to changes in the discount rate and the fair value of plan assets in the German and U.S. pension plans. During 2001, the Company contributed $162 million of available-for-sale debt securities to certain of the Company's pension plans in the United States. The projected benefit obligation and fair value of plan assets for pension plans with benefit obligations in excess of plan assets were $6,201 million and $4,367 million, respectively, at December 31, 2001 and $5,806 million and $4,267 million, respectively, at December 31, 2000. The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $2,428 million and $1,200 million, respectively, at December 31, 2001 and $1,739 million and $533 million, respectively, at December 31, 2000. At December 31, 2001 and 2000, the assets of the plans were comprised of:
PENSION BENEFITS ------------------- 2001 2000 -------- -------- Equity securities........................................... 35% 43% Debt securities............................................. 48% 40% Other....................................................... 17% 17%
At December 31, 2001 and 2000, plan assets included $6 million and $16 million, respectively, of the Company's capital stock. F-43 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 19 EMPLOYEE BENEFITS (CONTINUED) The following weighted-average assumptions were used in accounting for defined benefit pension plans, for the years ended December 31, 2001 and 2000:
PENSION OTHER BENEFITS BENEFITS ------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Discount rate............................................ 5.38% 5.45% 7.24% 7.72% Expected return on plan assets........................... 6.81% 6.81% -- -- Rate of compensation increase............................ 3.09% 3.16% -- --
The Company has multiple non-pension post-retirement benefit plans. The Company's health care plans are generally contributory with participants' contributions adjusted annually. The health care trend rate was assumed to be 9.65% for 2001, then gradually declining to 5.78% in 2007, and to remain at that level thereafter. Assumed health care cost trends have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects at December 31, 2001:
ONE-PERCENTAGE- ONE-PERCENTAGE- POINT INCREASE POINT DECREASE --------------- --------------- Effect on total of service and interest cost components........................................... $3 $ (3) Effect on accumulated post-retirement benefit obligation........................................... 31 (26)
The Company also maintains several defined contribution plans. The expense for these plans was $27 million, $29 million and $32 million in 2001, 2000 and 1999, respectively. The Company also contributed $135 million, $108 million and $118 million to multi-employer plans in 2001, 2000 and 1999, respectively. NOTE 20 MANAGEMENT INCENTIVE PLAN The Company has a management incentive plan under which it offers stock warrants and warrant appreciation rights (WARs) to key employees, for no consideration. Warrants granted under this plan allow participants to purchase shares of the Company at predetermined prices. Participants may sell the warrants rather than exercise the right to purchase shares. Equivalent warrants are listed on the SWX Swiss Exchange (virt-x), which facilitates valuation and transferability of warrants granted under this plan. Each WAR gives the participant the right to receive, in cash, the market price of a warrant on the date of exercise of the WAR. The WARs are non-transferable. Participants may exercise or sell warrants and exercise WARs after the vesting period, which is three years from the date of grant. Vesting restrictions can be waived in the event of death, disability or divorce. All warrants and WARs expire six years from the date of grant. The terms and conditions of the plan allow the employees of subsidiaries that have been divested to retain their warrants and WARs. As the primary trading market for shares of ABB Ltd is the SWX Swiss Exchange (virt-x), the exercise prices of warrants and the trading prices of equivalent warrants F-44 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED) listed on the SWX Swiss Exchange (virt-x) are denominated in Swiss Francs (CHF). Accordingly, exercise prices are presented below in CHF. Fair values have been presented in U.S. dollars based upon exchange rates in effect as of the applicable period. WARRANTS The Company accounts for the warrants using the intrinsic value method of APB Opinion No. 25 (APB 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, as permitted by Statement of Financial Accounting Standards No. 123 (SFAS 123), ACCOUNTING FOR STOCK BASED COMPENSATION. All warrants were issued with exercise prices greater than the market prices of the stock on the dates of grant. Accordingly, the Company has recorded no compensation expense related to the warrants, except in circumstances when a participant ceased to be employed by a consolidated subsidiary, such as after a divestment by the Company. In accordance with FASB Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, the Company recorded compensation expense based on the fair value of warrants retained by participants on the date their employment ceased, with an offset to additional paid in capital. The impact of such expense is not material. Had the Company accounted for all the warrants under the fair value method of SFAS 123, the effect would have been to reduce net income by $11 million ($0.01 per share), $19 million ($0.02 per share) and $8 million ($0.01 per share) in 2001, 2000 and 1999, respectively. Fair value of the warrants was determined on the date of grant by using the Binomial option model and thereafter by the trading price of equivalent warrants listed on the Swiss Stock Exchange. Presented below is a summary of warrant activity for the years shown:
WEIGHTED-AVERAGE EXERCISE NUMBER OF NUMBER OF PRICE (PRESENTED IN WARRANTS SHARES(1) (3) CHF)(4) ----------- ------------- ------------------- Outstanding at January 1, 1999............ 10,926,935 7,658,576 27.09 Granted(5)................................ 17,156,040 3,431,208 41.10 Exercised................................. (8,935) (579,344) 16.19 Forfeited................................. (375,000) (243,152) 28.75 Outstanding at December 31, 1999.......... 27,699,040 10,267,288 32.34 Granted(2)(6)............................. 28,128,360 5,625,672 53.00 Forfeited................................. (385,000) (65,789) 38.42 Outstanding at December 31, 2000.......... 55,442,400 15,827,171 38.75 GRANTED(2)(7)............................. 23,293,750 4,658,750 17.00 FORFEITED................................. (2,240,000) (461,452) 48.53 OUTSTANDING AT DECEMBER 31, 2001.......... 76,496,150 20,024,469 33.46 Exercisable at December 31, 1999.......... 60,000 38,904 28.22 Exercisable at December 31, 2000.......... 60,000 38,904 28.22 EXERCISABLE AT DECEMBER 31, 2001.......... 10,538,000 6,832,839 27.95
- ------------------------------ (1) All warrants granted prior to 1999, and still outstanding at June 28, 1999, required the exercise of 100 warrants to one bearer share of ABB AG at a weighted average exercise price of CHF 1,859.26 per bearer share of ABB AG. The warrants were subsequently modified to keep the warrant holders in the same economic position after the payment of a F-45 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED) special dividend by ABB AG and the issuance of ABB Ltd shares for all issued shares of ABB AG in June 1999 (see Note 1). As a result, these warrants now require the exercise of 100 warrants for 64.84 registered shares of ABB Ltd at a weighted average exercise price of CHF 27.98. In accordance with EITF 90-9, CHANGES TO FIXED EMPLOYEE STOCK OPTION PLANS AS A RESULT OF EQUITY RESTRUCTURING, the modifications to outstanding warrants did not result in a new measurement date for the determination of compensation expense under APB 25. Amounts in the table have been restated to show the effects of these modifications to the warrants, as well as the four-for-one share split in May 2001. (2) All warrants granted in 1999, 2000 and 2001 require the exercise of five warrants for one registered share of ABB Ltd. (3) Information presented reflects the number of registered shares of ABB Ltd that warrant holders can receive upon exercise. (4) Information presented reflects the exercise price per registered share of ABB Ltd. (5) The aggregate fair value at date of grant of warrants issued in 1999 was $25 million, assuming, depending on the date of grant, a dividend yield of 1.8% to 1.9%, expected volatility of 31% to 34%, risk-free interest rate of 2.5% to 3.6%, and an expected life of six years. (6) The aggregate fair value at date of grant of warrants issued in 2000 was $54 million, assuming a dividend yield of 1.7%, expected volatility of 33%, risk-free interest rate of 4.4%, and an expected life of six years. (7) The aggregate fair value at date of grant of warrants issued in 2001 was $16 million, assuming a dividend yield of 1.25%, expected volatility of 47%, risk-free interest rate of 3.5%, and an expected life of six years. Presented below is a summary of warrants outstanding at December 31, 2001:
EXERCISE PRICE WEIGHTED-AVERAGE (PRESENTED IN CHF)(2) NUMBER OF WARRANTS NUMBER OF SHARES(1) REMAINING LIFE - --------------------- ------------------ ------------------- ---------------- 17.00 23,293,750 4,658,750 5.9 years 25.54 5,795,000 3,757,478 2.9 years 30.89 4,743,000 3,075,361 2.0 years 37.50 5,059,400 1,011,880 3.4 years 41.25 15,615,000 3,123,000 3.9 years 53.00 21,990,000 4,398,000 4.5 years
- ------------------------------ (1) Information presented reflects the number of registered shares of ABB Ltd that warrant holders can receive upon exercise of warrants. (2) Information presented reflects the exercise price per registered share of ABB Ltd. F-46 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 20 MANAGEMENT INCENTIVE PLAN (CONTINUED) WARS As each WAR gives the holder the right to receive cash equal to the market price of a warrant on date of exercise, the Company is required by APB 25 to record a liability based upon the fair value of outstanding WARs at each period end, amortized on a straight-line basis over the three-year vesting period. In selling, general and administrative expenses, the Company recorded income of $59 million for 2001, and expense of $31 million and $42 million in 2000 and 1999, respectively, excluding amounts charged to discontinued operations, as a result of changes in the fair value of the outstanding WARs and the vested portion. In June 2000, to hedge its exposure to fluctuations in fair value of outstanding WARs, the Company purchased cash-settled call options from a bank, which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs. In accordance with EITF 00-19, ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND POTENTIALLY SETTLED IN A COMPANY'S OWN STOCK, the cash-settled call options have been recorded as assets measured at fair value, with subsequent changes in fair value recorded through earnings as an offset to the compensation expense recorded in connection with the WARs. During 2001 and 2000, the Company recognized expense of $55 million and $4 million, respectively, in interest and other finance expense, related to the cash-settled call options. The aggregate fair value of outstanding WARs was $53 million and $148 million at December 31, 2001 and 2000, respectively. Fair value of WARs was determined based upon the trading price of equivalent warrants listed on the SWX Swiss Exchange (virt-x). Presented below is a summary of WAR activity for the years shown.
NUMBER OF WARS OUTSTANDING -------------- Outstanding at January 1, 1999.............................. 10,585,000 Granted..................................................... 25,269,400 Forfeited................................................... (605,000) Outstanding at December 31, 1999............................ 35,249,400 Granted..................................................... 30,846,640 Exercised................................................... (25,000) Forfeited................................................... (710,000) Outstanding at December 31, 2000............................ 65,361,040 GRANTED..................................................... 39,978,750 EXERCISED................................................... (548,000) FORFEITED................................................... (1,238,720) OUTSTANDING AT DECEMBER 31, 2001............................ 103,553,070
At December 31, 2001, 9,087,000 of the WARs were exercisable and at December 31, 2000, none of the WARs was exercisable. The aggregate fair value at date of grant of WARs issued in 2001, 2000 and 1999 was $28 million, $80 million and $36 million, respectively. NOTE 21 STOCKHOLDERS' EQUITY At December 31, 2001, including the warrants issued under the management incentive plan and call options sold to a bank at fair value during 2001, the Company has outstanding obligations F-47 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 21 STOCKHOLDERS' EQUITY (CONTINUED) to deliver 43 million shares at exercise prices ranging from CHF 17.00 to CHF 53.00. Of this amount, warrants and options to purchase 35 million shares were not included in the computation of diluted earnings per share for 2001 because the exercise prices were greater than the average market price of the Company's shares during the period the instruments were outstanding. The call options expire in periods ranging from 2004 to 2007 and were recorded as equity instruments in accordance with EITF 00-19. During 2000, the Company sold 18 million shares of its treasury stock to a bank at fair market value and sold put options which enabled the bank to sell up to 18 million shares to the Company at exercise prices ranging from CHF 25.54 to CHF 53.00 per share. The put options were recorded as equity instruments in accordance with EITF 00-19, as the terms of the put options allowed the Company to choose a net share settlement. In 2001, the Company settled the outstanding written put options by purchasing the 18 million shares at a weighted average exercise price of CHF 40.93 per share. At December 31, 2001, retained earnings of $357 million were restricted under Swiss law and not available for distribution as dividends to the Company's stockholders. NOTE 22 RESTRUCTURING CHARGES During the first quarter of 1999 and in connection with its purchase of Elsag Bailey, the Company implemented a restructuring plan intended to consolidate operations and gain operational efficiencies. The plan called for workforce reductions of approximately 1,500 salaried employees primarily in Germany and the United States (EB Restructuring). The Company recorded a $141 million liability in its purchase price allocation principally related to these costs. Restructuring charges of $195 million were included in other income (expense), net, during 2000, of which approximately $90 million related to the continued integration of Elsag Bailey. The EB Restructuring was substantially complete at the end of 2000. In July 2001, the Company announced a restructuring program anticipated to extend over 18 months. This restructuring program was initiated in an effort to simplify product lines, reduce multiple location activities and perform other downsizing in response to consolidation of major customers in certain industries. As of December 31, 2001, the Company recorded charges of $114 million relating to workforce reductions and $73 million relating to lease terminations and other exit costs associated with the restructuring program. These costs are included in other income (expense), net. Termination benefits of $35 million were paid in 2001 to approximately 2,300 employees and $33 million was paid to cover costs associated with lease terminations and other exit costs. Workforce reductions include production, managerial and administrative employees. At December 31, 2001, accrued liabilities includes $79 million for termination benefits and $40 million for lease terminations and other exit costs. As a result of the Company's restructuring, certain assets have been identified as impaired or will no longer be used in continuing operations. The Company recorded $44 million to write down these assets to fair value. These costs are included in other income (expense), net. F-48 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 23 SEGMENT AND GEOGRAPHIC DATA During 2001, the Company realigned its worldwide enterprise around customer groups, replacing its former business segments with four end-user divisions, two channel partner divisions, and a financial services division. The four end-user divisions--Utilities, Process Industries, Manufacturing and Consumer Industries, and Oil, Gas and Petrochemicals--serve end-user customers with products, systems and services. The two channel partner divisions--Power Technology Products and Automation Technology Products--serve external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators directly and end-user customers indirectly through the end-user divisions. The Financial Services division provides services and project support for the Company as well as for external customers. - The Utilities division serves electric, gas and water utilities--whether state-owned or private, global or local, operating in liberalized or regulated markets--with a portfolio of products, services and systems. Our principal customers are generators of power, owners and operators of power transmission systems, energy traders and local distribution companies. - The Process Industries division serves the chemical, gas, life sciences, marine, metals, minerals, mining, cement, paper, petroleum, printing and turbocharging industries with process-specific products and services combined with the Company's power and automation technologies. - The Manufacturing and Consumer Industries division sells products, solutions and services that improve customer productivity and competitiveness in areas such as automotive industries, telecommunications, consumer goods, food and beverage, product and electronics manufacturing, airports, parcel and cargo distribution, and public, industrial and commercial buildings. - The Oil, Gas and Petrochemicals division supplies a comprehensive range of products, systems and services to the global oil, gas and petrochemicals industries, from the development of onshore and offshore exploration technologies to the design and supply of production facilities, refineries and petrochemicals plants. - The Power Technology Products division covers the entire spectrum of technology for power transmission and power distribution, including transformers, switchgear, breakers, capacitors and cables, as well as other products, platforms and technologies for high and medium-voltage applications. Power technology products are used in industrial, commercial and utility applications. They are sold through the Company's end-user divisions as well as through external channel partners, such as distributors, contractors and original equipment manufacturers and system integrators. - The Automation Technology Products division provides products, software and services for the automation and optimization of industrial and commercial processes. Key technologies include measurement and control, instrumentation, process analysis, drives and motors, power electronics, robots, and low-voltage products, all geared toward one common industrial IT architecture for real-time automation and information solutions throughout a business. These technologies are sold to customers through the end-user divisions as well as through external channel partners such as wholesalers, distributors, original equipment manufacturers and system integrators. F-49 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED) - The Financial Services division supports the Company's businesses and customers with financial solutions in structured finance, leasing, project development and ownership, financial consulting, insurance and treasury activities. The Company evaluates performance of its divisions based on earnings before interest and taxes (EBIT), which excludes interest and dividend income, interest expense, provision for taxes, minority interest, and income from discontinued operations, net of tax. In accordance with Statement of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company presents division revenues, depreciation and amortization, restructuring charges and related asset write-downs, EBIT, net operating assets and capital expenditures, all of which have been restated to reflect the changes to the Company's internal structure, including the effect of increased inter-division transactions. Accordingly, division revenues and EBIT are presented as if certain historical third-party sales by subsidiaries in the product divisions had been routed through other divisions as they would have been under the new customer-centric structure. Management has restated historical division financial information in this way to allow analysis of trends in division revenues and margins on a basis consistent with the Company's new internal structure and transaction flow. The Company also presents additional balance sheet information specific to its Financial Services division to allow a better understanding of the Company's industrial and financial activities. The following tables summarize information for each reportable division:
MANUFACTURING AND OIL, GAS POWER AUTOMATION PROCESS CONSUMER AND TECHNOLOGY TECHNOLOGY UTILITIES INDUSTRIES INDUSTRIES PETROCHEMICALS PRODUCTS PRODUCTS --------- ---------- ------------- -------------- ----------- ----------- 2001 Revenues(1)(3)..................... $5,649 $3,377 $4,780 $3,489 $4,042 $5,246 Depreciation and amortization...... 73 72 49 77 119 224 Restructuring charge and related asset write-downs(7)............. 24 29 15 8 52 46 EBIT(2)(4)(6)...................... 148 116 87 79 234 380 Net operating assets(5)............ 795 738 249 315 1,311 2,558 Capital expenditures............... 27 24 27 38 105 126 2000 Revenues(1)(3)..................... $5,473 $3,339 $5,225 $2,796 $3,662 $5,175 Depreciation and amortization...... 75 73 59 69 123 264 Restructuring charge and related asset write-downs(7)............. 39 25 17 3 38 45 EBIT(2)(4)......................... 250 88 205 157 244 464 Net operating assets(5)............ 1,018 839 411 893 1,328 3,215 Capital expenditures............... 26 27 33 30 105 139 1999 Revenues(1)(3)..................... $5,875 $3,485 $5,697 $3,086 $3,862 $5,550 Depreciation and amortization...... 68 59 66 55 121 279 EBIT(2)(4)......................... 182 123 147 165 282 392 Net operating assets(5)............ 912 795 634 554 1,483 3,388 Capital expenditures............... 42 40 43 48 162 190 FINANCIAL CORPORATE/ SERVICES OTHER CONSOLIDATED --------- ---------- ------------ 2001 Revenues(1)(3)..................... $2,133 $(4,990) $23,726 Depreciation and amortization...... 23 150 787 Restructuring charge and related asset write-downs(7)............. -- 57 231 EBIT(2)(4)(6)...................... (32) (733) 279 Net operating assets(5)............ 10,926 (3,114) 13,778 Capital expenditures............... 42 256 645 2000 Revenues(1)(3)..................... $1,966 $(4,669) $22,967 Depreciation and amortization...... 23 150 836 Restructuring charge and related asset write-downs(7)............. 1 27 195 EBIT(2)(4)......................... 349 (372) 1,385 Net operating assets(5)............ 9,098 (2,170) 14,632 Capital expenditures............... 25 100 485 1999 Revenues(1)(3)..................... $1,687 $(4,886) $24,356 Depreciation and amortization...... 17 130 795 EBIT(2)(4)......................... 337 (506) 1,122 Net operating assets(5)............ 7,750 (2,372) 13,144 Capital expenditures............... 47 94 666
- ---------------------------------- 1. Revenues have been restated for the four end-user divisions, Utilities, Process Industries, Manufacturing and Consumer Industries, and Oil, Gas and Petrochemicals, to retroactively reflect the increase in inter-division sales that would have occurred if the Company's new internal structure and transaction flow had been in place for all periods presented. The effect of assuming that certain historical sales by the product divisions would have been routed through an end-user division before final sale to an F-50 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED) external customer, as they would have been if the new customer-centric structure had been in place, was to increase division revenues for 2001, 2000 and 1999, respectively, by $2,119 million, $2,139 million and $2,161 million for the Utilities division; by $674 million, $745 million and $729 million for the Process Industries division; and by $253 million, $356 million and $404 million for the Manufacturing and Consumer Industries division. The Company assumed that new internal transfer pricing structures for these inter-division sales were also in place for all periods presented, resulting in a reduction to division revenues for 2001, 2000 and 1999, respectively, of $99 million, $211 million, and $212 million for the Power Technology Products division; and of $153 million, $200 million and $221 million for the Automation Technology Products division. The elimination of the effects of these assumed inter-division transactions is included in the Corporate/Other column. 2. Consistent with the assumptions described in (1) above, division EBIT reflects the retroactive transfer of profits of $41 million, $46 million, and $49 million in 2001, 2000 and 1999, respectively, from the channel partner divisions, Power Technology Products and Automation Technology Products, to three customer divisions, Utilities, Process Industries and Manufacturing and Consumer Industries, in order to reflect the impact that these inter-division sales would have had on historical results. 3. Amounts included in the Corporate/Other column primarily represent adjustments to eliminate inter-division transactions. 4. Amounts included in the Corporate/Other column primarily represent local businesses in several countries, internal services such as information management, consulting, corporate research, shared services, corporate management as well as development and management of the Company's real estate. Amounts also include the elimination of inter-division net interest income of Financial Services. 5. Net operating assets is calculated based upon total assets (excluding cash and equivalents, marketable securities, current loans receivable, taxes and deferred charges) less current liabilities (excluding borrowings, taxes, provisions and pension-related liabilities). 6. The write-downs of goodwill and other intangibles of approximately $66 million disclosed in Note 12 are recorded in the Corporate/Other column. 7. Includes certain specifically related asset write-downs, consistent with the basis on which the Company evaluates restructuring charges for internal management purposes. See Note 22. GEOGRAPHIC INFORMATION
REVENUES LONG-LIVED ASSETS ------------------------------ ------------------- YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------------- 2001 2000 1999 2001 2000 -------- -------- -------- -------- -------- Europe........................................ $12,780 $12,570 $13,893 $2,196 $2,403 The Americas.................................. 5,944 5,702 5,675 467 485 Asia.......................................... 2,686 2,770 2,763 271 281 Middle East and Africa........................ 2,316 1,925 2,025 69 74 ------- ------- ------- ------ ------ $23,726 $22,967 $24,356 $3,003 $3,243 ======= ======= ======= ====== ======
Revenues have been reflected in the regions based on the location of the customer. Long-lived assets primarily represent property, plant and equipment, net, and are shown by the location of the assets. The Company does not segregate revenues derived from transactions with external customers for each type or group of products and services. Accordingly, it is not practicable for the Company to present revenues from external customers by product and service type. ADDITIONAL INFORMATION The balance sheet data appearing under the heading "ABB Ltd Consolidated" is derived from the ABB Ltd consolidated balance sheets for December 31, 2001 and 2000. The balance sheet F-51 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 23 SEGMENT AND GEOGRAPHIC DATA (CONTINUED) data for "Financial Services" and "ABB Group" is reported on the same basis as management uses to evaluate division performance, which includes the following adjustments: - "Financial Services" represents the accounts of all subsidiaries in the Company's Financial Services division, with net intercompany balances and certain capital contributions received from other subsidiaries of the Company presented on a one-line basis. - "ABB Group" represents the accounts of ABB Ltd and all its subsidiaries other than those in the Company's Financial Services division, with net intercompany balances and the Company's investment in its Financial Services division presented on a one-line basis. For the purposes of this presentation, the Company's investment in its Financial Services division is accounted for under the equity method of accounting.
ABB LTD ABB FINANCIAL CONSOLIDATED ABB GROUP SERVICES ------------------- ------------------- ------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 2001 2000 -------- -------- -------- -------- -------- -------- Cash, cash equivalents and marketable securities.... $ 5,713 $ 5,606 $ 1,667 $ 1,285 $ 4,046 $ 4,321 Receivables, net.................................... 8,368 8,328 5,810 6,652 2,558 1,676 Inventories, net.................................... 3,075 3,192 3,074 3,192 1 -- Prepaid expenses and other.......................... 2,358 1,585 1,169 1,067 1,189 518 ------- ------- ------- ------- ------- -------- Total current assets................................ 19,514 18,711 11,720 12,196 7,794 6,515 Financing receivables, non-current.................. 4,263 3,875 452 541 3,811 3,334 Property, plant and equipment, net.................. 3,003 3,243 2,938 3,177 65 66 Goodwill and other intangible assets, net........... 3,299 3,155 3,217 3,067 82 88 Investments and other............................... 2,265 1,978 1,601 1,350 664 628 Net intercompany balances........................... -- -- -- -- 2,106 1,778 ------- ------- ------- ------- ------- -------- Total assets........................................ $32,344 $30,962 $19,928 $20,331 $14,522 $ 12,409 ======= ======= ======= ======= ======= ======== Accounts payable, trade............................. $ 3,991 $ 3,375 $ 3,956 $ 3,347 $ 35 $ 28 Accounts payable, other............................. 2,710 2,363 1,641 1,512 1,069 851 Short-term borrowings and current maturities of long-term borrowings.............................. 4,747 3,587 240 397 4,507 3,190 Accrued liabilities and other....................... 7,587 6,127 4,285 4,303 3,302 1,824 ------- ------- ------- ------- ------- -------- Total current liabilities........................... 19,035 15,452 10,122 9,559 8,913 5,893 Long-term borrowings................................ 5,043 3,776 2,020 509 3,023 3,267 Pensions and other related benefits................. 1,688 1,790 1,681 1,783 7 7 Deferred taxes...................................... 1,360 1,528 575 694 785 834 Other liabilities................................... 2,989 2,924 2,529 2,350 460 574 Net intercompany balances........................... -- -- 773 44 -- -- ------- ------- ------- ------- ------- -------- Total liabilities................................... 30,115 25,470 17,700 14,939 13,188 10,575 Minority interest................................... 215 321 214 221 1 100 Total stockholders' equity.......................... 2,014 5,171 2,014 5,171 1,333 1,734 ------- ------- ------- ------- ------- -------- Total liabilities and stockholders' equity.......... $32,344 $30,962 $19,928 $20,331 $14,522 $ 12,409 ======= ======= ======= ======= ======= ========
F-52 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 24 SUBSEQUENT EVENTS BORROWINGS In March 2002, to ensure that it would satisfy commercial paper obligations maturing during 2002, the Company drew down $2,845 million under the December 2001 syndicated $3 billion 364-day revolving credit facility, expiring December 19, 2002 (see Note 13). In response to a series of credit rating downgrades by Standard & Poor's Rating Services and Moody's Investors Service in late 2001 and early 2002, the Company amended the revolving credit facility in April 2002 to remove terms that required negotiation of the credit facility if the Company's credit ratings fell below specified levels. Pursuant to the amended terms, the Company will pay interest ranging between 60 and 250 basis points over LIBOR on amounts borrowed under the revolving credit facility and will pay a commitment fee ranging between 0.18% and 0.75% on any unused portion of the credit facility, depending on the Company's credit ratings. As of May 31, 2002, based on the Company's credit ratings at that date, the interest rate in effect for borrowings under the credit facility was LIBOR plus 125 basis points, or 3.15%, and the commitment fee was 0.375%. The new terms of the revolving credit facility contain restrictive covenants including, among others, minimum net worth and interest coverage requirements as well as limitations to the Company's indebtedness. The agreement also includes events of default, pursuant to which the amount outstanding under the credit facility could be declared immediately due and payable. These events of default include non-payment of interest, principal or fees, certain uncured breaches of the credit agreement, cross default to other indebtedness or other material adverse changes. In May 2002, the Company issued convertible unsubordinated bonds with an aggregate principal amount of $968 million. The bonds pay interest semi-annually in arrears at a fixed annual rate of 4.625% and are convertible into shares of ABB at a conversion price of CHF 18.48 (converted into U.S. dollars at a fixed conversion rate of 1.6216 Swiss francs per U.S. dollar). The conversion price is subject to adjustment provisions to protect against dilution or change in control of the Company. Based upon the conversion price in effect at issuance, conversion of the bonds would enable the holders to receive an aggregate of approximately 85 million shares of ABB. The bonds may be converted into ABB shares at any time on or after June 26, 2002, up to and including May 2, 2007. ABB may elect to deliver a cash payment in lieu of delivering some or all of the shares otherwise deliverable on conversion. ABB may at any time after May 16, 2005 redeem the bonds for the principal amount plus accrued interest, provided that on 20 days within a preceding 30 day period the Company's share price as listed in Swiss francs on the virt-x exceeded 130% of the conversion price. ABB can elect to redeem the bonds in cash, by delivery of shares or by a combination of cash and shares. Aggregate proceeds from issuance of the bonds was approximately $968 million, before commissions and other issue costs. The bonds mature on May 16, 2007. In May 2002, the Company issued bonds with an aggregate principal amount of L200 million, or approximately $292 million, which pay interest semi-annually in arrears at 10% per annum and mature on May 29, 2009. Also in May 2002, the Company issued bonds with an aggregate principal amount of E500 million, or approximately $466 million, which pay interest annually in arrears at 9.5% per annum and mature on January 15, 2008. The annual rate of interest on both of these bonds will increase by 150 basis points if the Company's credit rating decreases to a level below Baa3 by Moody's or below BBB- by Standards & Poor's. As of May 31, 2002, the Company's credit F-53 ABB LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (U.S. DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NOTE 24 SUBSEQUENT EVENTS (CONTINUED) rating was Baa2 by Moody's and A by Standard & Poor's. Aggregate proceeds from issuance of these bonds, before commissions and other issue costs, was approximately $747 million. Pursuant to the terms of the Company's amended revolving credit facility, the issuance of the convertible bonds, the euro-denominated bonds and the sterling-denominated bonds reduced the amount available under the credit facility to $1,315 million. As a result, on May 29, 2002, the Company utilized a portion of the proceeds from these bond offerings to reduce its borrowings under the credit facility to $1,315 million. Proceeds from future disposals of assets or certain other offerings in the capital markets may further reduce the amount available under the credit facility to a minimum of $1,000 million. PENSION AND OTHER BENEFITS OF FORMER CHIEF EXECUTIVES In February 2002, the Company's board of directors completed a reassessment of certain pension and other benefits of former chief executive officers Percy Barnevik and Goran Lindahl. Mr. Barnevik received approximately CHF 148 million (approximately $88 million) of pension benefits following his resignation as chief executive officer in 1996 and Mr. Lindahl was to receive approximately CHF 85 million (approximately $51 million) of pension and other benefits following his resignation as chief executive officer in 2000. The board's reassessment followed a detailed review of these payments, and the board determined that restitution should be sought of amounts paid and amounts still payable should be withheld. In March 2002, the Company reached agreements with Mr. Barnevik who agreed to return CHF 90 million (approximately $54 million) to the Company and with Mr. Lindahl who agreed that his pension and other benefits would be reduced by CHF 47 million (approximately $28 million). These amounts will be recorded in the Company's earnings during the year ended December 31, 2002 and were determined through actuarial calculations, external benchmarking of European chief executive officer compensation and negotiations. In this paragraph, amounts in Swiss francs have been translated into U.S. dollars at a rate of $1.00=CHF 1.6743, the average of the noon buying rates for Swiss francs in March 2002. SEGMENT DATA In April 2002, the Company announced its intention to divest the Building Systems business area and to combine the other three business areas in the Manufacturing and Consumer Industries division with the Process Industries division in a newly created Industries division. The Company is currently in the process of implementing this realignment and will begin reporting financial results in accordance with this new structure in 2002. F-54 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Stockholders of ABB Ltd: We have audited the consolidated financial statements of ABB Ltd as of December 31, 2001, and for the year then ended, and have issued our report thereon dated February 11, 2002, except as to Note 24, as to which the date is May 31, 2002 (included elsewhere in this annual report on Form 20-F). Our audit also included the financial statement schedule included in the annual report. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG AG
Zurich, Switzerland May 31, 2002 S-1 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Board of Directors and Stockholders of ABB Ltd: We have audited the consolidated financial statements of ABB Ltd as of December 31, 2000, and for each of the two years in the period ended December 31, 2000, and have issued our report thereon dated February 11, 2001 (included elsewhere in this annual report on Form 20-F). Our audits also included the financial statement schedule included in the annual report. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ KPMG KLYNVELD PEAT /s/ ERNST & YOUNG AG MARWICK GOERDELER SA Zurich, Switzerland Zurich, Switzerland February 11, 2001 February 11, 2001
S-2 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT THE BALANCE AT THE DESCRIPTION BEGINNING OF YEAR ADDITIONS DEDUCTIONS END OF YEAR - ----------- ----------------- --------- ---------- -------------- Accounts Receivable--allowance for doubtful accounts: Year ending December 31, 2001.................................... $234 $113 $ (89) $258 2000.................................... $236 $107 $(109) $234 1999.................................... $218 $ 99 $ (81) $236
- ------------------------ Note: Amounts in millions. S-3 EX-1.1 3 a2072395zex-1_1.txt EXHIBIT 1.1 EXHIBIT 1.1 ABB LTD, ZURICH ARTICLES OF INCORPORATION ABB Translation of the ARTICLES OF INCORPORATION OF ABB LTD, ZURICH as of March 20, 2001 SECTION 1: NAME, PLACE OF INCORPORATION, PURPOSE AND DURATION ARTICLE 1 NAME, PLACE OF Under the name INCORPORATION ABB Ltd ABB AG ABB SA there exists a corporation with its place of incorporation in Zurich. ARTICLE 2 PURPOSE 1 The purpose of the Company is to hold interests in business enter- prises, particularly in enterprises active in the areas of industry, trade and services. 2 The Company may acquire, encumber, exploit or sell real estate and intellectual property rights in Switzerland and abroad and may also finance other companies. 3 The Company may engage in all types of transactions and may take all measures that appear appropriate to promote, or that are related to, the purpose of the Company. ARTICLE 3 DURATION The duration of the Company shall be unlimited. SECTION 2: SHARE CAPITAL ARTICLE 4 SHARE CAPITAL 1 The share capital of the Company is CHF 3'000'023'580 and is divided into 1'200'009'432 fully paid registered shares. Each share has a par value of CHF 2.50. 2 Upon resolution of the General Meeting of Shareholders, registered shares may be converted into bearer shares and bearer shares may be converted into registered shares.
-2- AUTHORIZED ARTICLE 4bis SHARE CAPITAL 1 The Board of Directors shall be authorized to increase the share capital in an amount not to exceed CHF 100'000'000 through the issuance of up to 40'000'000 fully paid registered shares with a par value of CHF 2.50 per share by not later than June 26, 2001. An increase in partial amounts shall be permitted. 2 The subscription and acquisition of the new shares, as well as each subsequent transfer of the shares, shall be subject to the restrictions of art. 5 of these Articles of Incorporation. 3 The Board of Directors shall determine the date of issue of new shares, the issue price, the type of payment, the conditions for the exercise of pre-emptive rights, and the beginning date for dividend entitlement. In this regard, the Board of Directors may issue new shares by means of a firm underwriting through a banking institu- tion or syndicate and a subsequent offer of these shares to the cur- rent shareholders. The Board of Directors may permit pre-emptive rights that have not been exercised to expire or it may place these rights and/or shares as to which pre-emptive rights have been granted but not exercised, at market conditions. 4 The Board of Directors is further authorized to restrict or deny the pre-emptive rights of shareholders and allocate such rights to third parties if the shares are to be used: a) for the acquisition of an enterprise, parts of an enterprise or participations or, in case of a share placement, for the financing of such transactions; or b) for the purpose of broadening the shareholder constituency in connection with a listing of shares on domestic or foreign stock exchanges. CONTINGENT SHARE ARTICLE 4 ter CAPITAL 1 The share capital may be increased in an amount not to exceed CHF 100'000'000 by the issuance of up to 40'000'000 fully paid registered shares with a par value of CHF 2.50 per share, (a) up to -3- the amount of CHF 75'000'000 through the exercise of conversion rights and/or warrants granted in connection with the issuance on national or international capital markets of bonds or similar debt instruments by the Company or one of its group companies and (b) up to the amount of CHF 25'000'000 through the exercise of warrant rights granted to the shareholders. The pre-emptive rights of the shareholders shall be excluded in connection with the issuance of convertible or warrant-bearing bonds or similar debt instruments. The then current owners of conversion rights and/or warrants shall be entitled to subscribe for the new shares. The conditions of the conversion rights and/or warrants shall be determined by the Board of Directors. 2 The acquisition of shares through the exercise of conversion rights and/or warrants and each subsequent transfer of the shares shall be subject to the restrictions of art. 5 of these Articles of Incorporation. 3 In connection with the issue of convertible or warrant-bearing bonds or similar debt instruments, the Board of Directors shall be author- ized to restrict or deny the advance subscription rights of shareholders if such debt issues are for the purpose of financing the acquisition of an enterprise, parts of an enterprise, or participations. If advance subscription rights are denied by the Board of Directors, the following shall apply: the convertible bond or warrant issues shall be made at the prevailing market conditions (including the standard dilution protection provisions in accordance with market practice) and the new shares shall be issued pursuant to the rele- vant convertible bond or warrant issue conditions. Conversion rights may be exercised during a maximum 10-year period, and warrants may be exercised during a maximum 7-year period, in each case from the date of the respective debt issue. The conversion or war- rant price must at least equal the average of the most recent price for the shares on the Swiss Exchange during the five business days preceding determination of the definitive issue conditions for the relevant convertible bond or warrant issues. -4- 4 The share capital may be increased in an amount not to exceed CHF 100'000'000 through the issuance of up to 40'000'000 fully paid registered shares with a par value of CHF 2.50 per share by the issuance of new shares to employees of the Company and group companies. The pre-emptive and advance subscription rights of the shareholders of the Company shall thereby be excluded. The shares or rights to subscribe for shares shall be issued to employees pursuant to one or more regulations to be issued by the Board of Directors, taking into account performance, functions, levels of responsibility and profitability criteria. Shares or subscription rights may be issued to employees at a price lower than that quoted on the stock exchange. 5 The acquisition of shares within the context of employee share ownership and each subsequent transfer of the shares shall be subject to the restrictions of art. 5 of these Articles of Incorporation. SHARE REGISTER ARTICLE 5 AND RESTRICTIONS ON 1 The Company shall maintain a share register REGISTRATION, listing the surname and first name (in the NOMINEES case of legal entities, the company name) and address of the holders and usufructuaries of the registered shares. 2 Acquirors of registered shares shall be registered upon request in the share register as shareholders with the right to vote, provided that they expressly declare that they acquired the registered shares in their own name and for their own account. 3 If persons fail to expressly declare in their registration applications that they hold the shares for their own account (the "Nominees"), the Board of Directors shall enter such persons in the share register with the right to vote, provided that the Nominee has entered into an agreement with the Board of Directors concerning his status and is subject to a recognised bank or financial market supervision. 4 After hearing the registered shareholder or Nominee, the Board of Directors may cancel registrations in the share register, retroactive -5- to the date of registration, if such registrations were made based on incorrect information. The relevant shareholder or Nominee shall be informed immediately as to the cancellation. 5 The Board of Directors shall regulate the details and issue the instructions necessary for compliance with the preceding provisions. In special cases, it may grant exemptions from the rule concerning Nominees. The Board of Directors may delegate its duties. 6 Notwithstanding paras. 2-4 of this article, acquirors of registered shares may be registered in the share register with Vardepapperscentralen VPC AB ("VPC") in accordance with Swedish law. ARTICLE 6 SHARE CERTIFICATES 1 The shareholder may at any time request the Company to issue a confirmation of the number of registered shares held by such shareholder. The shareholder is not entitled, however, to request the printing and delivery of certificates for registered shares. The Company may, on the other hand, at any time print and deliver certificates for registered shares, and may, with the consent of the shareholder, destroy issued certificates that are delivered to it, without replacement. 2 Uncertificated registered shares, including any uncertificated rights arising thereunder, may be transferred only by way of assignment. The assignment must be notified to the Company in order to be valid. 3 Uncertificated registered shares and the pecuniary rights associated therewith may be pledged only by way of a written agreement, and only in favor of the bank at which the shareholder holds such shares in book-entry form. Notification to the Company shall not be necessary. Uncertificated registered shares registered with VPC may be pledged in accordance with Swedish law. 4 In the event that shares are printed, they shall bear the signatures of two members of the Board of Directors. These signatures may be facsimile signatures.
-6- 5 The Company may in any event issue certificates representing more than one share. EXERCISE OF RIGHTS ARTICLE 7 1 The Company shall only accept one representative per share. 2 The right to vote and rights relating thereto under a registered share may be exercised vis-a-vis the Company only by a shareholder, usufructuary or Nominee registered in the share register with the right to vote. DIVIDEND ACCESS ARTICLE 8 FACILITY 1 The Company has established a dividend access facility under which shareholders who are resident in Sweden have the option to be registered with VPC as holders of a total of up to 600'004'716 registered shares of the Company, with suspended dividend entitlement. The claim to dividends against the Company on such registered shares shall be suspended as long as such registered shares are registered with VPC. In lieu thereof, on each such registered share, an amount equivalent to the dividend resolved on a regis- tered share of the Company shall be paid in Swedish kronor by ABB Participation AB based on the dividend entitlement on a preference share. 2 In deciding on the appropriation of dividends, the General Meeting of Shareholders shall take into account that the Company will pay dividends only on shares that do not participate in the dividend access facility. -7- SECTION 3: CORPORATE BODIES A. GENERAL MEETING OF SHAREHOLDERS ARTICLE 9 COMPETENCE The General Meeting of Shareholders is the supreme body of the Company. ARTICLE 10 ORDINARY The Ordinary General Meeting of Shareholders shall be held each GENERAL MEETINGS year within six months after the close of the fiscal year of the Company; the business report and the Auditor's report, together with the Group Auditor's report, shall be made available for inspec- tion by the shareholders at the place of incorporation of the Company by no later than twenty days prior to the meeting. Each shareholder is entitled to request immediate delivery of a copy of these documents. Shareholders will be notified of this in writing. ARTICLE 11 EXTRAORDINARY 1 Extraordinary General Meetings of Shareholders shall be held when GENERAL MEETINGS deemed necessary by the Board of Directors or the Auditors. 2 Furthermore, Extraordinary General Meetings of Shareholders shall be convened upon resolution of a General Meeting of Shareholders or if this is requested by one or more shareholders who represent an aggregate of at least one-tenth of the share capital and who submit a petition signed by such shareholder(s), specifying the items for the agenda and the proposals. ARTICLE 12 NOTICE OF 1 Notice of General Meetings of Shareholders shall be given by the GENERAL MEETINGS Board of Directors or, if necessary, by the Auditors, by no later than twenty days prior to the meeting date. Notice of the meeting shall be given by way of an announcement appearing once in the
-8- official publication organ of the Company. Shareholders may also be informed by ordinary mail. Liquidators and representatives of bondholders shall also be entitled to call a General Meeting of Shareholders. 2 The notice of a meeting shall state the items on the agenda and the proposals of the Board of Directors and of the shareholders who demanded that a General Meeting of Shareholders be held or that an item be included on the agenda and, in case of elections, the names of the nominated candidates. AGENDA ARTICLE 13 1 One or more shareholders whose combined shareholdings repre- sent an aggregate par value of at least CHF 1'000'000 may demand that an item be included on the agenda of a General Meeting of Shareholders. Such inclusion must be requested in writing at least forty days prior to the meeting and shall specify the agenda items and proposals of such shareholder(s). 2 No resolutions may be passed at a General Meeting of Share-holders concerning agenda items for which proper notice was not given. This provision shall not apply, however, to proposals made during a General Meeting of Shareholders to convene an Extraordinary General Meeting of Shareholders or to initiate a special audit. 3 No previous notification shall be required for proposals concerning items included on the agenda and for debates as to which no vote is taken. PRESIDING OFFICER, ARTICLE 14 MINUTES, 1 The General Meeting of Shareholders shall VOTE COUNTERS be held at the place of incorporation of the Company, unless the Board of Directors decides otherwise. The Chairman of the Board or, in his absence, a Vice-Chairman or any other Member appointed by the Board, shall take the chair.
-9- 2 The presiding officer shall appoint the secretary and the vote counters. The minutes shall be signed by the presiding officer and the secretary. 3 The presiding officer shall have all powers and authority necessary to ensure the orderly and undisturbed conduct of the General Meeting of Shareholders. ARTICLE 15 PROXIES 1 The Board of Directors shall issue procedural rules regarding par- ticipation in and representation at the General Meeting of Share- holders. 2 A shareholder may be represented only by his legal representative, another shareholder with the right to vote, a corporate body (Organvertreter), an independent proxy (unabhangiger Stimmrechts- vertreter), or a depositary (Depotvertreter). All shares held by one shareholder may be represented by only one representative. ARTICLE 16 VOTING RIGHTS Subject to art. 5 para. 2 of these Articles of Incorporation, each share shall grant the right to one vote. ARTICLE 17 RESOLUTIONS, ELECTIONS 1 Unless otherwise required by law, the General Meeting of Shareholders shall pass resolutions and decide elections upon an absolute majority of the votes represented. 2 Resolutions and elections shall be decided by a show of hands, unless a secret ballot is resolved by the General Meeting of Share- holders or is ordered by the presiding officer. The presiding officer may also arrange for resolutions and elections to be carried out by electronic means. Resolutions and elections carried out by electronic means are deemed to have the same effect as secret ballots. 3 The presiding officer may at any time order that an election or resolution decided by a show of hands be repeated through a secret
-10- ballot if, in his view, the results of the vote are in doubt. In this case, the preceding decision by a show of hands shall be deemed to have not occurred. 4 If the first ballot fails to result in an election and more than one candidate is standing for election, the presiding officer shall order a second ballot in which a relative majority shall be decisive. SPECIFIC POWERS OF ARTICLE 18 THE GENERAL MEETING The following powers shall be vested exclusively in the General Meeting of Shareholders: a) adoption and amendment of the Articles of Incorporation; b) election of the members of the Board of Directors, the Auditors, the Group Auditors and the Special Auditors; c) approval of the annual report and the consolidated financial statements; d) approval of the annual financial statements and deciding on the allocation of profits shown on the balance sheet, in particular with regard to dividends; e) granting discharge to the members of the Board of Directors and the persons entrusted with management; f) passing resolutions as to all matters reserved to the authority of the General Meeting by law or under these Articles of Incorporation or that are submitted to the General Meeting by the Board of Directors, subject to art. 716a Swiss Code of Obligations. SPECIAL QUORUM ARTICLE 19 The approval of at least two-thirds of the votes represented shall be required for resolutions of the General Meeting of Shareholders with respect to: a) a modification of the purpose of the Company; b) the creation of shares with increased voting powers; c) restrictions on the transfer of registered shares and the removal of such restrictions;
-11- d) restrictions on the exercise of the right to vote and the removal of such restrictions; e) an authorized or conditional increase in share capital; f) an increase in share capital through the conversion of capital surplus, through an in-kind contribution or in exchange for an acquisition of property, and a grant of special benefits; g) the restriction or denial of pre-emptive rights; h) a transfer of the place of incorporation of the Company; i) the dissolution of the Company without liquidation. B. BOARD OF DIRECTORS ARTICLE 20 NUMBER OF DIRECTORS The Board of Directors shall consist of no less than 7 and no more than 13 members, all of whom shall be shareholders. ARTICLE 21 TERM OF OFFICE 1 The term of office of the members of the Board of Directors shall be one year. In this regard, one year shall mean the period between two Ordinary General Meetings of Shareholders. 2 Members of the Board of Directors whose terms of office have expired shall be immediately eligible for re-election. ARTICLE 22 ORGANIZATION OF THE 1 The Board of Directors shall elect from among its members one BOARD, REMUNERATION Chairman and one or more Vice-Chairmen. It shall appoint a secretary who need not be a member of the Board. 2 The members of the Board of Directors shall be entitled to the reimbursement of all expenses incurred in the interests of the Company, as well as remuneration for their services that is appro- priate in view of their functions and responsibilities. The amount of the remuneration shall be fixed by the Board of Directors or a committee of the Board of Directors.
-12- CONVENING OF ARTICLE 23 MEETINGS The Chairman shall convene meetings of the Board of Directors if and when the need arises or whenever a member or the chief executive officer so requests in writing. RESOLUTIONS ARTICLE 24 1 In order to pass resolutions, at least a majority of the members of the Board of Directors must be present. No attendance quorum shall be required for resolutions of the Board of Directors providing for the confirmation of capital increases or for the amendment of the Articles of Incorporation in connection therewith. 2 Resolutions of the Board of Directors shall be adopted upon a majority of the votes cast. In the event of a tie, the Chairman shall have the casting vote. 3 Resolutions may be passed by way of circulation (in writing), provided that no member requests oral deliberation. SPECIFIC POWERS OF ARTICLE 25 THE BOARD 1 The Board of Directors has, in particular, the following nondele- gable and inalienable duties: a) the ultimate direction of the business of the Company and the issuance of the necessary instructions; b) the determination of the organization of the Company; c) the administration of accounting, financial control and financial planning; d) the appointment and removal of the persons entrusted with management and representation of the Company; e) the ultimate supervision of the persons entrusted with management of the Company, specifically in view of their compliance with law, these Articles of Incorporation, the regulations and directives; f) the preparation of business reports, the preparations for the General Meetings of Shareholders and the implementation of the resolutions adopted by the General Meetings of Shareholders;
-13- g) the adoption of resolutions concerning an increase in share cap-ital to the extent that such power is vested in the Board of Directors (art. 651 para. 4 Swiss Code of Obligations) and of resolutions concerning the confirmation of capital increases and corresponding amendments to the Articles of Incorporation, as well as making the required report on the capital increase; h) the examination of the professional qualifications of the qualified auditors; i) notification of the court if liabilities exceed assets. 2 In addition, the Board of Directors may pass resolutions with respect to all matters that are not reserved to the authority of the General Meeting of Shareholders by law or under these Articles of Incorporation. ARTICLE 26 DELEGATION OF POWERS Subject to art. 25 of these Articles of Incorporation, the Board of Directors may delegate management of the Company in whole or in part to individual directors or to third persons (Executive Com- mittee) pursuant to regulations governing the internal organization. ARTICLE 27 SIGNATURE POWER The due and valid representation of the Company by members of the Board of Directors or other persons shall be set forth in regula- tions governing the internal organization. C. AUDITORS, GROUP AUDITORS AND SPECIAL AUDITORS ARTICLE 28 TERM, POWERS 1 The Auditors and the Group Auditors, both of which shall be elect- AND DUTIES ed by the General Meeting of Shareholders each year, shall have the powers and duties vested in them by law.
-14- 2 Special auditors, which shall be elected by the General Meeting of Shareholders each year, shall have the powers and duties vested in them with respect to the special reviews required in connection with capital increases (articles 652f, 653f and 653i Swiss Code of Obligations). SECTION 4: ANNUAL FINANCIAL STATEMENTS, CONSOLIDATED FINANCIAL STATEMENTS AND PROFIT ALLOCATION FISCAL YEAR, ARTICLE 29 BUSINESS REPORT 1 The fiscal year shall close as of December 31 of each year, closing for the first time on December 31, 1999. 2 For each fiscal year, the Board of Directors shall prepare a business report including the annual financial statements (consisting of the profit and loss statements, balance sheet and notes to the financial statements), the annual report and the consolidated financial state- ments. ALLOCATION OF PROFIT ARTICLE 30 SHOWN ON THE BALANCE 1 The profit shown on the balance sheet shall be allocated by the SHEET, RESERVES General Meeting of Shareholders within the limits set by applicable law. The Board of Directors shall submit its proposals to the General Meeting of Shareholders. 2 Further reserves may be taken in addition to the reserves required by law. 3 Dividends that have not been collected within five years after their expiry date shall pass to the Company and be allocated to the general reserves.
-15- SECTION 5: ANNOUNCEMENTS, COMMUNICATIONS ARTICLE 31 ANNOUNCEMENTS, 1 The official publication organ of the Company shall be the Swiss COMMUNICATIONS Official Gazette of Commerce. 2 To the extent that personal notification is not mandated by law, all communications to the shareholders shall be deemed valid if published in the Swiss Official Gazette of Commerce. Written communications by the Company to its shareholders shall be sent by ordinary mail to the last address of the shareholder or autho- rized recipient entered in the share register. SECTION 6: IN-KIND CONTRIBUTIONS AND ACQUISITIONS OF PROPERTY ARTICLE 32 IN-KIND 1 Pursuant to an in-kind contribution agreement by and between the CONTRIBUTIONS Company and Credit Suisse First Boston, in Zurich, dated June 26, 1999, the Company, in connection with the capital increase dated June 26, 1999, shall acquire from Credit Suisse First Boston, in Zurich, as trustee of the former shareholders of ABB Participation AG (former ABB AG), in Baden, 5'453'500 fully paid registered shares of ABB Participation AG (former ABB AG) with a par value of CHF 10 per share and 7'904'200 bearer shares of ABB Participation AG (former ABB AG) with a par value of CHF 50 per share. These shares will be acquired at a total value of CHF 3'328'079'400. In consideration for such contribution in-kind, the Company shall issue to Credit Suisse First Boston, as trustee of the former shareholders of ABB Participation AG (former ABB AG), a total of 145'807'329 fully paid registered shares with an aggregate par value of CHF 1'458'073'290. The Company shall allocate the dif- ference between the total par value of the issued shares and the net book value of the in-kind contribution in the total amount of CHF 1'870'006'110 to the reserves.
-16- 2 Pursuant to an in-kind contribution agreement by and between the Company and Skandinaviska Enskilda Banken AB (publ), in Stockholm, dated June 26, 1999, the Company, in connection with the capital increase dated June 26, 1999, shall acquire from Skandinaviska Enskilda Banken AB (publ), in Stockholm, as trustee of the former shareholders of ABB Participation AB (former ABB AB), in Vasteras, 651'813'826 A shares of ABB Participation AB (former ABB AB) and 241'261'761 B shares of ABB Participation AB (former ABB AB). These shares will be acquired at a total value of CHF 3'260'285'190. In consideration for such contribution in-kind, the Company shall issue to Skandinaviska Enskilda Banken AB (publ), as trustee of the former shareholders of ABB Participation AB (former ABB AB), a total of 142'830'293 fully paid registered shares with an aggregate par value of CHF 1'428'302'930. The Company shall allocate the difference between the total par value of the issued shares and the net book value of the in-kind contribution in the total amount of CHF 1'831'982'260 to the reserves. ACQUISITIONS ARTICLE 33 OF PROPERTY 1 Pursuant to an acquisition of property agreement dated June 26, 1999, the Company, following the capital increase dated June 26, 1999, will acquire from Asea Holding AB, in Vasteras, 16'383'744 A shares and 28'453'689 B shares of ABB Participation AB (former ABB AB), in Vasteras, at a price of CHF 71'708'860. 2 Following the capital increase dated June 26, 1999, the Company intends to acquire from the remaining public shareholders of ABB Participation AG (former ABB AG), in Baden, or in the cancellation procedure pursuant to art. 33 SESTA all shares of ABB Participation AG (former ABB AG) which were not tendered to the Company in connection with the exchange offer dated March 26, 1999, in exchange for the Company's own registered shares based on the exchange offer dated March 26, 1999.
-17- ABB ABB LTD P. O. Box 8131 CH-8050 Zurich Telephone +41 (0)1 317 71 11 Telefax +41 (0)1 317 73 21 www.abb.com -18- EX-2.3 4 a2072395zex-2_3.txt EXHIBIT 2.3 EXHIBIT 2.3 C L I F F O R D LIMITED LIABILITY PARTNERSHIP C H A N C E EXECUTION COPY ABB INTERNATIONAL FINANCE LIMITED ABB FINANCE INC. ABB CAPITAL B.V. as issuers PROGRAMME FOR THE ISSUANCE OF DEBT INSTRUMENTS ---------------------------------------------- AMENDED AND RESTATED FISCAL AGENCY AGREEMENT ---------------------------------------------- 30 MAY 2001 CONTENTS
SECTION PAGE 1. Interpretation................................................................................2 2. Appointment Of The Paying Agents And The Registrars...........................................5 3. The Instruments...............................................................................5 4. Issuance Of Instruments.......................................................................7 5. Replacement Instruments......................................................................11 6. Payments To The Fiscal Agent Or The Registrar................................................13 7. Payments To Holders Of Bearer Instruments....................................................14 8. Payments To Holders Of Registered Instruments................................................16 9. Miscellaneous Duties Of The Fiscal Agent And The Paying Agents...............................17 10. Early Redemption.............................................................................21 11. Miscellaneous Duties Of The Registrars.......................................................22 12. Commissions, Fees And Expenses...............................................................24 13. Terms Of Appointment.........................................................................25 14. Changes In Agents............................................................................26 15. Substitution.................................................................................29 16. Further Issuers..............................................................................29 17. Notices......................................................................................30 18. Law And Jurisdiction.........................................................................32 19. Modification.................................................................................32 20. Counterparts.................................................................................32 21. Contracts (Rights Of Third Parties) Act 1999.................................................32 THE FIRST SCHEDULE................................................................................34 Form Of Temporary Global Instrument...............................................................34 THE SECOND SCHEDULE...............................................................................46 Form Of Permanent Global Instrument...............................................................46
THE THIRD SCHEDULE................................................................................52 Form Of Definitive Instrument ("ISMA" Format).....................................................52 THE FOURTH SCHEDULE...............................................................................61 Form Of Registered Instrument.....................................................................61 THE FIFTH SCHEDULE................................................................................64 Provisions For Meetings Of Holders Of Instruments.................................................64 THE SIXTH SCHEDULE................................................................................72 Form Of Deed Of Assumption........................................................................72 THE SEVENTH SCHEDULE..............................................................................77 Regulations Concerning Transfers Of Registered Instruments And....................................77 Exchanges Of Bearer Instruments For Registered Instruments........................................77 THE EIGHTH SCHEDULE...............................................................................79 The Specified Offices Of The Paying Agents And The Registrars.....................................79
THIS AMENDED AND RESTATED FISCAL AGENCY AGREEMENT is made on 30 May 2001 and replaces the fiscal agency agreement dated 10 March 1993 as supplemented. BETWEEN: (1) ABB INTERNATIONAL FINANCE LIMITED ("AIFLTD"), ABB FINANCE INC. ("AFI") and ABB CAPITAL B.V. ("ACBV") (the "ISSUERS" and each an "ISSUER", which expression shall, where the context so permits, include any Further Issuer as defined in Clause 16.1 hereof); (2) BANQUE GENERALE DU LUXEMBOURG S.A. in its capacities as fiscal agent (the "FISCAL AGENT", which expression shall include any successor to Banque Generale du Luxembourg S.A. in its capacity as such) and principal registrar (the "PRINCIPAL REGISTRAR", which expression shall include any successor to Banque Generale du Luxembourg S.A. in its capacity as such); (3) THE CHASE MANHATTAN BANK in its capacity as alternative registrar (the "ALTERNATIVE REGISTRAR", which expression shall include any successor to The Chase Manhattan Bank in its capacity as such); and (4) BANQUE GENERALE DU LUXEMBOURG (SUISSE) S.A. in its capacity as paying agent (the "PAYING AGENTS", which expression shall include the Fiscal Agent and any substitute or additional paying agents appointed in accordance herewith). WHEREAS: (A) The Issuers established a programme (the "PROGRAMME") for the issuance of debt instruments (the "INSTRUMENTS") having any maturity up to thirty years, subject to compliance with all legal and/or regulatory requirements in connection with which they entered into a dealership agreement (the "DEALERSHIP AGREEMENT") dated 10 March 1993 and amended and restated on 30 May 2001 and made between the Issuers, ABN AMRO Bank N.V., Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG London, Goldman Sachs International, Lehman Brothers International (Europe), J.P. Morgan Securities Ltd., Morgan Stanley & Co. International Limited, Societe Generale and UBS AG, acting through its business group UBS Warburg, (the "DEALERS", which expression shall include any substitute or additional dealers appointed in accordance with the Dealership Agreement). In respect of bearer Instruments issued in temporary global or permanent global form, each of the Issuers have executed and delivered a deed of covenant (the "DEEDS OF COVENANT") each dated 10 March 1993. (B) Instruments may be issued on a listed or unlisted basis. Each of the Issuers has made an application to the Luxembourg Stock Exchange (the "LUXEMBOURG STOCK EXCHANGE") for Instruments issued by it under the Programme to be listed on the Luxembourg Stock Exchange, in connection with which application an information memorandum dated 30 May 2001 has been prepared to permit Instruments to be so listed during the period of twelve months or such other period as may be allowed by the relevant Stock Exchange from the date of such information memorandum. (C) The parties hereto wish to record certain arrangements which they have made in relation to the Instruments to be issued under the Programme. -1- IT IS AGREED as follows: 1. INTERPRETATION 1.1 In this Agreement, any reference to: "AUTHORISED AMOUNT" shall have the meaning ascribed in the Dealership Agreement; "BANKING DAY" is to a day (other than Saturdays and Sundays) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in the place where the specified office of the Fiscal Agent or, as the case may be, the Registrar is located; a "CLAUSE" is, unless the context indicates otherwise, to a clause in a section hereof; "CLEARSTREAM, LUXEMBOURG" means Clearstream Banking, societe anonyme; a "CONDITION" is to the terms and conditions of the Instruments as appearing in the Information Memorandum or, in relation to any Tranche or Series of Instruments, such terms and conditions as the same may be amended or supplemented or replaced as described in the relevant Pricing Supplement or Pricing Supplements and any reference to a numbered "Condition" is to the correspondingly numbered provision thereof and "TERMS AND CONDITIONS" should be construed accordingly; a "COUPON" is to an interest coupon and where the context permits, a Talon, in each case appertaining to a Definitive Instrument; "EUROCLEAR" is to Euroclear Bank S.A./N.V., as operator of the Euroclear System; "EVENT OF DEFAULT" is to any of the circumstances or events set out in Condition 7 (as the same may be modified by the relevant Pricing Supplement in relation to any Tranche of Instruments); the "EXCHANGE ACT" is to the United States Securities Exchange Act of 1934; the "EXCHANGE DATE" means the date which is 40 days after the completion of the distribution of the Instruments comprising the relevant Tranche, as specified in the relevant Pricing Supplement; "INFORMATION MEMORANDUM" means the information memorandum the preparation of which has been procured by the Issuers in connection with the application for Instruments issued by it to be listed on the Luxembourg Stock Exchange, together with any information incorporated therein by reference, as the same may be amended, supplemented, updated and/or substituted from time to time and any further information memorandum prepared in connection with the listing of such Instruments on any other stock exchange (as such further information memorandum may be amended, supplemented, updated and/or substituted from time to time); "INSTALMENT INSTRUMENT" means an Instrument the principal amount of which is repayable by instalments; -2- "ISSUE DATE" means, in relation to any Tranche of Instruments, the date of issue of such Instruments; "LOCAL TIME" in relation to any payment is to the time in the city or town in which the relevant bank or the relevant branch or office thereof is located and any reference to "LOCAL BANKING DAYS" in relation thereto is to days (other than Saturdays and Sundays) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in such city or town; "LUXEMBOURG BANKING DAY" is to a day (other than Saturdays and Sundays) on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in Luxembourg; "OUTSTANDING" means, in relation to the Instruments of any Issuer, all the Instruments of such Issuer and any coupons relating thereto other than: (i) those which have been redeemed in full or purchased and cancelled pursuant to Condition 6; (ii) those in respect of which the date for redemption in full (including, but not limited to, the due date for payment of the final instalment in respect of an Instalment Instrument) has occurred and the redemption moneys therefor (including all interest accrued thereon to such date for redemption) have been duly paid to the Fiscal Agent or (in the case of Registered Instruments) the Registrar in the manner provided for in this Fiscal Agency Agreement (and, where appropriate, notice to that effect has been given in accordance with Condition 14) and remain available for payment in accordance with the Conditions; (iii) any Bearer Instrument which has been exchanged for a Registered Instrument; (iv) those which have become void under Condition 10 or Condition 9A.06; (v) (for the purpose only of ascertaining the amount outstanding and without prejudice to their status for any other purpose) those Instruments which are alleged to have been lost, stolen or destroyed and in respect of which replacement Instruments have been issued pursuant to Condition 12; (vi) those Instruments which have been mutilated or defaced and which have been surrendered or cancelled and in respect of which replacement Instruments have been issued pursuant to Condition 12; (vii) any Temporary Global Instrument to the extent that it has been exchanged for Definitive Instruments or a Permanent Global Instrument; and (viii) any Permanent Global Instrument to the extent that it has been exchanged for Definitive Instruments. Provided that for the purposes of the Fifth Schedule those Instruments which are beneficially held by, or are held on behalf of, the relevant Issuer or any affiliated -3- company of such Issuer or ABB Ltd or any subsidiary of ABB Ltd and not cancelled shall (unless and until ceasing to be so held) be deemed not to remain outstanding; "PRINCIPAL AMOUNT OUTSTANDING" means, on any date, the principal amount of that Instrument on its date of issue (i) less, in respect of any Instrument any amount of principal in respect of that Instrument that has become due and payable and either has been paid to the relevant holder or in respect of which the Relevant Date (as defined in Condition 8) shall have occurred, and (ii) less, in respect of any partly paid Instrument, any amount that shall not have been paid up in full; "REGISTRAR" is to the Principal Registrar or, as the case may be, the Alternative Registrar as specified in the relevant Pricing Supplement relating to Registered Instruments; "REGULATIONS" is to the regulations concerning the transfer of Registered Instruments or for the exchange of Bearer Instruments for Registered Instruments as may from time to time be promulgated by the relevant Issuer. The initial such regulations are set out in the Seventh Schedule; "RELEVANT DEALER" means, in respect of any Tranche of Instruments, the institution specified as such in the relevant Pricing Supplement or, if there is only one Dealer in respect of such Tranche of Instruments, such Dealer; the "SPECIFIED OFFICE" of any Paying Agent or any Registrar is to the office specified against its name in the Eighth Schedule or such other office in the same city or town as such Paying Agent or, as the case may be, such Registrar may specify by notice to the Issuer and the other parties hereto in accordance with Clause 14.7; a "SCHEDULE" is, unless the context indicates otherwise, to a schedule hereto; a "SECTION" is, unless the context indicates otherwise, to a section hereof; the "SECURITIES ACT" is to the United States Securities Act of 1933; a "TALON" is to a talon exchangeable for further Coupons; and a "TRANCHE" is to an issue of Instruments which are identical in all respects (save that they may be denominated in different amounts and may comprise Instruments in bearer form and Instruments in registered form), which are intended to be issued on the same closing date. 1.2 Terms used, but not defined, herein shall have the meanings ascribed to them as set out in the terms and conditions of the relevant Instruments. 1.3 Section and Schedule headings are for ease of reference only and shall not affect the construction or interpretation of this Agreement. 1.4 In this Agreement, any reference to payments of principal, redemption amount or interest includes any additional amounts payable in relation thereto under Condition 8. -4- 2. APPOINTMENT OF THE PAYING AGENTS AND THE REGISTRARS 2.1 Each of the Issuers appoint each of the Paying Agents and each of the Registrars at their respective specified offices as their agent in relation to the Instruments of such Issuer for the purposes specified in this Agreement and on the terms and conditions applicable thereto and all matters incidental thereto. Except where the context otherwise requires references to the Paying Agents and the Registrars are to them acting solely through such respective specified offices. The obligations of the Paying Agents and the Registrars hereunder are several and not joint. 2.2 Each of the Paying Agents and each of the Registrars accepts its appointment as agent of each Issuer in relation to the Instruments and shall perform all matters expressed to be performed by it in, and otherwise comply with, the terms and conditions applicable thereto and the provisions of this Agreement and, in connection therewith, shall take all such action as may be incidental thereto. 3. THE INSTRUMENTS 3.1 Instruments may be issued in series (each a "SERIES") and each Series may comprise one or more Tranches of Instruments. Each Tranche will be the subject of a pricing supplement (each a "PRICING SUPPLEMENT") prepared by or on behalf of the relevant Issuer or, as the case may be, the relevant Dealer, attached to or incorporated by reference into each Instrument of such Tranche and in the case of a Tranche in relation to which application has been made for listing on the Luxembourg Stock Exchange, lodged with the Luxembourg Stock Exchange. 3.2 Instruments may be issued in bearer form or in registered form, as specified in the relevant Pricing Supplement. 3.3 Instruments in bearer form ("BEARER INSTRUMENTS") will initially be represented by a temporary global instrument, without interest coupons (a "TEMPORARY GLOBAL INSTRUMENT"), in bearer form which shall be exchangeable in accordance with its terms on and from the Exchange Date applicable to the Instruments represented by such Temporary Global Instrument and upon due certification as described therein, for a permanent global instrument (a "PERMANENT GLOBAL INSTRUMENT") representing such Bearer Instruments or, if so specified in the relevant Pricing Supplement, for definitive instruments ("DEFINITIVE INSTRUMENTS"). In the case of a Series comprising both Bearer Instruments and Instruments in registered form ("REGISTERED INSTRUMENTS") the Temporary Global Instrument may be exchanged for Registered Instruments in accordance with its terms and, in the case of a Series comprising both Bearer Instruments and Registered Instruments issued by AFI, only on and from the Exchange Date applicable to the Instruments represented by such Temporary Global Instrument and upon due certification as described therein. Each Permanent Global Instrument will only be exchangeable in accordance with its terms for Definitive Instruments and/or (in the case of a Series comprising both Bearer Instruments and Registered Instruments) Registered Instruments. 3.4 Each Temporary Global Instrument shall: -5- (a) be printed, lithographed or typewritten in substantially the form (duly completed) set out in the First Schedule but with such modifications, amendments and additions as the Fiscal Agent, the relevant Dealer and the relevant Issuer shall have agreed to be necessary; (b) have attached thereto or incorporated by reference therein the terms and conditions applicable thereto; (c) be executed manually by two directors (or, as the case may be) managing directors of, or by a duly authorised attorney on behalf of, the relevant Issuer and shall be authenticated manually by or on behalf of the Fiscal Agent; and (d) bear a unique serial number. 3.5 Each Permanent Global Instrument shall: (a) be printed, lithographed or typewritten in substantially the form (duly completed) set out in the Second Schedule but with such modifications, amendments and additions as the Fiscal Agent, the relevant Dealer and the relevant Issuer shall have agreed to be necessary; (b) have attached thereto or incorporated by reference therein the terms and conditions applicable thereto; (c) be executed manually by two directors (or, as the case may be) managing directors of, or by a duly authorised attorney on behalf of, the relevant Issuer and shall be authenticated manually by or on behalf of the Fiscal Agent; and (d) bear a unique serial number. 3.6 Each Definitive Instrument shall: (a) be in substantially the form (duly completed) set out in the Third Schedule but with such modifications, amendments and additions as the Fiscal Agent, the relevant Dealer and the relevant Issuer shall have agreed to be necessary; (b) unless the contrary is specified in the relevant Pricing Supplement, be in the format from time to time specified by the International Securities Markets Association or any successor body thereto; (c) have a unique serial number printed thereon; (d) if so specified in the relevant Pricing Supplement, have attached thereto at the time of its initial delivery Coupons; (e) if so specified in the relevant Pricing Supplement, have attached thereto at the time of its initial delivery a Talon; (f) have endorsed thereon, attached thereto or incorporated by reference therein the terms and conditions applicable thereto; -6- (g) be executed manually or in facsimile by two directors (or, as the case may be) managing directors of the relevant Issuer and authenticated manually by or on behalf of the Fiscal Agent; (h) be printed in accordance with the requirements of any clearing system by which such Instruments are intended to be accepted; and (i) be printed in accordance with the requirements of any stock exchange on which such Instruments may be listed. 3.7 Each Registered Instrument shall: (a) be printed, lithographed or typewritten in substantially the form (duly completed) set out in the Fourth Schedule but with such modifications, amendments and additions as the Registrar, the relevant Dealer and the relevant Issuer shall have agreed to be necessary; (b) have endorsed thereon, attached thereto or incorporated by reference therein the terms and conditions applicable thereto; and (c) be executed manually by two directors (or, as the case may be) managing directors of, or by a duly authorised attorney on behalf of the relevant Issuer or shall be executed in facsimile by two directors (or, as the case may be) managing directors of the relevant Issuer and, in any case, shall be authenticated manually by or on behalf of the Registrar. 3.8 Any Issuer may adopt and use the signature of any person who at the date of signing a Temporary Global Instrument, Permanent Global Instrument or Registered Instrument is an authorised signatory for such purpose of the relevant Issuer notwithstanding that such person may for any reason (including death) have ceased to be such an authorised signatory at the time of the creation and issue of the relevant Tranche or the issue and delivery of the relevant Instruments. 3.9 Any facsimile signature affixed to an Instrument may be that of a person who is at the time of the creation and issue of the relevant Tranche an authorised signatory for such purpose of the relevant Issuer notwithstanding that such person may for any reason (including death) have ceased to be such an authorised signatory at the time at which the relevant Instrument may be delivered. 3.10 Execution in facsimile of any Instruments and any photostatic copying or other duplication of master Global Instruments (in unauthenticated form, but executed manually on behalf of the relevant Issuer as stated above) shall be binding upon the relevant Issuer in the same manner as if such Notes were signed manually by such signatories. 4. ISSUANCE OF INSTRUMENTS 4.1 Upon the conclusion of any agreement between the relevant Issuer and any Dealer(s) for the sale by such Issuer and the purchase by such Dealer(s) of any Instruments the Issuer -7- shall, as soon as practicable but in any event not later than 3.00 p.m. (Luxembourg time) four Luxembourg Banking Days, prior to the proposed issue date therefor: (a) confirm by tested telex or tested fax, to the Fiscal Agent or, if such Instruments are to be Registered Instruments, the Registrar (copied to the Fiscal Agent) all such information as the Fiscal Agent or, as the case may be, the Registrar may reasonably require to carry out its functions under this Agreement and in particular, if a Temporary Global Instrument or Registered Instruments from the stock provided for in Clause 4.2 is/are to be used, such details as are necessary to enable it to complete such Temporary Global Instrument or Registered Instruments, the settlement and payment procedures applicable to the relevant Tranche of Instruments and the account of the relevant Issuer to which payment should be made; (b) deliver a duly executed copy of the Pricing Supplement in relation to the relevant Tranche to the Fiscal Agent or, as the case may be, the Registrar (copied to the Fiscal Agent); and (c) unless a Temporary Global Instrument or a Registered Instrument from the stock provided for in Clause 4.2 is to be used and the relevant Issuer shall have provided such document to the Fiscal Agent or, as the case may be, the Registrar pursuant to Clause 4.2, ensure that there is delivered to the Fiscal Agent a Temporary Global Instrument (in unauthenticated form but executed on behalf of the relevant Issuer and otherwise complete) or, as the case may be, to the Registrar Registered Instruments (in unauthenticated form and with the names of the registered holders left blank but executed on behalf of the Issuer and otherwise complete) in relation to the relevant Tranche. 4.2 Each Issuer may, at its option, deliver from time to time to the Fiscal Agent a stock of PRO FORMA Temporary Global Instruments and Permanent Global Instruments (in unauthenticated form but executed on behalf of the relevant Issuer) and/or, to the Registrar, a stock of PRO FORMA Registered Instruments (in unauthenticated form but executed on behalf of the relevant Issuer). Any such stock of Instruments shall be held in safe custody by the Fiscal Agent or, as the case may be, the Registrar upon trust for the relevant Issuer for use only in accordance with the written instructions of such Issuer. The Fiscal Agent or, as the case may be, the Registrar shall return the stock of Instruments to the relevant Issuer forthwith upon written request by such Issuer. 4.3 The Fiscal Agent or, as the case may be, the Registrar shall, on behalf of the relevant Issuer, where the relevant Instruments are to be listed on the Luxembourg Stock Exchange, deliver a copy of the Pricing Supplement in relation to the relevant Tranche to the Luxembourg Stock Exchange as soon as practicable but in any event not later than 2.00 p.m. (local time) two Luxembourg Banking Days prior to the proposed issue date therefor. 4.4 The provisions of this Clause 4.4 shall apply to each Tranche of Instruments unless otherwise agreed between the relevant Issuer, the Relevant Dealer and the Fiscal Agent or (in the case of Registered Instruments) the Registrar. On or before 10.00 a.m. (local time) two Banking Days prior to the issue date in relation to each Tranche, the Fiscal -8- Agent or, as the case may be, the Registrar shall authenticate and deliver to the relevant depositary for Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system the relevant Temporary Global Instrument or, as the case may be, Registered Instruments together with instructions to Euroclear or Clearstream, Luxembourg or such other clearing system to credit the Instruments represented by such Temporary Global Instrument or the Registered Instruments to such securities account(s) on a delivery against payment basis (or on such other basis as shall have been agreed between the relevant Issuer and the Relevant Dealer and notified to the Fiscal Agent) as shall have been notified to the Fiscal Agent by the relevant Issuer. The Fiscal Agent shall give instructions to Euroclear and/or Clearstream, Luxembourg and/or any other relevant clearing system to credit Instruments represented by a Temporary Global Instrument or, as the case may be, Registered Instruments registered in the name of the relevant depositary, to the Fiscal Agent's distribution account. Unless otherwise agreed in respect of any Tranche of Instruments by the relevant Issuer and the Relevant Dealer and notified to the Fiscal Agent each Instrument which is so credited to the Fiscal Agent's distribution account with Euroclear or Clearstream, Luxembourg or such other clearing system following the delivery of a Temporary Global Instrument or Registered Instrument to the relevant depositary shall be held to the order of the relevant Issuer pending delivery to the relevant Dealer(s) on a delivery against payment basis in accordance with the normal procedures of Euroclear or Clearstream, Luxembourg or such other clearing system, as the case may be. The Fiscal Agent shall on the issue date in respect of the relevant Tranche and against receipt of funds from the relevant Dealer(s) transfer (with same value date) the proceeds of issue to the relevant Issuer to the account notified in accordance with Clause 4.1 above. 4.5 If the Fiscal Agent or, as the case may be, the Registrar should pay an amount (an "ADVANCE") to an Issuer in the belief that a payment has been or will be received from a Dealer and if such payment is not received by the Fiscal Agent or, as the case may be, the Registrar on the date that the Fiscal Agent or, as the case may be, the Registrar pays the relevant Issuer, such Issuer shall forthwith repay the advance (unless prior to such repayment the payment is received from the Dealer) and shall pay interest on such amount which shall accrue (as well after as before judgment) on the basis of a year of 360 days (365 days (or 366 days, in the case of a leap year) in the case of an advance paid in sterling) and the actual number of days elapsed from the date of payment of such advance until the earlier of (i) repayment of the advance or (ii) receipt by the Fiscal Agent or, as the case may be, the Registrar of the payment from the Dealer, and at the rate per annum which is the aggregate of one per cent. per annum and the rate per annum specified by the Fiscal Agent or, as the case may be, the Registrar as reflecting its cost of funds for the time being in relation to the unpaid amount. 4.6 Unless a Permanent Global Instrument from the stock provided for in Clause 4.2 is to be used and the relevant Issuer has provided such document to the Fiscal Agent pursuant to Clause 4.2, the relevant Issuer shall, in relation to each Tranche of Bearer Instruments, ensure that there is delivered to the Fiscal Agent not less than four Luxembourg Banking Days before the Exchange Date for the relevant Temporary Global Instrument, the Permanent Global Instrument (in unauthenticated form but executed by such Issuer and otherwise complete) in relation thereto or, as the case may be, the Definitive Instruments -9- (in unauthenticated form but executed by such Issuer and otherwise complete) in relation thereto. If, in the case of a Series comprising both Bearer Instruments and Registered Instruments, the Temporary Global Instrument is exchangeable for Definitive Instruments and/or Registered Instruments, (unless a Registered Instrument from the stock provided for in Clause 4.2 is to be used and the relevant Issuer shall have provided such document to the Registrar pursuant to Clause 4.2) the Issuer shall ensure that there is delivered to the Registrar, sufficient Registered Instruments to enable the Registrar to effect exchanges of interests in the Temporary Global Instrument for Registered Instruments in accordance with the terms of the Temporary Global Instrument. The Fiscal Agent or, as the case may be, the Registrar, shall authenticate and deliver such Permanent Global Instrument or, as the case may be, Definitive Instruments and/or Registered Instruments in accordance with the terms hereof and of the relevant Temporary Global Instrument. 4.7 The relevant Issuer shall, in relation to each Tranche of Bearer Instruments which is represented by a Permanent Global Instrument in relation to which an exchange notice has been given in accordance with the terms of such Permanent Global Instrument, ensure that there is delivered to the Fiscal Agent not less than ten Luxembourg Banking Days before the day on which the relevant notice period expires the Definitive Instruments (in unauthenticated form but executed by such Issuer and otherwise complete) in relation thereto. If, in the case of a Series comprising both Bearer Instruments and Registered Instruments, the Permanent Global Instrument is exchangeable for Definitive Instruments and/or Registered Instruments, (unless a Registered Instrument from the stock provided for in Clause 4.2 is to be used and the relevant Issuer shall have provided such document to the Registrar pursuant to Clause 4.2) the Issuer shall ensure that there is delivered to the Registrar, sufficient Registered Instruments to enable the Registrar to effect exchanges of interests in the Permanent Global Instrument for Registered Instruments in accordance with the terms of the Permanent Global Instrument. The Fiscal Agent or, as the case may be, the Registrar, shall authenticate and deliver such Definitive Instruments and/or Registered Instruments in accordance with the terms hereof and of the relevant Permanent Global Instrument. 4.8 Where any Definitive Instruments with Coupons attached are to be delivered in exchange (not earlier than the Exchange Date) for a Temporary Global Instrument or a Permanent Global Instrument, the Fiscal Agent shall ensure that such Definitive Instruments shall have attached thereto only such Coupons as shall ensure that neither loss nor gain of interest shall accrue to the bearer thereof. 4.9 The Fiscal Agent or, as the case may be, the Registrar shall hold in safe custody and in trust for the account of, and to the order of, the relevant Issuer all unauthenticated Temporary Global Instruments, Permanent Global Instruments, Definitive Instruments or, as the case may be, Registered Instruments delivered to it in accordance with this Section 4, Section 5 or Section 11 and shall ensure that the same are authenticated and delivered only in accordance with the terms hereof and, if applicable, the relevant Temporary Global Instrument or Permanent Global Instrument. 4.10 The Fiscal Agent and the Registrar are authorised by the relevant Issuer to authenticate such Temporary Global Instruments, Permanent Global Instruments, Definitive -10- Instruments or, as the case may be, Registered Instruments as may be required to be authenticated hereunder by the signature of any of their respective officers or any other person duly authorised for the purpose by the Fiscal Agent or, as the case may be, the Registrar. 4.11 On each occasion on which a portion of a Temporary Global Instrument or a Permanent Global Instrument is exchanged for a portion of a Permanent Global Instrument or, as the case may be, for Definitive Instruments and/or Registered Instruments, the Fiscal Agent shall note or procure that there is noted on the Schedule to, or in the absence of a Schedule, on the face of, the Temporary Global Instrument or, as the case may be, Permanent Global Instrument the aggregate principal amount thereof so exchanged and the remaining principal amount of the Temporary Global Instrument or, as the case may be, Permanent Global Instrument (which shall be the previous principal amount thereof less (or, in the case of a Permanent Global Instrument in respect of an exchange of a portion of a Temporary Global Instrument for a Permanent Global Instrument, plus) the aggregate principal amount so exchanged) and shall procure the signature of such notation on its behalf. The Fiscal Agent shall forthwith cancel or procure the cancellation of each Temporary Global Instrument or, as the case may be, Permanent Global Instrument against surrender of which it has made full exchange for a Permanent Global Instrument or Definitive Instruments and/or Registered Instruments. 4.12 The relevant Issuer shall, in relation to each series of Definitive Instruments to which a Talon is attached upon the initial delivery thereof, on each occasion on which a Talon becomes exchangeable for further Coupons, not less than five Luxembourg Banking Days before the date on which the final Coupon comprised in any Coupon sheet (which includes a Talon) matures ("TALON EXCHANGE DATE"), ensure that there is delivered to the Fiscal Agent such number of Coupon sheets as may be required in order to enable the Paying Agents to fulfil their obligation under Clause 4.13 hereof. 4.13 The Paying Agent shall on or after the Talon Exchange Date in respect of such Talon deliver a Coupon sheet against the presentation and surrender of such Talon provided that if any Talon is presented and surrendered for exchange to any Paying Agent and the Replacement Agent (as defined in Clause 5.1) has delivered a replacement therefor the Paying Agent shall forthwith notify the Fiscal Agent which shall immediately inform the relevant Issuer of such presentation and surrender and the Paying Agent shall not exchange against the same unless and until it is so instructed in writing by the Fiscal Agent. The Paying Agent which makes an exchange as set out in this Clause 4.13 shall cancel each Talon surrendered to it and in respect of which a Coupon sheet shall have been delivered and shall (if such Paying Agent is not the Fiscal Agent) forthwith deliver the cancelled Talon to the Fiscal Agent. 4.14 Each of the Issuers undertakes to notify the Fiscal Agent of any changes in the identity of the Dealers and the Fiscal Agent agrees to notify the other Paying Agents and Registrars thereof as soon as reasonably practicable thereafter. 5. REPLACEMENT INSTRUMENTS 5.1 The Fiscal Agent or, as the case may be, the Registrar (in such capacity "REPLACEMENT AGENT") shall in accordance with the instructions of the relevant Issuer and the terms and -11- conditions (subject to the provisions of Clause 5.2 below) authenticate and deliver a Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or, as the case may be, Registered Instrument as a replacement for any of the same which has been mutilated or defaced or which has or has been alleged to have been destroyed, stolen or lost Provided that no Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or Registered Instrument shall be delivered as a replacement for any of the same which has been mutilated or defaced otherwise than against surrender of the same and any replacement Definitive Instrument shall have the same number of Coupons and, if applicable, a Talon as are attached to the mutilated or defaced Definitive Instrument so replaced. 5.2 The Replacement Agent shall not issue any replacement Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or, as the case may be, Registered Instrument unless the claimant shall have: (i) paid such costs as may be incurred; and (ii) furnished (in the case of destroyed, lost or stolen Instruments) such evidence, security, indemnity and otherwise as the relevant Issuer may require. 5.3 Each replacement Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or Registered Instrument delivered hereunder shall bear a unique serial number. 5.4 The Replacement Agent shall cancel each mutilated or defaced Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or Registered Instrument surrendered to it and in respect of which a replacement has been delivered. 5.5 The Replacement Agent shall forthwith notify the relevant Issuer, and (in the case of Bearer Instruments) the other Paying Agents of the delivery by it in accordance herewith of any replacement Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or Registered Instrument, specifying the serial number thereof and the serial number (if any and if known) of the Instrument which it replaces and confirming (if such be the case) that the Instrument which it replaces has been cancelled. 5.6 Each of the Issuers shall ensure that the Replacement Agent has available to it supplies of such Temporary Global Instruments, Permanent Global Instruments, Definitive Instruments, Coupons and Registered Instruments, as the case may be, as shall be necessary to effect the delivery of replacement Instruments under this Section 5. 5.7 Each of the Fiscal Agent, the Registrar and the Replacement Agent undertake to notify the relevant Issuer if its holds insufficient Instruments or Coupons to fulfil its respective obligations under Section 4 and this Section 5. 5.8 Unless the relevant Issuer instructs otherwise, the Replacement Agent shall destroy each mutilated or defaced Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument, Coupon or Registered Instrument surrendered to and cancelled by it and in respect of which a replacement has been delivered and shall as soon as possible but not later than three months after such destruction furnish such Issuer with a -12- certificate as to such destruction and specifying the serial numbers of the Temporary Global Instrument, Permanent Global Instrument, Definitive Instruments and Registered Instruments in numerical sequence and the total number by maturity date of Coupons (and distinguishing any Talon in respect thereof) so destroyed. 6. PAYMENTS TO THE FISCAL AGENT OR THE REGISTRAR 6.1 In order to provide for the payment of interest and principal or, as the case may be, any other redemption amount payable in respect of the Instruments of each Series as the same shall become due and payable the relevant Issuer shall pay to the Fiscal Agent or, as the case may be, the Registrar on or before the date on which such payment becomes due an amount equal to the amount of principal, redemption amount or, as the case may be, interest then becoming due in respect of such Instruments. 6.2 Each amount payable by the relevant Issuer under Clause 6.1 shall be paid unconditionally by credit transfer in the currency in which the Instruments of the relevant Series are denominated or, if different, payable and in immediately available, freely transferable funds not later than 10.00 a.m. (local time) on the relevant day to such account with such bank as the Fiscal Agent or, as the case may be, the Registrar may by notice to such Issuer have specified for the purpose. If the due date for payment in respect of any Instruments is not, in respect of such Instruments, a Relevant Financial Centre Day (as defined in Condition 9B.02 of the terms and conditions of the relevant Instruments) then payment will be made on the next following Relevant Financial Centre Day (or, in the case of Instruments denominated or, if different, payable in Euro on the next following day which is a TARGET Business Day (as defined in Condition 5B.04 of the terms and conditions of the Instruments). The Fiscal Agent or, as the case may be, the Registrar shall give not less than 14 nor more than 21 days' notice to the relevant Issuer of the due date for, and amount of, each payment in respect of the Instruments. The relevant Issuer shall, before 10.00 a.m. (local time) at least two Luxembourg Banking Days before the due date of each payment by it under Clause 6.1, confirm to the Fiscal Agent or, as the case may be, the Registrar by tested telex or tested fax that it has given irrevocable instructions for the transfer of the relevant funds to the Fiscal Agent or, as the case may be, the Registrar and the name and the account of the bank through which such payment is being made. 6.3 The Fiscal Agent and each Registrar shall be entitled to deal with each amount paid to it hereunder in the same manner as other amounts paid to it as a banker by its customers Provided that: (a) it shall not against the relevant Issuer exercise any lien, right of set-off or similar claim in respect thereof; and (b) it shall not be liable to any person for interest thereon. 6.4 All moneys paid to the Fiscal Agent by the relevant Issuer in respect of any Instrument shall be held by the Fiscal Agent from the moment when such moneys are received until the time of actual payment thereof, upon trust to apply the same in accordance with Section 7, and the Fiscal Agent shall not be obliged to repay any such amount unless or until claims against such Issuer in respect of the relevant Instruments are prescribed or -13- the relevant payment becomes void or ceases in accordance with the terms and conditions, in which event it shall forthwith repay to the relevant Issuer such portion of such amount as relates to such payment by paying the same by credit transfer to such account with such bank as the relevant Issuer may by notice to the Fiscal Agent have specified for the purpose. 6.5 (a) The Fiscal Agent or, as the case may be, the Registrar shall forthwith notify the Paying Agents and the relevant Issuer by telex or fax or cable if, by 10.00 a.m. (local time) on the due date for any payment to it under Clause 6.1, it has not received confirmation that such Issuer has given irrevocable instructions for payment to be made as referred to in Clause 6.2. (b) The Fiscal Agent or, as the case may be, the Registrar shall forthwith (and in any event within one Relevant Financial Centre Day in respect of the relevant Instruments) notify the relevant Issuer if it has not received from such Issuer in the manner provided herein full payment on the due date of any amount with respect to the Instruments. (c) If the Fiscal Agent or, as the case may be, the Registrar has not received the full amount payable by the due date but receives such amount later it shall: (i) forthwith so notify the other Paying Agents; and (ii) forthwith give notice to the holders of the Instruments in accordance with Condition 14 that it has received such full amount. 6.6 All moneys paid to the Registrar by the relevant Issuer in respect of any Instrument shall be held by the Registrar from the moment when such moneys are received until the time of actual payment thereof, upon trust to apply the same in accordance with Section 8, and the Registrar shall not be obliged to repay any such amount unless or until the claims against such Issuer in respect of the relevant Registered Instruments are prescribed or the relevant payment becomes void or ceases in accordance with the terms and conditions, in which event it shall forthwith repay to the relevant Issuer such portion of such amount as relates to such claims in respect of the relevant Registered Instruments by paying the same by credit transfer to such account with such bank as the relevant Issuer may by notice to the Registrar have specified for the purpose. 7. PAYMENTS TO HOLDERS OF BEARER INSTRUMENTS 7.1 Each Paying Agent shall make payments of interest, principal or, as the case may be, redemption amount in respect of Bearer Instruments in accordance with the terms and conditions applicable thereto (and, in the case of a Temporary Global Instrument or a Permanent Global Instrument, the terms thereof) Provided that: (a) if any Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument or Coupon is presented or surrendered for payment to any Paying Agent and such Paying Agent has delivered a replacement therefor or has been notified that the same has been replaced, such Paying Agent shall forthwith notify the Fiscal Agent (which shall immediately notify the relevant Issuer) of such presentation or surrender and shall not make payment against the same -14- until it is so instructed in writing by such Issuer and has received the amount to be so paid; (b) if any Temporary Global Instrument or Permanent Global Instrument is presented or surrendered for payment to any Paying Agent other than the Fiscal Agent, such Paying Agent shall (without prejudice to Clause 7.3) forthwith notify the Fiscal Agent of that fact; (c) unless and until the full amount of any payment has been transferred to the Fiscal Agent, none of the Paying Agents shall be bound to make payments on behalf of the relevant Issuer in respect of the Instruments; (d) in the absence of contrary notification from the Fiscal Agent on the due date for any payment in respect of the Instruments of any Series, the Paying Agents shall assume that the Fiscal Agent has received the full amount so due in respect of such Instruments and shall be entitled: (i) to pay maturing Instruments and Coupons in accordance with the terms and conditions; and (ii) to claim any amounts so paid by it from the Fiscal Agent; (e) each Paying Agent shall (in the case of the Temporary Global Instrument or Permanent Global Instrument, in accordance with the directions of the Fiscal Agent) cancel or procure the cancellation of each Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument (in the case of early redemption, together with such unmatured Coupons or unexchanged Talons as are attached to or are surrendered with it at the time of such redemption), or, as the case may be, Coupon against surrender of which it has made full payment and shall (if such Paying Agent is not the Fiscal Agent) forthwith deliver or procure the delivery of each Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument (together with as aforesaid) or Coupon so cancelled by it to the Fiscal Agent together with all relevant details; and (f) in the case of payment of interest, principal or, as the case may be, redemption amount against presentation of a Temporary Global Instrument or a Permanent Global Instrument or in the case of payment of an instalment in respect of an Instalment Instrument against presentation of a Definitive Instrument, the relevant Paying Agent shall (in the case of the Temporary Global Instrument or Permanent Global Instrument, in accordance with the directions of the Fiscal Agent) note or procure that there is noted on the Schedule thereto, or in the absence of a Schedule, on the face thereof, the amount of such payment and, in the case of payment of principal or redemption amount, the remaining principal amount of the relevant Instrument (which shall be the previous principal amount less the amount of principal or, as the case may be, the principal amount in respect of which redemption amount has then been paid) and shall procure the signature of such notation on its behalf. -15- 7.2 None of the Paying Agents shall exercise any lien, right of set-off or similar claim against any person to whom it makes any payment under Clause 7.1 in respect thereof, nor shall any commission or expense be charged by it to any such person in respect thereof. 7.3 If a Paying Agent other than the Fiscal Agent makes any payment in accordance with Clause 7.1: (a) it shall notify the Fiscal Agent of the amount so paid by it, the serial number of the Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument or Coupon against presentation or surrender of which payment of interest, principal or redemption amount was made and the number of Coupons by maturity against which payment of interest was made; and (b) the Fiscal Agent shall on demand promptly reimburse such Paying Agent for the amount so properly paid by it by payment out of the funds received by it under Clause 6.1 of an amount equal to the amount so paid by it by paying the same by credit transfer to such account with such bank as such Paying Agent may by notice to the Fiscal Agent have specified for the purpose. 7.4 If the Fiscal Agent makes any payment in accordance with Clause 7.1 out of its own funds, it shall be entitled to appropriate for its own account out of the funds received by it under Clause 6.1 an amount equal to the amount so paid by it. 7.5 If at any time and for any reason a Paying Agent makes a partial payment in respect of any Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument or Coupon surrendered for payment to it, such Paying Agent shall endorse thereon a statement indicating the amount and date of such payment. 8. PAYMENTS TO HOLDERS OF REGISTERED INSTRUMENTS 8.1 The Registrar shall make payments of interest, principal or, as the case may be, redemption amount in respect of Registered Instruments in accordance with the terms and conditions applicable thereto Provided that unless and until the full amount of any payment has been transferred to the Registrar, the Registrar shall not be bound to make payments on behalf of the Instruments. 8.2 The Registrar shall not exercise any lien, right of set-off or similar claim against any person to whom it makes any payment under Clause 8.1 in respect thereof, nor shall any commission or expense be charged by it to any such person in respect thereof. 8.3 If a Registrar makes any payment in accordance with Clause 8.1 out of its own funds, it shall be entitled to appropriate for its own account out of the funds received by it under Clause 6.1 an amount equal to the amount so paid by it. 8.4 If at any time and for any reason a Registrar makes a partial payment in respect of any Registered Instrument surrendered for payment to it, such Registrar shall endorse thereon a statement indicating the amount and date of such payment. -16- 9. MISCELLANEOUS DUTIES OF THE FISCAL AGENT AND THE PAYING AGENTS CANCELLATION, DESTRUCTION AND RECORDS 9.1 The Fiscal Agent shall: (a) maintain a complete record of all Temporary Global Instruments, Permanent Global Instruments, Definitive Instruments and Coupons delivered hereunder and of their redemption, payment, exchange, cancellation, mutilation, defacement, alleged destruction, theft or loss or replacement Provided that no record need be maintained of the serial numbers of Coupons save insofar as that a record shall be maintained of the serial numbers of unmatured Coupons missing at the time of redemption or other cancellation of the relevant Definitive Instruments and of any subsequent payments against such Coupons and shall send forthwith to the other Paying Agents a list of any unmatured Coupons and/or unexchanged Talons missing upon redemption of the relevant Definitive Instrument; (b) maintain a record of all certifications received by it in accordance with the provisions of any Temporary Global Instrument; (c) upon request by an Issuer, inform such Issuer of the spot rate of exchange quoted by it for the purchase of the currency in which the relevant Instruments are denominated against payment of United States dollars (or such other currency specified by such Issuer) on the date on which the Relevant Agreement (as defined in the Dealership Agreement) in respect of such Instruments was made; (d) in relation to each series of Instruments the terms and conditions applicable to which provide that the rate of interest or redemption amount or any calculation applicable thereto shall be determined by the Fiscal Agent, determine such rate of interest or redemption amount or make such calculation from time to time on the basis therein and take all such actions as may to it seem reasonably incidental thereto including, without limitation, the notification of all rates and amounts so determined and the maintenance of all appropriate records; and (e) make such records available for inspection at all reasonable times by the relevant Issuer and the other Paying Agents. 9.2 The Paying Agents shall make available to the Fiscal Agent such information as may reasonably be required for the maintenance of the records referred to in Clause 9.1. 9.3 In relation to any Instruments purchased by any Issuer or any of its affiliated companies, the relevant Issuer may deliver to the Fiscal Agent Definitive Instruments and unmatured Coupons appertaining thereto for cancellation or, as the case may be, may procure the delivery to the Fiscal Agent of a Temporary Global Instrument or a Permanent Global Instrument with instructions to cancel a specified aggregate principal amount of Instruments represented thereby (which instructions shall be accompanied by evidence satisfactory to the Fiscal Agent that the relevant Issuer is entitled to give such instructions) whereupon the Fiscal Agent shall cancel such Definitive Instruments and -17- Coupons or, as the case may be, note or procure that there is noted on the Schedule to, or in the absence of a Schedule, on the face of, such Temporary Global Instrument or Permanent Global Instrument the aggregate principal amount of Instruments so to be cancelled and the remaining principal amount thereof (which shall be the previous principal amount thereof less the aggregate principal amount of the Instruments so cancelled) and shall procure the signature of such notation on its behalf. 9.4 As soon as possible (and in any event within three months) after each interest or other payment date in relation to any Series of Bearer Instruments, after each date on which Instruments are cancelled in accordance with Clause 9.3, and after each date on which the Instruments fall due for redemption, the Fiscal Agent shall notify the relevant Issuer and the other Paying Agents (on the basis of the information available to it) of: (i) the aggregate principal amount paid on, and the serial numbers of all Instruments redeemed, surrendered and cancelled and the serial numbers of any Definitive Instruments which have not yet been surrendered for payment; (ii) for each date for the payment of interest, the total number of Coupons paid and the aggregate amount paid thereon; (iii) the aggregate principal amount and serial numbers of Instruments purchased and cancelled; and (iv) the total number by maturity date of unmatured Coupons missing from Instruments redeemed or purchased and surrendered and the serial numbers of the Instruments to which such missing unmatured Coupons appertained. 9.5 The Fiscal Agent shall (unless the relevant Issuer otherwise requests) destroy each Temporary Global Instrument, Permanent Global Instrument, Definitive Instrument and Coupon delivered to or cancelled by it in accordance with Clauses 4.11, 4.13, paragraph (d) of Clause 7.1, Clause 9.14, Clause 11.13 or (where there is no principal amount remaining of such Temporary Global Instrument or Permanent Global Instrument) delivered to and cancelled by it in accordance with Clause 9.3, in which case it shall as soon as possible (and in any event within 3 months of such destruction) furnish the relevant Issuer with a certificate as to such destruction and specifying the serial numbers of the Temporary Global Instrument, Permanent Global Instrument, Definitive Instruments in numerical sequence and the total number by maturity date of Coupons (distinguishing Talons) so destroyed. MEETINGS OF HOLDERS OF INSTRUMENTS 9.6 Each Paying Agent shall, at the request of the holder of any Bearer Instrument issue voting certificates and block voting instructions in a form and manner which comply with the provisions of the Fifth Schedule (except that it shall not be required to issue the same less than forty-eight hours before the time fixed for any meeting therein provided for) and will perform the other functions specified in the Fifth Schedule. The provisions contained in the Fifth Schedule will have full effect in the like manner as if they had been expressly incorporated herein in full. Each Paying Agent shall keep a full record of voting certificates and block voting instructions issued by it and will give to the relevant -18- Issuer not less than twenty-four hours before the time appointed for any meeting or adjourned meeting full particulars of all voting certificates and block voting instructions issued by it in respect of such meeting or adjourned meeting. DOCUMENTS AND FORMS 9.7 The Issuer shall provide to the Fiscal Agent for distribution among the Paying Agents: (a) specimen Instruments; (b) sufficient copies of all documents required to be available for issue or inspection as provided in the Information Memorandum or, in relation to any Instruments, the terms and conditions or Pricing Supplement in respect of such Instruments; and (c) in the event that the provisions of such Condition become relevant in relation to any Instruments, the certificate contemplated under the Condition headed "Early Redemption for Taxation Reasons". 9.8 Each Paying Agent shall make available for examination or use during normal business hours at its specified office such documents as may be specified as so available at the specified office of such agent in the Information Memorandum or, in relation to any Instruments, the terms and conditions or Pricing Supplement in respect of such Instruments, or as may be required by any stock exchange on which the Instruments may be listed and, without prejudice to the generality of the foregoing, the Fiscal Agent and the Paying Agent with its specified office in Luxembourg shall make available for examination or use during normal business hours at its specified office copies of the Information Memorandum and each Pricing Supplement and all other documents listed in paragraph 8 of the General Information section of the Information Memorandum and, in the event that the provisions of such Condition become relevant, the certificate contemplated in the Condition headed "Early Redemption for Taxation Reasons". NOTIFICATIONS 9.9 The Fiscal Agent shall make all necessary notifications (including the submission of documents or reports where required) to and with the Bank of England and the Ministry of Finance in Japan in connection with Instruments denominated in Pounds Sterling and Yen respectively and other similar notifications (including the submission of documents or reports where required) as may be required in respect of any other Instruments. Within one week after the end of each calendar month, the Fiscal Agent shall notify the Bank of England of the principal amount of each Tranche of Instruments denominated in Sterling (i) outstanding as at the end of the relevant calendar month and (ii) issued and redeemed since the previous such notification (or since the date of this Fiscal Agency Agreement, as the case may be). Such notification shall be made even if no such Instruments were outstanding as at such time or issued or redeemed during such calendar month. Such notification shall be consistent with the requirements from time to time of the Bank of England. Within fifteen days after the end of each calendar month, the Fiscal Agent shall submit a report in Japanese to the Ministry of Finance in Japan in respect of each Tranche of Instruments denominated in Yen issued during the relevant -19- calendar month. Such report shall be submitted even if no such Instruments were issued during such calendar month. Such report shall be consistent with the requirements from time to time of the Ministry of Finance of Japan. 9.10 The Fiscal Agent agrees with each Issuer that, to the extent that it is notified by each relevant Dealer that the distribution of the Instruments of any Tranche is complete it will notify the relevant Issuer and the relevant Dealers of the completion of distribution of the Instruments of any Tranche which are sold to or through more than one Dealer as contemplated in Schedule 1 to the Dealership Agreement. NOTICES 9.11 Forthwith upon receipt by the Fiscal Agent of any notice or other communication from or on behalf of the holder of any Instrument in relation to any Instrument, the Fiscal Agent shall forward a copy of the notice or communication to the relevant Issuer. Each of the Paying Agents agrees to notify the Fiscal Agent forthwith in the event that it receives any such notice or communication. 9.12 The Fiscal Agent shall, upon and in accordance with the instructions of the relevant Issuer but not otherwise promptly arrange for the publication of any notices required to be given to the holders of Bearer Instruments in accordance with the terms and conditions of the relevant Instruments or required to comply with the requirements of any stock exchange on which the relevant Instruments may be listed and shall supply a copy thereof to each other Paying Agent. INDEMNITY 9.13 Each of the Paying Agents shall severally indemnify the Issuers and each of them against any direct loss, liability, cost, claims, action, demand or expense incurred by such Issuer as a result of or arising out of or in relation to or in connection with any breach by such Paying Agent, or any person acting on its behalf, of the terms of this Agreement, or as a result of its wilful misconduct, negligence or bad faith or that of its agents, officers or employees. The Issuers and each of them shall remain entitled to the benefit and each of the Paying Agents shall be subject to the provisions of this Clause 9.13 notwithstanding the provisions of Clause 14.6. EXCHANGE OF BEARER INSTRUMENTS FOR REGISTERED INSTRUMENTS 9.14 In relation to any Series comprising Bearer and Registered Instruments, the Fiscal Agent shall receive requests to effect exchanges of Bearer Instruments for Registered Instruments together with the relevant Bearer Instruments, inform the Registrar (specifying (i) the aggregate principal amount of such Bearer Instruments, (ii) the name(s) and address(es) to be entered on the Register as the holder(s) of the Registered Instrument(s) and (iii) the denomination(s) of the Registered Instrument(s)) and assist in the issue of the Registered Instrument(s) in accordance with the terms and conditions applicable thereto and in accordance with the Regulations. The Fiscal Agent shall, on the exchange date (as defined in Condition 2.06) applicable to such exchange of Bearer Instruments for Registered Instruments, cancel such Bearer Instruments. -20- 10. EARLY REDEMPTION 10.1 If an Issuer intends (other than consequent upon an Event of Default) to redeem all or any of the Instruments prior to their stated maturity date it shall not less than 15 days prior to the latest date for the publication of the notice of redemption required to be given to the holders of any Instruments, give notice of such intention to the Fiscal Agent or, in the case of Registered Instruments, the Registrar (copied to the Fiscal Agent) stating the date on which such Instruments are to be redeemed. 10.2 In respect of any Instruments to which Condition 6.06 applies or which carries any other right of redemption at the option of the holders of such Instruments, the relevant Issuer will provide the Paying Agents or, in the case of Registered Instruments, the Registrar with copies of the form of the current redemption notice and the Paying Agents or, as the case may be, the Registrar will make available forms of the current redemption notice to holders of Instruments upon request during usual business hours at their respective specified offices. Upon receipt of any Instrument deposited in the exercise of such option, the Paying Agent or, in the case of Registered Instruments, the Registrar with which such Instrument is deposited shall hold such Instrument (together with, in the case of a Definitive Instrument, any Coupons relating to it deposited with it) on behalf of the depositing holder of such Instrument (but shall not, save as provided below, release it) until the due date for redemption of the relevant Instrument consequent upon the exercise of such option, when, subject as provided below, it shall present such Instrument (and any such Coupons) to itself for payment in accordance with the terms and conditions of the relevant Instruments and shall pay such moneys in accordance with the directions of the holder of the Instrument contained in the relevant redemption notice. If, prior to such due date for its redemption, such Instrument becomes immediately due and payable by reason of an Event of Default or if upon due presentation payment of such redemption moneys is improperly withheld or refused, the Paying Agent concerned or, as the case may be, the Registrar shall without prejudice to the exercise of such option mail such Instrument (together with any such Coupons) by uninsured post to, and at the risk of, the holder of the relevant Instrument at such address as may have been given by such holder in the relevant redemption notice. 10.3 At the end of any applicable period for the exercise of such option or, as the case may be, not later than 7 days after the latest date for the exercise of such option in relation to a particular date, in relation to Bearer Instruments each Paying Agent shall promptly notify the Fiscal Agent of the principal amount of the Instruments in respect of which such option has been exercised with it together with their serial numbers and the Fiscal Agent shall promptly notify such details to the relevant Issuer. 10.4 At the end of any applicable period for the exercise of such option or, as the case may be, not later than 7 days after the latest date for the exercise of such option in relation to a particular date, in relation to Registered Instruments, the Registrar shall promptly notify the relevant Issuer of the principal amount of the Instruments in respect of which such option has been exercised together with their serial numbers. -21- 11. MISCELLANEOUS DUTIES OF THE REGISTRARS CANCELLATION AND RECORDS 11.1 Each Registrar shall maintain in relation to each Series of Registered Instruments in relation to which it is appointed as registrar a register (each a "Register"), which shall be kept in accordance with the terms and conditions applicable to such Series of Registered Instruments and the Regulations. Each Register shall show the aggregate principal amount and date of issue of each Tranche comprising the relevant Series of Registered Instruments, the names and addresses of the initial holders thereof and the dates of all transfers to, and the names and addresses of, all subsequent holders thereof. The Registrar shall further, in relation to each Series of Registered Instruments the terms and conditions applicable to which provide that the rate of interest or redemption amount or any calculation applicable thereto shall be determined by such Registrar, determine such rate of interest or redemption amount or make such calculation from time to time on the basis therein provided and take all such action as may to it seem reasonably incidental thereto including, without limitation, the notification of all rates and amounts so determined and the maintenance of all appropriate records. The Registrar shall make each Register and all such records available for inspection at all reasonable times by the relevant Issuer. 11.2 The Registrar shall by the issue of new Registered Instruments, the cancellation of old Registered Instruments and the making of entries in the relevant Register give effect to transfers of Registered Instruments in accordance with the terms and conditions applicable thereto and in accordance with the Regulations. 11.3 In relation to any Instruments purchased by any Issuer or any of its affiliated companies, the relevant Issuer may from time to time deliver to the Registrar such Registered Instruments of which it is the holder for cancellation, whereupon such Registrar shall cancel the same and shall make the corresponding entries in the relevant Register. 11.4 As soon as possible (and in any event within three months) after each date on which Registered Instruments are cancelled in accordance with Clause 11.3 or fall due for redemption, the Registrar shall notify the relevant Issuer of: (i) the aggregate principal amount paid on, and the serial numbers of all Registered Instruments redeemed, surrendered and cancelled and the serial numbers of any Registered Instruments (and the names and addresses of the holders thereof) which have not yet been surrendered for payment; and (ii) the aggregate principal amount and serial numbers of Registered Instruments purchased and cancelled. 11.5 Each of the Issuers shall ensure that each Registrar has available to it supplies of such Registered Instruments as shall be necessary in connection with the transfer of Registered Instruments under this Section 11. 11.6 The Registrar shall, upon and in accordance with the instructions of the relevant Issuer but not otherwise, promptly arrange for the despatch of any notices required to be given to the holders of Registered Instruments in accordance with the terms and conditions of -22- the relevant Instruments or required to comply with the requirements of any stock exchange on which the relevant Instruments may be listed. MEETINGS OF HOLDERS OF INSTRUMENTS 11.7 The Registrar shall, at the request of the holder of any Registered Instrument, issue voting certificates and block voting instructions in a form and manner which comply with the provisions of the Fifth Schedule (except that it shall not be required to issue the same less than forty-eight hours before the time fixed for any meeting therein provided for) and shall make available at the request of the holder of any Registered Instrument, forms of proxy in a form and manner which comply with the provisions of the Fifth Schedule and will comply with the other functions specified in the Fifth Schedule. The provisions contained in the Fifth Schedule will have full effect in the like manner as if they had been expressly incorporated herein in full. The Registrar shall keep a full record of voting certificates and block voting instructions issued by it and will give to the relevant Issuer not less than twenty-four hours before the time appointed for any meeting or adjourned meeting, full particulars of all voting certificates and block voting instructions issued by it in respect of such meeting or adjourned meeting. DOCUMENTS AND FORMS 11.8 The Issuer shall provide to the Registrar: (a) specimen Instruments; (b) sufficient copies of all documents required to be available for issue or inspection as provided in the Information Memorandum or, in relation to any Instruments, the terms and conditions or Pricing Supplement in respect of such Instruments; and (c) in the event that the provisions of such Condition become relevant in relation to any Instruments, the certificate contemplated under the Condition "Early Redemption for Taxation Reasons". 11.9 The Registrar shall make available for examination or use during normal business hours at its specified office such documents as may be specified as so available at the specified office of such agent in the Information Memorandum or, in relation to any Instruments, the terms and conditions or Pricing Supplement in respect of such Instruments or as may be required by any stock exchange on which the Instruments may be listed and, without prejudice to the generality of the foregoing, shall make available for examination or use during normal business hours at its specified office copies of the Information Memorandum and each Pricing Supplement and all other documents listed in paragraph 8 of the General Information section of the Information Memorandum and, in the event that the provisions of such Condition become relevant, the certificate contemplated in the Condition headed "Early Redemption for Taxation Reasons". -23- PROVISION OF INFORMATION 11.10 The Registrar shall provide the Fiscal Agent with all such information as the Fiscal Agent may reasonably require in order to perform the obligations set out in Clause 9.9 hereof. INDEMNITY 11.11 The Registrar shall severally indemnify the Issuers and each of them against any direct loss, liability, cost, claims, action, demand or expense incurred by such Issuer as a result of or arising out of or in relation to or in connection with any breach by the Registrar, or any person acting on its behalf, of the terms of this Agreement, or as a result of its wilful misconduct, negligence or bad faith or that of its agents, officers or employees. The Issuers and each of them shall remain entitled to the benefit and the Registrar shall be subject to the provisions of this Clause 11.11 notwithstanding the provisions of Clause 14.6. 11.12 Forthwith upon receipt by the Registrar of any notice or other communication from or on behalf of the holder of any Instrument in relation to any Instrument, the Registrar shall forward a copy of the notice or communication to the relevant Issuer. EXCHANGES OF BEARER INSTRUMENTS FOR REGISTERED INSTRUMENTS 11.13 In relation to any Series comprising Bearer and Registered Instruments, by the receipt of requests for exchanges of Bearer Instruments for Registered Instruments together with the relevant Bearer Instruments (or notifications from the Fiscal Agent of receipt thereof by the Fiscal Agent), the issue of Registered Instruments and the making of entries in the Register, give effect to exchanges of Bearer Instruments for Registered Instruments in accordance with the terms and conditions applicable thereto and in accordance with the Regulations. The Registrar shall forthwith upon the receipt of a request for the exchange of Bearer Instruments for Registered Instruments notify the Fiscal Agent thereof (specifying (i) the serial numbers of the Bearer Instruments, (ii) the aggregate principal amount of Instruments involved, and (iii) the exchange date (as defined in Condition 2.06) applicable thereto) and shall on the exchange date cancel the relevant Bearer Instruments and forward the same to the Fiscal Agent. The Registrar shall notify the relevant Issuer promptly of the exchange of Bearer Instruments for Registered Instruments, specifying the serial numbers of the Bearer Instruments and of the Registered Instruments issued in exchange therefor, the aggregate principal amount involved and the applicable exchange date. 12. COMMISSIONS, FEES AND EXPENSES 12.1 The Fiscal Agent and the relevant Issuer shall separately agree from time to time as to the amount of any commissions, fees and expense reimbursements to which the Fiscal Agent, the Paying Agents and the Registrars will be entitled hereunder, and any and all such agreements shall be binding on all of the parties hereto. -24- 12.2 Each of the Issuers (on a several basis where the relevant tax or duty is attributable to the Instruments issued by it and the related Coupons but otherwise on a several basis for a proportion thereof which is the same proportion as the aggregate principal amount of Instruments issued by such Issuer and outstanding as at the relevant date for payment bears to the aggregate principal amount of Instruments issued under the Programme and outstanding as at the relevant date for payment) shall pay all stamp and other similar taxes and duties, if any, which may be payable on the execution of this Agreement, on the creation and issue of the Instruments issued by it and the related Coupons and the delivery of the Instruments pursuant to the Dealership Agreement. 13. TERMS OF APPOINTMENT 13.1 Each of the Paying Agents and the Registrars may, in connection with its services hereunder: (a) (in the case of Bearer Instruments) except as ordered by a court of competent jurisdiction or as required by law and notwithstanding any notice to the contrary or any writing thereon, treat the bearer of any Instrument as the absolute owner thereof and make payments thereon accordingly; (b) refer any question relating to the ownership of any Instrument or Coupon or, without prejudice to Clause 5.2(ii), the adequacy or sufficiency of any evidence supplied in connection with the replacement of any Instrument or Coupon to the relevant Issuer for determination by such Issuer and rely upon any determination so made; and (c) after approval by the relevant Issuer such approval not to be unreasonably withheld, engage and pay for the advice or services of any leading firm of lawyers, or other leading experts, with recognised expertise in the relevant field whose advice or services may to it seem necessary and rely upon any advice so obtained. Any request for the relevant Issuer's approval of any such firm or expert must be answered by the Issuer within a reasonable time following such request, failing which such approval shall be assumed to have been given. 13.2 None of the Paying Agents or the Registrars shall have any obligations towards or relationship of agency or trust for or with any holder of the Instruments or Coupons (except as provided in Clauses 6.4 and 6.6 hereof) and shall be responsible only for performance of the duties and obligations expressly imposed upon them herein. 13.3 Each Paying Agent and Registrar and their officers, directors and employees may become the holder of, or acquire any interest in, any Instruments or Coupons with the same rights that it or they would have if it were not such agent or agents hereunder, and may engage or be interested in any transaction with any Issuer and may act on, or as depositary, trustee or agent for, any committee or body of holders of Instruments or Coupons or other obligations of any Issuer as freely as if it were not such agent or agents hereunder. 13.4 Each Issuer shall indemnify each Paying Agent and each Registrar against any direct loss, liability, claim, action, demand, reasonable cost or expense which it may properly -25- incur or which may be made against it arising out of or in connection with its appointment or the exercise of its powers and performance of its duties hereunder in respect of Instruments issued by such Issuer, except such as may result from its wilful misconduct, negligence or bad faith or that of its agents, officers or employees. The foregoing indemnity shall not apply to any expenses of any Paying Agent or Registrar provided for pursuant to Clause 12.1. 14. CHANGES IN AGENTS 14.1 Any Paying Agent or Registrar may resign its appointment as the agent of each Issuer in relation to the Instruments of each Issuer upon the expiration of not less than ninety days' prior written notice to that effect by such Paying Agent or, as the case may be, the Registrar to each Issuer (with a copy, if necessary, to the Fiscal Agent) Provided that: (a) any such notice which would otherwise expire within fifteen days before or after the maturity date of any Series of Instruments or any interest or other payment date in relation to any Series of Instruments shall be deemed, in relation to such Series only, to expire on the fifteenth day following such maturity date or, as the case may be, such interest or other payment date; and (b) in the case of (i) the Fiscal Agent, (ii) the only remaining Paying Agent or Registrar with its specified office in continental Europe (but outside the United Kingdom), (iii) so long as any Instruments are listed on the Luxembourg Stock Exchange and/or any other stock exchange, the Paying Agent or the Registrar with its specified office in Luxembourg and/or in such other place as may be required by such other stock exchange, (iv) the Registrar in respect of any Series of Instruments then outstanding, (v) in the circumstances described in Condition 9A.04, the Paying Agent with its specified office in New York City, (vi) the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 being implemented, the Paying Agent appointed in an EU member state that is not obliged to withhold or deduct tax pursuant to any European Directive on the taxation of savings, implementing such conclusions, or (vii) in the case of Instruments issued by ACBV, the Paying Agent with its specified office outside of the European Union, such resignation shall not be effective until a successor thereto (which in the case of the Fiscal Agent and the Registrar shall be a bank or trust company of good standing and authorised to exercise corporate trust powers) has been appointed by the relevant Issuer as the agent of such Issuer in relation to the Instruments of such Issuer and notice of such appointment has been given in accordance with the terms and conditions, Provided that such successor, in the case of (ii), shall have its specified office in continental Europe (but outside the United Kingdom and, in the case of (iii), shall have its specified office in Luxembourg and/or in such other place as may be required by such stock exchange. 14.2 Each of the Issuers may revoke its appointment of any Paying Agent or Registrar as its agent in relation to the Instruments by not less than thirty days' notice to that effect to such Paying Agent or, as the case may be, such Registrar provided, however, that, in the case of (i) the Fiscal Agent, (ii) the only remaining Paying Agent or Registrar with its -26- specified office in continental Europe (but outside the United Kingdom), (iii) so long as any Instruments are listed on the Luxembourg Stock Exchange and/or any other stock exchange, the Paying Agent or Registrar with its specified office in Luxembourg and/or in such other place as may be required by such other stock exchange, (iv) the Registrar in respect of any Series of Instruments then outstanding or (v) in the circumstances described in Condition 9A.04, the Paying Agent with its specified office in New York City, (vi) the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 being implemented, the Paying Agent appointed in an EU member state that is not obliged to withhold or deduct tax pursuant to any European Directive on the taxation of savings, implementing such conclusions, or (vii) in the case of Instruments issued by ACBV, the Paying Agent with its specified office outside of the European Union, such revocation shall not be effective until a successor thereto (which in the case of the Fiscal Agent and the Registrar shall be a bank or trust company of good standing and authorised to exercise corporate trust powers) has been appointed by the relevant Issuer as the agent of such Issuer in relation to the Instruments of such Issuer and notice of such appointment has been given in accordance with the terms and conditions, Provided that such successor, in the case of (ii), shall have its specified office in continental Europe (but outside the United Kingdom and, in the case of (iii), shall have its specified office in Luxembourg and/or in such other place as may be required by such stock exchange. 14.3 The appointment of any Paying Agent or Registrar as the agent of each of the Issuers in relation to the Instruments shall terminate forthwith if any of the following events or circumstances shall occur or arise, namely: such Paying Agent or, as the case may be, Registrar becomes incapable of acting; such Paying Agent or, as the case may be, Registrar is adjudged bankrupt or insolvent; such Paying Agent or, as the case may be, Registrar files a voluntary petition in bankruptcy or makes an assignment for the benefit of its creditors or consents to the appointment of a receiver, administrator or other similar official of all or any substantial part of its property or admits in writing its inability to pay or meet its debts as they mature or suspends payment thereof; a resolution is passed or an order is made for the winding-up or dissolution of such Paying Agent or, as the case may be, Registrar; a receiver, administrator or other similar official of such Paying Agent or, as the case may be, Registrar or of all or any substantial part of its property is appointed; an order of any court is entered approving any petition filed by or against such Paying Agent or, as the case may be, Registrar under the provisions of any applicable bankruptcy or insolvency law; or any public officer takes charge or control of such Paying Agent or, as the case may be, Registrar or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. 14.4 Each of the Issuers may (and shall where necessary to comply with the terms and conditions applicable to any Instruments) appoint substitute or additional agents in relation to the Instruments and shall forthwith notify the other parties hereto thereof, whereupon the parties hereto and such substitute or additional agents shall thereafter have the same rights and obligations among them as would have been the case had they then entered into an agreement in the form MUTATIS MUTANDIS of this Agreement. 14.5 Upon any resignation or revocation becoming effective under this Section 14, the relevant Paying Agent or, as the case may be, Registrar shall: -27- (a) be released and discharged from its obligations under this Agreement (save that it shall remain entitled to the benefit of and subject to and bound by the provisions of Clause 9.13, 11.11, Clause 12.2, Section 13 and this Section 14); (b) repay to the relevant Issuer such part of any fee paid to it as referred to in Clause 12.1 as may be agreed between the relevant Paying Agent or, as the case may be, the Registrar and such Issuer; (c) in the case of the Fiscal Agent, deliver to the relevant Issuer and to the successor Fiscal Agent a copy, certified as true and up-to-date by an officer of the Fiscal Agent, of the records maintained by it in accordance with Section 9; (d) in the case of a Registrar, deliver to the relevant Issuer and to the successor Registrar a copy, certified as true and up-to-date by an officer of such Registrar, of each of the Registers and other records maintained by it in accordance with Section 11; and (e) forthwith transfer all moneys and papers (including any unissued Temporary Global Instruments, Permanent Global Instruments, Definitive Instruments, Coupons or, as the case may be, Registered Instruments held by it hereunder) to its successor in that capacity and, upon appropriate notice, provide reasonable assistance to such successor for the discharge by it of its duties and responsibilities hereunder. 14.6 Any corporation into which any Paying Agent or Registrar may be merged or converted, any corporation with which any Paying Agent or Registrar may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any Paying Agent or Registrar shall be a party, shall, to the extent permitted by applicable law (and provided, in the case of the Fiscal Agent or any Registrar that such corporation shall be a bank or trust company of good standing and authorised to execute corporate trust powers), be the successor to such Paying Agent or, as the case may be, Registrar as agent of the Issuers in relation to the Instruments without any further formality, whereupon the parties hereto and such successor agent shall thereafter have the same rights and obligations among them as would have been the case had they then entered into an agreement in the form MUTATIS MUTANDIS of this Agreement. Notice of any such merger, conversion or consolidation shall forthwith be given by such successor to each of the Issuers and the other parties hereto. 14.7 If any Paying Agent or Registrar decides to change its specified office (which may only be effected within the same city) it shall give notice to each of the Issuers (with a copy, if necessary, to the Fiscal Agent) of the address of the new specified office stating the date on which such change is to take effect, which date shall be not less than thirty days after the date of such notice. The relevant Paying Agent or Registrar shall at its own expense not less than fourteen days prior to the date on which such change is to take effect (unless the appointment of the relevant Paying Agent or Registrar is to terminate pursuant to any of the foregoing provisions of this Section 14 on or prior to the date of such change) publish or cause to be published notice thereof in accordance with the terms and conditions. -28- 15. SUBSTITUTION 15.1 As provided in Condition 15 of the terms and conditions of the relevant Instruments, the Issuer may be replaced, and ABB Ltd or any direct or indirect subsidiary of ABB Ltd may be substituted for the Issuer, as principal debtor in respect of the Instruments without the consent of the Holders of the Instruments or Coupons. If the Issuer shall determine that ABB Ltd or any such subsidiary shall become the principal debtor (in such capacity, the "SUBSTITUTED DEBTOR"), the Issuer shall give not less than 30 nor more than 45 days' notice, in accordance with Condition 14, to the Holders of the Instruments of such event and, immediately on the expiry of such notice, the Substituted Debtor shall enter into a Deed of Assumption, substantially in the form set out in the Sixth Schedule hereto, and become the principal debtor in respect of the Instruments in place of the Issuer and the Holders of the Instruments shall thereupon cease to have any rights or claims whatsoever against the Issuer. However, no such substitution shall take effect (i) if the Substituted Debtor is any other subsidiary of ABB Ltd, until such Substituted Debtor shall have entered into a keep-well agreement with ABB Ltd substantially in the form of the Keep-Well Agreement (as defined in the terms and conditions of the relevant Instruments), (ii) until such Substituted Debtor shall have executed a deed of covenant substantially in the form of the Deed of Covenant (as defined in the terms and conditions of the relevant Instruments), (iii) in any case, until the Substituted Debtor shall have provided to the Fiscal Agent and (if applicable) the Registrar such documents as may be necessary to make the Deed of Assumption, the relevant Instruments, the Fiscal Agency Agreement, such deed of covenant and any such keep-well agreement the legal, valid and binding obligations of, as appropriate, the Substituted Debtor and ABB Ltd together with legal opinions either unqualified or subject only to normal, usual or appropriate qualifications and assumptions to the effect that the Instruments, the Fiscal Agency Agreement, the Deed of Assumption, such deed of covenant and any such keep-well agreement are legal, valid and binding obligations of, as appropriate, the Substituted Debtor and ABB Ltd; (iv) the Substituted Debtor shall have obtained all necessary governmental and regulatory approvals and consents, if any, in connection with the substitution and (v) the Substituted Debtor shall have appointed the process agent appointed by the Issuer in Condition 18.03 of the terms and conditions of the relevant Instruments as its agent in England to receive service of process on its behalf in relation to any legal action or proceedings arising out of or in connection with the relevant Instruments. Upon any such substitution, the Instruments and Coupons will, if necessary, be deemed to be modified in all appropriate respects. 15.2 The terms and conditions of the relevant Instruments shall, following any substitution effected in accordance with this Section, apply to the Substituted Debtor, amended as set out in the Schedule to the Deed of Assumption. 16. FURTHER ISSUERS 16.1 Each of the Paying Agents and Registrars hereby agrees to act as the agent (in the capacity in which it was appointed hereunder) of (i) any Substituted Debtor as defined in (and where such substitution shall have taken effect as provided in) Condition 15 of the terms and conditions of the relevant Instruments or (ii) any New Issuer (as that expression is defined in Clause 10.2 of the Dealership Agreement) which shall have become party to the Dealership Agreement and which shall have (a) executed an -29- agreement, in form and substance satisfactory to the Fiscal Agent, whereby such New Issuer agrees to be bound by the provisions of this Agreement and (b) provided to the Fiscal Agent such documents as may be necessary to make this Agreement its legal, valid and binding obligations (any such Substituted Debtor or New Issuer as described in (i) or (ii) above is herein referred to as a "FURTHER ISSUER"). 16.2 Each of the Paying Agents and the Registrars hereby agrees that any Issuer in its capacity as such, shall be released from its obligations, undertakings and covenants under this Agreement upon such Issuer ceasing to be an Issuer pursuant to and in accordance with Clause 10.1 of the Dealership Agreement provided always that such release shall not affect any rights, liabilities or obligations accrued or incurred under this Agreement prior to the date upon which such release takes effect. 17. NOTICES All communications hereunder shall be in writing and shall be delivered to or telexed to or sent by facsimile (confirmed by letter sent by express airmail) to the following addresses: (a) if to AIFLTD, to it at: Address: 10 Lefebvre Street St. Peter Port Guernsey GY1 6JN Channel Islands Fax: +44 1481 729 016 Attention: Business Administration with a copy to: ABB World Treasury Center Thurgauerstrasse 54 CH-8050 Zurich Switzerland Fax: +411 318 5858 Attention: Business Operations (b) if to AFI, to it at: Address: 1209 Orange Street Wilmington, DE 19801 United States of America Attention: Secretary with a copy to: ABB Treasury Center (USA), Inc. One Stamford Plaza, 11th Floor P O Box 120071 -30- Stamford, Connecticut 06912-0071 U.S.A. Fax: +1 203 961 7860 Attention: Business Administration (c) if to ACBV, to it at: Address: Burgemeester Haspelslaan 65, 5F 1181 Amstelveen The Netherlands Fax: +31 20 445 9844 Attention: Business Administration with a copy to: ABB World Treasury Center Thurgauerstrasse 54 CH-8050 Zurich Switzerland Fax: +411 318 5858 Attention: Business Operations (d) if to the Fiscal Agent at: Address: Banque Generale du Luxembourg S.A. 50, Avenue J. F. Kennedy L-2951 Luxembourg Telex: 3401 BGL lu Fax: +352 4242 4200 Attention: Fiscal and Paying Agency Department (or in the case of a Fiscal Agent not originally a party hereto, specified by notice to the other parties hereto at or about the time of its appointment as the agent of the Issuers in relation to the Instruments). All communications relating to this Agreement between the Issuer and any of the Paying Agents or between the Paying Agents themselves shall be made through the Fiscal Agent; (e) if to a Registrar to it at the address, fax or telex number specified against its name in the Eighth Schedule (or, in the case of a Registrar not originally a party hereto, specified by notice to the other parties hereto at or about the time of its appointment as the agent of the Issuers in relation to the Instruments) for the attention of the person or department therein specified (or as aforesaid) or, in any case, to such other address, telex number or fax number or for the attention of such other person or department as the addressee has by prior notice to the sender specified for the purpose. -31- Any notice sent by letter shall take effect at the time of delivery and any notice sent by telex shall take effect at the time of despatch provided that the correct answerback is received and any notice sent by facsimile transmission shall take effect upon receipt thereof. Where a notice is copied to another address such notice shall take effect at the time when the first of the notice or the copy takes effect. 18. LAW AND JURISDICTION 18.1 This Agreement is governed by, and shall be construed in accordance with, English law. 18.2 Each Issuer hereby agrees for the exclusive benefit of each of the Paying Agents and the Registrars that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and that accordingly any suit, action or proceedings (together referred to as "PROCEEDINGS") arising out of or in connection with this Agreement may be brought in such courts. Nothing contained in this clause shall limit any right to take Proceedings against any Issuer in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not. 18.3 Each Issuer hereby appoints ABB Limited of Orion House, 5 Upper St. Martin's Lane, London WC2H 9EA to accept service of any Proceedings on its behalf in England. If for any reason such process agent ceases to act as such or no longer has an address in England, each Issuer agrees to appoint a substitute process agent and notify the Fiscal Agent of such appointment and if any Issuer fails to make any such appointment within twenty-one days, the Fiscal Agent shall be entitled to appoint such a person by notice to such Issuer. 18.4 Nothing contained herein shall affect the right to serve process in any other manner permitted by law. 19. MODIFICATION This Agreement may be amended by the Issuers and the Fiscal Agent, without the consent of the other Paying Agents or the Registrars or the Holder of any Instrument or Coupon, for the purposes of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained herein, or in any manner which the Issuer and the Fiscal Agent may deem necessary or desirable and which shall not be inconsistent with the Instruments or Coupons and which will not, in the opinion of the Issuer and the Fiscal Agent, be materially prejudicial to the interests of the Holders of the Instruments, the Coupons or the Paying Agents or the Registrars. 20. COUNTERPARTS This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when so executed shall constitute one and the same binding agreement between the parties. 21. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Fiscal Agency Agreement. -32- AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. -33- THE FIRST SCHEDULE FORM OF TEMPORARY GLOBAL INSTRUMENT [THIS INSTRUMENT CONSTITUTES [COMMERCIAL PAPER]/[A SHORTER/LONGER] TERM DEBT SECURITY] ISSUED IN ACCORDANCE WITH THE REGULATIONS MADE UNDER SECTION 4 OF THE BANKING ACT 1987](1) Series Number: [ ] Serial Number: [ ] THE SECURITIES REPRESENTED BY THIS TEMPORARY GLOBAL INSTRUMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED IN THIS PARAGRAPH HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. [ABB INTERNATIONAL FINANCE LIMITED (INCORPORATED WITH LIMITED LIABILITY IN GUERNSEY)] [ABB FINANCE INC. (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)] [ABB CAPITAL B.V. (INCORPORATED IN THE NETHERLANDS WITH LIMITED LIABILITY AND HAVING ITS STATUTORY DOMICILE AT AMSTERDAM)] TEMPORARY GLOBAL INSTRUMENT representing up to [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] [TITLE OF INSTRUMENTS] This Temporary Global Instrument is issued in respect of an issue of [DESCRIPTION OF INSTRUMENTS INCLUDING AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] (the "INSTRUMENTS") by [ ] (the "ISSUER"). The Issuer for value received promises, all in accordance with the terms and conditions [attached hereto/set out in the information memorandum prepared by the Issuer and dated 30 May 2001 and the pricing supplement prepared in relation to the Instruments ("PRICING SUPPLEMENT")] to pay to the bearer upon presentation and, if appropriate, surrender hereof on [MATURITY DATE] [by [ ] [equal] successive [semi-annual/quarterly/other] instalments on the dates specified in the Pricing Supplement](2) or on such earlier date as the same may become payable in accordance therewith the principal amount of [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] (as reduced from time to time in accordance with such terms and conditions) or such - ---------- (1) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (2) Insert only where Instruments are Instalment Instruments. -34- lesser amount as is equal to the outstanding principal amount of the Instruments represented by this Temporary Global Instrument or such other redemption amount as may be specified therein [and to pay in arrear on the dates specified therein interest on the principal amount hereof from time to time at the rate or rates specified therein], all subject to and in accordance with such terms and conditions. [The Issuer of this Instrument is [ ], which is not an authorised institution or a European authorised institution (as such terms are defined in the Banking Act 1987 (Exempt Transactions) Regulations 1997).](3) Except as specified herein, the bearer of this Temporary Global Instrument is entitled to the benefit of the terms and conditions referred to above and of the same obligations on the part of the Issuer as if such bearer were the bearer of the Instruments represented hereby except that the bearer of this Temporary Global Instrument shall not prior to the Exchange Date (defined below) be entitled to receive payment of [the principal of or] interest on the Instruments except to the extent that, upon due presentation and surrender of this Temporary Global Instrument for exchange, delivery of the Permanent Global Instrument, or as the case may be Definitive Instruments or Registered Instruments is improperly withheld or refused, and all payments under and to the bearer of this Temporary Global Instrument shall be valid and effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Instruments. This Temporary Global Instrument is exchangeable in whole or in part for a permanent global instrument (the "PERMANENT GLOBAL INSTRUMENT") representing the Instruments and in substantially the form (subject to completion) set out in the Second Schedule to a fiscal agency agreement dated 10 March 1993 and amended and restated on 30 May 2001 (as further supplemented, amended or replaced, the "FISCAL AGENCY AGREEMENT") and made between the Issuer and Banque Generale du Luxembourg S.A., in its capacity as fiscal agent (the "FISCAL AGENT", which expression shall include any successor to Banque Generale du Luxembourg S.A. in its capacity as such), Banque Generale du Luxembourg S.A. as principal registrar and certain other financial institutions named therein or, if so specified in the Pricing Supplement, for definitive instruments ("DEFINITIVE INSTRUMENTS") in substantially the form (subject to completion) set out in the Third Schedule to the Fiscal Agency Agreement [or for registered instruments ("REGISTERED INSTRUMENTS") in substantially the form (subject to completion) set out in the Fourth Schedule to the Fiscal Agency Agreement]. An exchange for a Permanent Global Instrument or Definitive Instruments [or Registered Instruments](4) will be made only on or after the date (the "EXCHANGE DATE") which is 40 days after the later of the date of issue of this Temporary Global Instrument and the completion (as notified to the Fiscal Agent by the Issuer) of the distribution of the Instruments represented by this Temporary Global Instrument and upon presentation or, as the case may be, surrender of this Temporary Global Instrument to the Fiscal Agent at its specified office in relation to the Instruments and upon and to the extent only of delivery to the Fiscal Agent of a certificate or certificates issued by the Euroclear System or Clearstream, Luxembourg, or by any other relevant clearing system and dated not earlier than the Exchange Date in substantially the form set out in Annex I hereto or, as the case - ---------- (3) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (4) Insert only in the case of a Series comprising both Bearer and Registered Instruments issued by ABB Finance Inc. if the relevant Pricing Supplement specifies that Bearer Instruments are exchangeable for Registered Instruments. -35- may be, in the form that is customarily issued in such circumstances by such other clearing system. [An exchange for Registered Instruments will be made at any time upon presentation or, as the case may be, surrender of this Temporary Global Instrument to the Fiscal Agent at its specified office.](5) [Any Registered Instruments shall be made available in exchange in accordance with the terms and conditions applicable to the Instruments represented hereby and the Fiscal Agency Agreement (which shall apply as if the bearer of this Temporary Global Instrument were the bearer of the Instruments represented hereby).](6) Payments of interest otherwise falling due before the Exchange Date will be made only upon presentation of the Temporary Global Instrument to the Fiscal Agent at its specified office in relation to the Instruments and upon and to the extent only of delivery to the Fiscal Agent of a certificate or certificates issued by the Euroclear System or Clearstream, Luxembourg or by any other relevant clearing system and dated not earlier than the relevant interest payment date in substantially the form set out in Annex II hereto or, as the case may be, in the form that is customarily issued in such circumstances by such other clearing system. In the event that (i) this Temporary Global Instrument is not duly exchanged, whether in whole or in part, for a Permanent Global Instrument or, as the case may be, Definitive Instruments [or Registered Instruments](6) by 6.00 p.m. (London time) on the thirtieth day after the time at which the preconditions to such exchange are first satisfied or (ii) any Instrument represented hereby becomes immediately redeemable following the occurrence of an Event of Default in relation thereto and is not duly redeemed (and the funds required for such redemption are not available to the Fiscal Agent for the purposes of effecting such redemption and remain available for such purpose) by 6.00 p.m. (London time) on the thirtieth day after the time at which such Instruments become immediately redeemable, then this Temporary Global Instrument will become void and the bearer will have no further rights hereunder (but without prejudice to the rights which such bearer or any other person having an interest in this Temporary Global Instrument immediately prior to it becoming void may have under a deed of covenant dated 10 March 1993 and executed by the Issuer in respect of the Instruments). [On any occasion on which a payment of interest is made in respect of this Temporary Global Instrument, the Issuer shall procure that the Paying Agent to which such Temporary Global Instrument is presented notes the same on the Schedule hereto.] On any occasion on which a payment of principal or redemption amount is made in respect of this Temporary Global Instrument or on which this Temporary Global Instrument is exchanged in whole or in part as aforesaid or on which Instruments represented by this Temporary Global Instrument are to be cancelled, the Issuer shall cause the Paying Agent to which such Temporary Global Instrument is presented to procure that (i) the aggregate principal amount of the Instruments in respect of which such payment is made (or, in the case of a partial payment, the corresponding part thereof) or which are delivered in definitive [or registered form](4) or which are exchanged for a permanent global instrument or which are to be cancelled and (ii) the remaining principal amount of this Temporary Global Instrument (which shall be the previous - ---------- (5) Insert only in the case of a Series comprising both Bearer and Registered Instruments issued by ABB International Finance Limited or ABB Capital B.V. (and not ABB Finance Inc.) if the relevant Pricing Supplement specifies that Bearer Instruments are exchangeable for Registered Instruments. (6) Insert only in the case of a Series comprising both Bearer and Registered Instruments if the relevant Pricing Supplement specifies that Bearer Instruments are exchangeable for Registered Instruments. -36- principal amount hereof less the amount referred to at (i) above) are noted on the Schedule hereto, whereupon the principal amount of this Temporary Global Instrument shall for all purposes be as most recently so noted. This Temporary Global Instrument is governed by, and shall be construed in accordance with, English law. This Temporary Global Instrument shall not be valid for any purpose until authenticated for and on behalf of Banque Generale du Luxembourg S.A. as fiscal agent. AS WITNESS the manual signature of two duly authorised officers on behalf of the Issuer. -37- THE SCHEDULE PAYMENTS, DELIVERY OF DEFINITIVE INSTRUMENTS OR REGISTERED INSTRUMENTS, EXCHANGE FOR PERMANENT GLOBAL INSTRUMENT AND CANCELLATION OF INSTRUMENTS
- -------------------------------------------------------------------------------------------------------------------------- Date of Amount of Amount of Aggregate Aggregate Aggregate Remaining Authorised payment, interest principal or, principal principal principal principal signature of delivery or then paid as the case amount of amount of amount of amount of the Fiscal cancellation may be, Definitive or this Instruments this Agent and/or redemption Registered Temporary then Temporary the Registrar amount Instruments Global cancelled Global then paid then Instrument Instrument delivered then exchanged for the Permanent Global Instrument - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
-38- [ ] [ ] By: [manual signature] By: [manual signature] (DULY AUTHORISED) (DULY AUTHORISED) ISSUED in[ ] as of [ ] [ ] AUTHENTICATED for and on behalf of BANQUE GENERALE DU LUXEMBOURG S.A. as fiscal agent By: [manual signature] (DULY AUTHORISED) [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](7) [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](8) - ---------- (7) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. (8) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -39- ANNEX I [Form of certificate to be given in relation to exchanges of this Temporary Global Instrument for a Permanent Global Instrument or Definitive Instruments or Registered Instruments issued by ABB Finance Inc. This Certificate is not required for Registered Instruments issued by ABB International Finance Limited or ABB Capital B.V.:] [NAME OF ISSUER] [AGGREGATE PRINCIPAL AMOUNT AND TITLE OF INSTRUMENTS] (the "SECURITIES") [This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organisations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "MEMBER ORGANISATIONS") substantially to the effect set forth in the Fiscal Agency Agreement as of the date hereof, [ ] principal amount of the above-captioned Securities (i) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations, estates or trust the income of which is subject to United States Federal income taxation regardless of its source or trusts (a) that are subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (b) that have a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person ("UNITED STATES PERSONS"), (ii) is owned by United States persons that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) ("FINANCIAL INSTITUTIONS")) purchasing for their own account or for resale, or (b) acquired the Securities through and are holding through on the date hereof foreign branches of United States financial institutions (and in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.](7) This is [also](7) to certify with respect to [ ] principal amount of the above-captioned Securities, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from our Member Organisations entitled to a portion of such principal amount, certifications with respect to such portion, substantially to the effect set forth in the Fiscal Agency Agreement. [As used herein, "UNITED STATES" means the United States of America (including the States and the District of Columbia); and its possessions include Puerto Rico, the U.S. -40- Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.](9) We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Temporary Global security excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as at the date hereof. We understand that this certification is required in connection [with certain tax laws and, if applicable,](7) certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings. Date: [ ](10) [EUROCLEAR BANK S.A./N.V., as operator of the Euroclear System/Clearstream Banking, societe anonyme ] By: [authorised signature] - ---------- (9) Delete this paragraph or provision in the case of exchanges of the Temporary Global Instrument for Registered Instruments issued by ABB Finance Inc. (10) To be dated not earlier than the Exchange Date. -41- ANNEX II [Form of certificate to be given in relation to payments of interest falling due before the Exchange Date:] [NAME OF ISSUER] [AGGREGATE PRINCIPAL AMOUNT AND TITLE OF INSTRUMENTS] (the "SECURITIES") This is to certify that, based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organisations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "MEMBER ORGANISATIONS") substantially to the effect set forth in the Fiscal Agency Agreement as of the date hereof, [ ] principal amount of the above-captioned Securities (i) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations, estates or trust the income of which is subject to United States Federal income taxation regardless of its source or trusts (a) that are subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (b) that have a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person ("UNITED STATES PERSONS"), (ii) is owned by United States persons that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v) ("FINANCIAL INSTITUTIONS")) purchasing for their own account or for resale, or (b) acquired the Securities through and are holding through on the date hereof foreign branches of United States financial institutions (and in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in clause (iii) above (whether or not also described in clause (i) or (ii)) have certified that they have not acquired the Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions. This is also to certify with respect to such principal amount of Securities set forth above that, except as set forth below, we have received in writing, by tested telex or by electronic transmission, from our Member Organisations entitled to a portion of such principal amount, certifications with respect to such portion, substantially to the effect set forth in the Fiscal Agency Agreement. As used herein, "UNITED STATES" means the United States of America (including the States and the District of Columbia); and its possessions include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. -42- We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Temporary Global security excepted in such certifications and (ii) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as at the date hereof. We understand that this certification is required in connection with certain tax laws and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings. Date: [ ] (11) [EUROCLEAR BANK S.A./N.V., as operator of the Euroclear System/Clearstream Banking, societe anonyme ] By: [authorised signature] - ---------- (11) To be dated not earlier than the relevant interest payment date. -43- ANNEX III [Form of account-holder's certification referred to in the preceding certificates:] [Note: This certificate is not required for Registered Instruments issued by ABB International Finance Limited or ABB Capital B.V.] [NAME OF ISSUER] [AGGREGATE PRINCIPAL AMOUNT AND TITLE OF INSTRUMENTS] (THE "SECURITIES") [This is to certify that as of the date hereof, and except as set forth below, the above-captioned Securities held by you for our account (i) are owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations, estates or trust the income of which is subject to the United States Federal income taxation regardless of its source or trusts (a) that are subject to the primary supervision of a court within the United States and the control of one or more United States persons as described in section 7701(a)(30) of the Code or (b) that have a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person ("UNITED STATES PERSONS"), (ii) are owned by United States person(s) that (a) are foreign branches of a United States financial institution (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(v)) ("FINANCIAL INSTITUTIONS") purchasing for their own account or for resale, or (b) acquired above-captioned the Securities through and are holding through on the date hereof foreign branches of United States financial institutions (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the above-captioned Securities is a United States or foreign financial institution described in clause (iii) above (whether or not also described in clause (i) or (ii)) this is further to certify that such financial institution has not acquired the above-captioned Securities for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.](12) [This is [] to certify that, except as set forth below, the above-captioned Securities are beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who purchased the Securities in transactions which did not require registration under the U.S. Securities Act of 1933, as amended (the "ACT")]. As used in this paragraph the term "U.S. PERSON" has the meaning given to it by Regulation S under the Act.](13) - ---------- (12) Delete this paragraph or provision in the case of exchanges of the Temporary Global Instrument for Registered Instruments issued by ABB Finance Inc. (13) To be used solely in the case of Instruments issued by ABB Finance Inc. -44- [This is also to certify that, except as set further below, the above-captioned Securities are beneficially owned by (a) non-U.S. person(s) or (b) U.S. persons resident outside the United States who purchased the Securities in transactions outside the United States in accordance with Regulation S under the U.S. Securities Act of 1933, as amended the ("ACT"). As used in this paragraph the terms "U.S. PERSON" and "UNITED STATES" have the meanings given to them by Regulation S under the Act.](14) [As used herein, "UNITED STATES" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.](12) We undertake to advise you promptly by tested telex on or prior to the date on which you intend to submit your certification relating to the Securities held by you for our account in accordance with your operating procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certification applies as of such date. This certification excepts and does not relate to [ ] of such interest in the above Securities in respect of which we are not able to certify and as to which we understand exchange and delivery of definitive Securities (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify. We understand that this certification is required in connection with [certain tax laws and, if applicable,](12) certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certification is or would be relevant, we irrevocably authorise you to produce this certification to any interested party in such proceedings. Date: [ ](15) [ACCOUNT-HOLDER] AS OR AS AGENT FOR THE BENEFICIAL OWNER OF THE INSTRUMENTS. By: [authorised signature] - ---------- (14) To be used in the case of Instruments issued by ABB International Finance Limited or ABB Capital B.V. (15) To be dated not earlier than fifteen days before the Exchange Date or, as the case may be the relevant interest payment date. -45- THE SECOND SCHEDULE FORM OF PERMANENT GLOBAL INSTRUMENT THIS INSTRUMENT CONSTITUTES [COMMERCIAL PAPER]/[A SHORTER/LONGER] TERM DEBT SECURITY] ISSUED IN ACCORDANCE WITH THE REGULATIONS MADE UNDER SECTION 4 OF THE BANKING ACT 1987](16) Series Number: [ ] Serial Number: [ ] THE SECURITIES REPRESENTED BY THIS PERMANENT GLOBAL INSTRUMENT HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED IN THIS PARAGRAPH HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. [ABB INTERNATIONAL FINANCE LIMITED (INCORPORATED WITH LIMITED LIABILITY IN GUERNSEY)] [ABB FINANCE INC. (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)] [ABB CAPITAL B.V. (INCORPORATED IN THE NETHERLANDS WITH LIMITED LIABILITY AND HAVING ITS STATUTORY DOMICILE AT AMSTERDAM)] PERMANENT GLOBAL INSTRUMENT representing up to [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] [TITLE OF INSTRUMENTS] This Permanent Global Instrument is issued in respect of an issue of [DESCRIPTION OF INSTRUMENTS INCLUDING AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] (the "INSTRUMENTS") by [ ] (the "ISSUER"). The Issuer for value received promises, all in accordance with the terms and conditions [attached hereto/set out in the information memorandum prepared by the Issuer and dated 30 May 2001 and the pricing supplement prepared in relation to the Instruments ("PRICING SUPPLEMENT")], to pay to the bearer upon presentation and, if appropriate, surrender hereof on [MATURITY DATE] [by [ ] [equal] successive [semi-annual/quarterly/other] instalments on the dates specified in the Pricing Supplement](17) or on such earlier date as the same may become payable in accordance therewith the principal amount of [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] (as reduced from time to time in accordance with such terms and conditions) or such - ---------- (16) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (17) Insert only where Instruments are Instalment Instruments. -46- lesser amount as is equal to the outstanding principal amount of the Instruments represented by this Permanent Global Instrument or such other redemption amount as may be specified therein [and to pay in arrear on the dates specified therein interest on the principal amount hereof from time to time at the rate or rates specified therein], all subject to and in accordance with such terms and conditions. [The Issuer of this Instrument is [ ], which his not an authorised institution or a European authorised institution (as such terms are defined in the Banking Act 1987 (Exempt Transactions) Regulations 1997).](18) The bearer of this Permanent Global Instrument is entitled to the benefit of the terms and conditions referred to above and the same obligations on the part of the Issuer as if such bearer were the bearer of the Instruments represented hereby, and all payments under and to the bearer of this Permanent Global Instrument shall be valid and effective to satisfy and discharge the corresponding liabilities of the Issuer in respect of the Instruments. This Permanent Global Instrument will be exchangeable for definitive Instruments ("DEFINITIVE INSTRUMENTS") in substantially the form (subject to completion) set out in the Third Schedule to a fiscal agency agreement dated 10 March 1993 and amended and restated on 30 May 2001 (as further supplemented, amended or replaced, the "FISCAL AGENCY AGREEMENT") and made between the Issuer and Banque Generale du Luxembourg S.A. in its capacity as fiscal agent (the "FISCAL AGENT", which expression shall include any successor to Banque Generale du Luxembourg S.A. in its capacity as such), Banque Generale du Luxembourg S.A. as principal registrar and certain other financial institutions [or for registered instruments ("REGISTERED INSTRUMENTS") in substantially the form (subject to completion) set out in the Fourth Schedule to the Fiscal Agency Agreement or for a combination of Definitive Instruments and Registered Instruments](19) (a) if Euroclear Bank S.A./N.V., as operator of the Euroclear System (the "EUROCLEAR SYSTEM") or Clearstream Banking, societe anonyme ("CLEARSTREAM, LUXEMBOURG") or any other relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business; (b) if any of the Instruments represented hereby becomes due and payable following an Event of Default (as defined in Condition 7) of the terms and conditions referred to above; or (c) at the option of the bearer hereof acting on behalf of the relevant beneficial owners of the interests in this Permanent Global Instrument and at the expense of such beneficial owners, and, in each case, upon the request of the bearer hereof on behalf of the relevant beneficial owners of the interests in this Permanent Global Instrument and at the expense of such beneficial owners. In order to make such request, the bearer hereof must, not less than forty-five days before the date upon which the delivery of such Definitive Instruments [and/or Registered Instruments](17) is required, deposit this Permanent Global Instrument with the Fiscal Agent at its specified office with the form of exchange notice endorsed hereon duly completed. On an exchange of the whole of this Permanent Global Instrument, this Permanent Global Instrument shall be surrendered to the Fiscal Agent. [Any Registered Instruments shall be made available in exchange in accordance with the terms and - ---------- (18) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (19) Insert only in the case of a Series comprising both Bearer and Registered Instruments if the relevant Pricing Supplement specifies that Bearer Instruments are exchangeable for Registered Instruments. -47- conditions applicable to the Instruments represented hereby and the Fiscal Agency Agreement (which shall apply as if the bearer of this Permanent Global Instrument were the bearer of the Instruments represented hereby).](17) Any Definitive Instruments will be made available for collection by the persons entitled thereto at the specified office of the Fiscal Agent. If default is made by the Issuer in the required delivery of such Definitive Instruments [and/or, as the case may be, Registered Instruments](17) and such default is continuing at 6.00 p.m. (London time) on the thirtieth day after the day on which the relevant notice period expires, then this Permanent Global Instrument will become void and the bearer will have no further rights hereunder (but without prejudice to the rights which such bearer or any other person(s) having an interest in this Permanent Global Instrument immediately prior to it becoming void may have under a deed of covenant dated 10 March 1993 and executed by the Issuer in respect of the Instruments). [On any occasion on which a payment of interest is made in respect of this Permanent Global Instrument, the Issuer shall procure that the Paying Agent to which this Permanent Global Instrument is presented notes the same on the Schedule hereto]. On any occasion on which a payment of principal or redemption amount is made in respect of this Permanent Global Instrument or on which this Permanent Global Instrument is exchanged as aforesaid or on which any Instruments represented by this Permanent Global Instrument are to be cancelled, the Issuer shall cause the Paying Agent to which this Permanent Global Instrument is presented to procure that (i) the aggregate principal amount of the Instruments in respect of which such payment is made (or, in the case of a partial payment, the corresponding part thereof) or which are delivered in definitive [or registered form](17) or which are to be cancelled and (ii) the remaining principal amount of this Permanent Global Instrument (which shall be the previous principal amount hereof less the amount referred to at (i) above) are noted on the Schedule hereto, whereupon the principal amount of this Permanent Global Instrument shall for all purposes be as most recently so noted. Insofar as the Temporary Global Instrument by which the Instruments were initially represented has been exchanged in part only for this Permanent Global Instrument and is then to be further exchanged as to the remaining principal amount or part thereof for this Permanent Global Instrument, then upon presentation of this Permanent Global Instrument to the Fiscal Agent at its specified office in relation to the Instruments and to the extent that the aggregate principal amount of such Temporary Global Instrument is then reduced by reason of such further exchange, the Issuer shall cause the Fiscal Agent to procure that (i) the aggregate principal amount of the Instruments in respect of which such further exchange is then made and (ii) the new principal amount of this Permanent Global Instrument (which shall be the previous principal amount hereof plus the amount referred to at (i) above) are noted on the Schedule hereto, whereupon the principal amount of this Permanent Global Instrument shall for all purposes be as most recently noted. This Permanent Global Instrument is governed by, and shall be construed in accordance with, English law. This Permanent Global Instrument shall not be valid for any purpose until authenticated for and on behalf of Banque Generale du Luxembourg S.A. as fiscal agent. AS WITNESS the manual signature of two duly authorised officers on behalf of the Issuer. -48- THE SCHEDULE PAYMENTS, DELIVERY OF DEFINITIVE OR REGISTERED INSTRUMENTS, FURTHER EXCHANGES OF THE TEMPORARY GLOBAL INSTRUMENT AND CANCELLATION OF INSTRUMENTS
- ------------------------------------------------------------------------------------------------------------- Date of Amount of Amount of Aggregate Aggregate Aggregate Current Authorised payment, interest principal principal principal principal principal signature delivery, then paid or, as the amount of amount of amount of amount of of the further case may exchanges Instruments exchanges this Fiscal exchange of be, for then for Permanent Agent Temporary redemption Definitive cancelled further Global and/or the Global amount Instruments exchanges Instrument Registrar Instrument or then paid or of cancellation Registered Temporary Instruments Global then Instrument delivered - ------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------
-49- [ ] [ ] By: [manual signature] By: [manual signature] (DULY AUTHORISED) (DULY AUTHORISED) ISSUED in [ ] on [ ] [ ] AUTHENTICATED for and on behalf of BANQUE GENERALE DU LUXEMBOURG S.A. as fiscal agent By: [manual signature] (DULY AUTHORISED) [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](20) [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](21) - ---------- (20) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. (21) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -50- EXCHANGE NOTICE ________________________, being the bearer of this Permanent Global Instrument at the time of its deposit with the Fiscal Agent at its specified office for the purposes of the Instruments, hereby exercises the option set out above to have this Permanent Global Instrument exchanged in whole or in part for Instruments in [definitive/registered form/[ ] in aggregate principal amount of Instruments in definitive form and [ ] in aggregate principal amount of Instruments in registered form]* and directs that such Instruments in definitive form be made available for collection by it from the Fiscal Agent's specified office and that such Instruments in registered form be made available in accordance with the terms and conditions applicable to the Instruments represented hereby and the Fiscal Agency Agreement. - --------------------------------- By: (DULY AUTHORISED) * Delete and complete, as appropriate -51- THE THIRD SCHEDULE FORM OF DEFINITIVE INSTRUMENT ("ISMA" FORMAT) [On the face of the Instrument:] [9999999+AAXXXXXXXXX9+XX+999999] [DENOMINATION] [THIS INSTRUMENT CONSTITUTES [COMMERCIAL PAPER]/[A SHORTER/LONGER] TERM DEBT SECURITY] ISSUED IN ACCORDANCE WITH THE REGULATIONS MADE UNDER SECTION 4 OF THE BANKING ACT 1987](22) THIS INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED IN THIS PARAGRAPH HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. [ABB INTERNATIONAL FINANCE LIMITED (INCORPORATED WITH LIMITED LIABILITY IN GUERNSEY)] [ABB FINANCE INC. (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)] [ABB CAPITAL B.V. (INCORPORATED IN THE NETHERLANDS WITH LIMITED LIABILITY AND HAVING ITS STATUTORY DOMICILE AT AMSTERDAM)] [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] [TITLE OF INSTRUMENTS] [ ] (the "ISSUER") for value received promises, all in accordance with the terms and conditions [endorsed hereon/attached hereto] [and the pricing supplement referred to therein and prepared in relation to the Instruments ("PRICING SUPPLEMENT")] to pay to the bearer upon presentation and, if appropriate, surrender hereof on [MATURITY DATE] [by [ ] [equal] successive [semi-annual/quarterly/other] instalments on the dates specified in the Pricing Supplement](23) or on such earlier date as the same may become payable in accordance therewith the principal amount of: [DENOMINATION IN WORDS AND NUMERALS] - ---------- (22) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (23) Insert only where Instruments are Instalment Instruments. -52- [(, in the case of payment on such earlier date, as reduced from time to time in accordance with such terms and conditions)](19) or such other redemption amount as may be specified therein [and to pay in arrear on the dates specified therein interest on such principal amount [(as reduced from time to time in accordance with such terms and conditions)](19) at the rate or rates specified therein, all subject to and in accordance with such terms and conditions]. [The Issuer of this Instrument is [ ], which is not an authorised institution or a European authorised institution (as such terms are defined in the Banking Act 1987 (Exempt Transactions) regulations 1997).](24) [This [TITLE OF INSTRUMENT] shall not/Neither this [TITLE OF INSTRUMENT] nor any of the interest coupons appertaining hereto shall] be valid for any purpose until this [TITLE OF INSTRUMENT] has been authenticated for and on behalf of Banque Generale du Luxembourg S.A. as fiscal agent. This [TITLE OF INSTRUMENT] is governed by, and shall be construed in accordance with, English law. AS WITNESS the facsimile signature of two duly authorised officers on behalf of the Issuer. [ ] [ ] By: [facsimile signature] By: [facsimile signature] (DULY AUTHORISED) (DULY AUTHORISED) ISSUED in [ ] as of [ ] [ ] AUTHENTICATED for and on behalf of BANQUE GENERALE DU LUXEMBOURG S.A. as fiscal agent without recourse, warranty or liability By: [manual signature] (DULY AUTHORISED) [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](25) - ---------- (24) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (25) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. -53- [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](26) - ---------- (26) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -54- [On the reverse of the Instruments:] TERMS AND CONDITIONS [AS CONTEMPLATED IN THE INFORMATION MEMORANDUM AND AS AMENDED BY THE RELEVANT PRICING SUPPLEMENT] [At the foot of the Terms and Conditions:] FISCAL AGENT BANQUE GENERALE DU LUXEMBOURG S.A. 50, Avenue J.F. Kennedy L-2951 Luxembourg PAYING AGENT BANQUE GENERALE DU LUXEMBOURG (SUISSE) S.A. 57 Rennweg CH-8023 Zurich Switzerland -55- FORMS OF COUPONS [On the front of Coupon:] [Attached to the Instruments (interest-bearing, fixed rate and having Coupons):] [ISSUER] [AMOUNT AND TITLE OF INSTRUMENTS] Coupon for [ ] due on [ ] Such amount is payable (subject to the terms and conditions [endorsed on/attached to the [TITLE OF INSTRUMENT] to which this Coupon appertains [and the pricing supplement referred to therein], which shall be binding on the holder of this Coupon whether or not it is for the time being attached to such [TITLE OF INSTRUMENT]) against surrender of this Coupon at the specified office of the Fiscal Agent or any of the Paying Agents set out on the reverse hereof (or any other or further fiscal or paying agents and/or specified offices from time to time designated for the purpose by notice duly given in accordance with such terms and conditions). [The attention of Couponholders is drawn to condition 9A.06 of the terms and conditions. The Instrument to which this Coupon appertains may in certain circumstances specified in such terms and conditions, fall due for redemption before the due date in relation to this Coupon. In such event, the Paying Agent to which such Instrument is presented for redemption may determine, in accordance with the aforesaid condition 9A.06 that this Coupon is to become void.] [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](27) [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](28) [99+9999999+AAXXXXXXXXX9+XX+999999] - ---------- (27) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. -56- - ---------- (28) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -57- [Attached to the Instrument (interest-bearing, floating rate and having Coupons):] [ISSUER] [AMOUNT AND TITLE OF INSTRUMENTS] Coupon for the amount of interest due on [ ] Such amount is payable (subject to the terms and conditions [endorsed on/attached to] the [TITLE OF INSTRUMENT] to which this Coupon appertains [and the pricing supplement referred to therein], which shall be binding on the holder of this Coupon whether or not it is for the time being attached to such [TITLE OF INSTRUMENT]) against surrender of this Coupon at the specified office of the Fiscal Agent or any of the Paying Agents set out on the reverse hereof (or any other or further fiscal or paying agents and/or specified offices from time to time designated for the purpose by notice duly given in accordance with such terms and conditions). The Instrument to which this Coupon appertains may, in certain circumstances specified in such terms and conditions, fall due for redemption before the due date in relation to this Coupon. In such event, this Coupon will become void and no payment will be made in respect hereof. [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](29) [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](30) [99+9999999+AAXXXXXXXXX9+XX+999999] - ---------- (29) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. (30) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -58- [On the reverse of each Coupon:] FISCAL BANQUE GENERALE DU LUXEMBOURG S.A. AGENT: 50 Avenue J.F. Kennedy L-2951 Luxembourg PAYING BANQUE GENERALE DU LUXEMBOURG (SUISSE) S.A. AGENT: 57 Rennweg CH-8023 Zurich Switzerland -59- FORM OF TALON No______________ [ ] [AMOUNT AND TITLE OF INSTRUMENTS] TALON FOR FURTHER COUPONS [ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.](31) [BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER) AND THAT IT IS NOT ACTING FOR OR ON BEHALF OF A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SECTION 6049(b)(4) OF THE INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER).](32) After all the Coupons appertaining to the Instrument to which this Talon appertains have matured further Coupons [(including, where appropriate, a Talon for further Coupons)] will be issued at the specified office of the Fiscal Agent or any of the Paying Agents set out in the reverse hereof (or any other or further paying agents and/or specified offices from time to time designated by notice duly given in accordance with the terms and conditions [endorsed on/attached to] the [TITLE OF INSTRUMENT] to which this Talon appertains [and the pricing supplement referred to therein] (which shall be binding on the holder of this Talon whether or not it is for the time being attached to such [TITLE OF INSTRUMENT])) upon production and surrender of this Talon upon and subject to such terms and conditions. The initial Paying Agents and their specified offices are set out on the reverse hereof. Under the said terms and conditions, such Instrument may, in certain circumstances, fall due for redemption before the original due date for exchange of this Talon and in any such event this Talon shall become void and no exchange shall be made in respect hereof. [ISSUER] - ---------- (31) Insert only where either (i) Issuer is AFI and the maturity of the Notes is more than 183 days or (ii) Issuer is AIFLTD or ACBV and the maturity of the Notes is more than one year. (32) Insert only where Issuer is AFI and the maturity of the Notes is 183 days or less. -60- THE FOURTH SCHEDULE FORM OF REGISTERED INSTRUMENT [THIS INSTRUMENT CONSTITUTES [COMMERCIAL PAPER]/[A SHORTER/LONGER] TERM DEBT SECURITY] ISSUED IN ACCORDANCE WITH THE REGULATIONS MADE UNDER SECTION 4 OF THE BANKING ACT 1987](33) ISIN Number: [ ] Series Number: [ ] Serial Number: [ ] THIS INSTRUMENT HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT IN CERTAIN TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. TERMS USED IN THIS PARAGRAPH HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. [ABB INTERNATIONAL FINANCE LIMITED (INCORPORATED WITH LIMITED LIABILITY IN GUERNSEY)] [ABB FINANCE INC. (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)] [ABB CAPITAL B.V. (INCORPORATED IN THE NETHERLANDS WITH LIMITED LIABILITY AND HAVING ITS STATUTORY DOMICILE AT AMSTERDAM)] [AGGREGATE PRINCIPAL AMOUNT OF TRANCHE] [TITLE OF INSTRUMENTS] [ ] (the "ISSUER") for value received promises, all in accordance with the terms and conditions [endorsed hereon/attached hereto] [and the pricing supplement referred to therein and prepared in relation to the Instruments ("PRICING SUPPLEMENT")], to pay to _______________________________________ of ________________________________ _________________________________________________________________________ (being the person registered in the register referred to below or, if more than one person is so registered, the first-named of such persons) on [MATURITY DATE] [by [ ] [equal] successive [semi-annual/quarterly/other] instalments on the dates specified in the Pricing Supplement](34) or on such earlier date as the same may become payable in accordance therewith the principal sum of ______________________________________________ [(, in the case of payment on such earlier date, as reduced in accordance with such terms and conditions)](34) or such other redemption amount as may be specified therein [and to pay in arrear on the dates specified therein interest on such - ---------- (33) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (34) Insert only where Instruments are Instalment Instruments. -61- principal amount [(as reduced in accordance with such terms and conditions)](34) at the rate or rates specified therein], all subject to and in accordance with such terms and conditions. The statements set forth in the legend, if any, set forth above are an integral part of the terms of this Instrument and by acceptance hereof each holder of this Instrument agrees to be subject to and bound by the terms and provisions set forth in such legend, if any. [The Issuer of this Instrument is [ ], which is not an authorised institution or a European authorised institution (as such terms are defined in the Banking Act 1987 (Exempt Transactions) Regulations 1997).](35) This Instrument is evidence of entitlement only. Title to the Instrument passes only on due registration in the Register maintained by [ ](36), as registrar, and only the duly registered holder or if more than one person is so registered, the first-named of such persons is entitled to payment in respect of this Instrument. This Instrument is governed by, and shall be construed in accordance with, English law. This Instrument shall not be valid for any purpose until this Instrument has been authenticated for and on behalf of [ ],(36) as registrar. AS WITNESS the facsimile or manual signatures of two duly authorised officers of the Issuer. [ ] [ ] By: [manual/facsimile signature] By: [manual/facsimile signature] (DULY AUTHORISED) (DULY AUTHORISED) ISSUED in [ ] as of [ ] [ ] AUTHENTICATED for and on behalf of [ ] as registrar without recourse, warranty or liability By: [manual signature] (DULY AUTHORISED) FORM OF TRANSFER FOR VALUE RECEIVED _______________________________, being the registered holder of this [TITLE OF INSTRUMENT], hereby transfers to ___________________________________ of ________________________________________, ____________________________________ in principal amount of this [TITLE OF - ---------- (35) Delete if Instrument is not denominated in Sterling and the issue proceeds are not accepted in the United Kingdom. (36) Insert name of the relevant Registrar. -62- INSTRUMENT] and irrevocably requests and authorises [ ](37), in its capacity as registrar in relation to the [TITLE OF INSTRUMENTS] (or any successor to [ ](37), in its capacity as such) to effect the relevant transfer by means of appropriate entries in the register kept by it. Dated: ------------------------ ------------------------ By: [manual signature] [By: [manual signature (DULY AUTHORISED) (DULY AUTHORISED)] NOTES: THE NAME OF THE PERSON BY OR ON WHOSE BEHALF THIS FORM OF TRANSFER IS SIGNED MUST CORRESPOND WITH THE NAME OF THE REGISTERED HOLDER AS IT APPEARS ON THE FACE OF THIS INSTRUMENT. (i) A representative of such registered holder should state the capacity in which he signs e.g. executor. (ii) THE SIGNATURE OF THE PERSON EFFECTING A TRANSFER SHALL CONFORM TO ANY LIST OF DULY AUTHORISED SPECIMEN SIGNATURES SUPPLIED BY THE REGISTERED HOLDER OR BE CERTIFIED BY A RECOGNISED BANK, NOTARY PUBLIC OR IN SUCH OTHER MANNER AS THE REGISTRAR MAY REQUIRE. (iii) ANY TRANSFER OF [TITLE OF INSTRUMENTS] SHALL BE IN AN AMOUNT EQUAL TO THE MINIMUM DENOMINATION AS MAY BE SPECIFIED IN THE RELEVANT PRICING SUPPLEMENT OR AN INTEGRAL MULTIPLE THEREOF. - ---------- (37) Insert name of the relevant Registrar -63- THE FIFTH SCHEDULE PROVISIONS FOR MEETINGS OF HOLDERS OF INSTRUMENTS 1. (A) As used in this Schedule, the following expressions shall have the following meanings unless the context otherwise requires: (1) "VOTING CERTIFICATE" shall mean a certificate in the English language issued by any Paying Agent or, as the case may be, any Registrar and dated, in which it is stated: (a) that on the date thereof outstanding Bearer Instruments of any Series (not being Bearer Instruments in respect of which a block voting instruction has been issued and is outstanding in respect of the meeting specified in such voting certificate or any adjournment thereof) bearing specified serial numbers have been deposited to the order of such Paying Agent and that no such Bearer Instruments will be released until the first to occur of: (i) the conclusion of the meeting specified in such certificate or any adjournment thereof; and (ii) the surrender of the certificate to such Paying Agent; or (b) that on the date thereof Registered Instruments of any Series (not being Registered Instruments in respect of which a block voting instruction has been issued and is outstanding in respect of the meeting specified in such voting certificate or any adjournment thereof) are registered in the books and records maintained by the Registrar in the names of specified registered holders; and (c) that until the release of the Bearer Instruments represented thereby the bearer thereof is entitled to attend and vote at such meeting or any adjournment thereof in respect of the Instruments represented by such certificate; and (2) "BLOCK VOTING INSTRUCTION" shall mean a document in the English language issued by any Paying Agent or, as the case may be, any Registrar and dated, in which: (a) it is certified that outstanding Bearer Instruments of any Series (not being Bearer Instruments in respect of which a voting certificate has been issued and is outstanding in respect of the meeting specified in such block voting instruction or any adjournment thereof) have been deposited to the order of such Paying Agent and that no such Bearer Instruments will be released until the first to occur of: (i) the conclusion of the meeting specified in such document or any adjournment thereof; and -64- (ii) the surrender, not less than 48 hours before the time for which such meeting or adjournment thereof is convened, of the receipt for each such deposited Bearer Instrument which has been deposited to the order of such Paying Agent, coupled with notice thereof being given by such Paying Agent to the relevant Issuer; or (b) It is certified that Registered Instruments of any Series (not being Registered Instruments in respect of which a voting certificate has been issued and is outstanding in respect of the meeting specified in such block voting instruction and any adjournment thereof) are registered in the books and records maintained by the Registrar in the names of specified registered holders; (c) It is certified that each depositor of such Instruments or registered holder thereof or a duly authorised agent on his or its behalf has instructed the Paying Agent or, as the case may be, the Registrar that the vote(s) attributable to his or its Instruments so deposited or registered should be cast in a particular way in relation to the resolution or resolutions to be put to such meeting or any adjournment thereof and that all such instructions are, during the period of 48 hours prior to the time for which such meeting or adjourned meeting is convened, neither revocable nor subject to amendment; (d) the total number, principal amount outstanding, the serial numbers and series numbers of the Instruments so deposited or registered are listed, distinguishing with regard to each such resolution between those in respect of which instructions have been given as aforesaid that the votes attributable thereto should be cast in favour of the resolution and those in respect of which instructions have been so given that the votes attributable thereto should be cast against the resolution; and (e) any person named in such document (hereinafter called a "PROXY") is authorised and instructed by the Paying Agent or, as the case may be, the Registrar to cast the votes attributable to the Instruments so listed in accordance with the instructions referred to in (c) and (d) above as set out in such document. (B) A registered holder of a Registered Instrument may by an instrument in writing in the form for the time being available from the specified office of the Registrar in the English language (hereinafter called a "FORM OF PROXY") signed by the holder or its duly appointed attorney or, in the case of a corporation, executed under its seal or signed on its behalf by its duly appointed attorney or a duly authorised officer of the corporation, appoint any person (hereinafter also called a "PROXY") to attend and act on his or its behalf in connection with any meeting or proposed meeting of the holders of Instruments. (C) Voting certificates, block voting instructions and forms of proxy shall be valid for so long as the relevant Instruments have not been released or, in the case of Registered Instruments, are duly registered in the name(s) of the registered -65- holder(s) certified in the relevant voting certificate or block voting instruction or, in the case of a form of proxy, in the name of the appointor but not otherwise and notwithstanding any other provision of this Schedule and during the validity thereof the holder of any such voting certificate or, as the case may be, the proxy shall, for all purposes in connection with any meeting of holders of Instruments, be deemed to be the holder of the Instruments of the relevant Series to which such voting certificate, block voting instructions or form of proxy relates and, in the case of Bearer Instruments, the Paying Agent to the order of whom such Instruments have been deposited and, in the case of Registered Instruments, the registered holder(s) shall nevertheless be deemed for such purposes not to be the holder of those Instruments. 2. The relevant Issuer at any time may, and upon a request in writing by holders of Instruments holding not less than one-tenth of the principal amount outstanding of the Instruments of any particular Series for the time being outstanding at any time after such Instruments shall have become repayable owing to an event of default under the Conditions applicable to such Instruments shall, convene a meeting of the holders of Instruments of such Series. Whenever any Issuer wishes or is obliged to convene any such meeting it shall forthwith give notice in writing to the Fiscal Agent of the day, time and place thereof and of the nature of the business to be transacted thereat. Every such meeting or adjournment thereof shall be held at such time and place as the Fiscal Agent may approve. 3. At least twenty-one days' notice (exclusive of the day on which the notice is given and of the day on which the meeting is held) specifying the day, time and place of meeting shall be given to the holders of the Instruments of the relevant Series. A copy of the notice shall be given to the relevant Issuer unless the meeting shall be convened by such Issuer and a copy shall be given to the Fiscal Agent and, in the case of Registered Instruments, the Registrar. Such notice shall be given in the manner provided in the Conditions and shall specify the general nature of the business to be transacted at the meeting thereby convened but (except in the case of an Extraordinary Resolution) it shall not be necessary to specify in such notice the form of any resolution to be proposed and shall include, INTER ALIA, statements to the effect: (a) that Bearer Instruments of the relevant Series may be deposited with (or to the order of) any Paying Agent for the purpose of obtaining voting certificates or appointing proxies until 48 hours before the time fixed for the meeting but not thereafter; (b) that (without prejudice to the provisions of paragraph 1(B)) registered holders of Registered Instruments may obtain voting certificates or appoint proxies not later than (except in the case of a form of proxy) 48 hours before the time fixed for the meeting but not thereafter. 4. A person (who may, but need not, be the holder of an Instrument of the relevant Series) nominated in writing by the Fiscal Agent shall be entitled to take the chair at every meeting but if no such nomination is made or if at any meeting the person nominated shall not be present within fifteen minutes after the time appointed for the holding of -66- such meeting the holders of Instruments present may appoint another such person to be chairman and failing such choice the relevant Issuer may appoint the chairman. The chairman of a reconvened meeting need not be the same person who was chairman of the original meeting. 5. At any such meeting any two or more persons present in person holding Instruments of the relevant Series or voting certificates or being proxies and holding or representing in the aggregate at least one-third in principal amount outstanding of the Instruments of the relevant Series for the time being outstanding shall form a quorum for the transaction of business Provided that at any meeting at which an Extraordinary Resolution is to be proposed for the purpose of effecting any of the modifications specified in the proviso to paragraph 18 hereof the quorum for such meeting shall be any two or more persons present in person holding Instruments of the relevant Series or voting certificates or being proxies and holding or representing in the aggregate at least 75 per cent. in principal amount outstanding of the Instruments of the relevant Series for the time being outstanding and no business (other than the choosing of a chairman) shall be transacted at any meeting unless the requisite quorum be present at the commencement of business. 6. If within an hour from the time appointed for any such meeting a quorum is not present the meeting shall, if convened upon the requisition of holders of Instruments, be dissolved. In any other case it shall stand adjourned for such period, not being less than fourteen days nor more than forty-two days, as may be decided by the chairman. At such adjourned meeting two or more persons present in person holding Instruments of the relevant Series or voting certificates or being proxies (whatever the principal amount outstanding of the Instruments of the relevant Series so held or represented by them) shall form a quorum and shall have the power to pass any resolution and to decide upon all matters which could properly have been dealt with at the original meeting had a quorum been present at such meeting Provided that at any adjourned meeting at which an Extraordinary Resolution is to be proposed for the purpose of effecting any of the modifications specified in the proviso to paragraph 18 hereof the quorum for such meeting shall be two or more persons present holding Instruments of the relevant Series or voting certificates or being proxies and holding or representing in the aggregate at least 25 per cent. in principal amount outstanding of the Instruments of the relevant Series for the time being outstanding. 7. The chairman may with the consent of (and shall if directed by) any meeting adjourn the same from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place. 8. At least ten days' notice (exclusive of the day on which the notice is given and the day on which the meeting is held) of any meeting adjourned through want of a quorum shall be given in the same manner as of an original meeting and such notice shall state the quorum required at such adjourned meeting. Subject as aforesaid, it shall not be necessary to give any notice of an adjourned meeting. 9. Every question submitted to a meeting shall be decided in the first instance by a show of hands and in case of equality of votes the chairman shall both on a show of hands and on -67- a poll have a casting vote in addition to the vote or votes (if any) to which he may be entitled as a holder of an Instrument or voting certificate or being a proxy. 10. At any meeting, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman or the relevant Issuer or by one or more persons holding one or more Instruments of the relevant Series or voting certificates or being proxies and holding or representing in the aggregate not less than 2 per cent. of the principal amount outstanding of the Instruments of the relevant Series for the time being outstanding, a declaration by the chairman that a resolution has been carried or carried by a particular majority or lost or not carried by any particular majority shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. 11. If at any meeting a poll is so demanded, it shall be taken in such manner and (subject as hereinafter provided) either at once or after such an adjournment as the chairman directs and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded as at the date of the taking of the poll. The demand for a poll shall not prevent the continuance of the meeting for the transaction of any business other than the question on which the poll has been demanded. 12. Any poll demanded at any meeting on the election of a chairman or on any question of adjournment shall be taken at the meeting without adjournment. 13. The Fiscal Agent, the relevant Issuer and, in the case of Registered Instruments, the Registrar (through their respective representatives) and their respective advisers shall be entitled to attend and speak at any meeting of the holders of Instruments. No person shall be entitled to attend (except as provided above) or to vote at any meeting of the holders of Instruments or to join with others in requesting the convening of such a meeting unless he is the holder of an Instrument or a voting certificate or is a proxy. 14. Subject as provided in paragraph 9 above, at any such meeting (a) on a show of hands every person who is present (being an individual) in person or (being a corporation) by a duly authorised representative and (i) who is a holder of Instruments, and in the case of Bearer Instruments, produces such Instruments or (ii) who produces a voting certificate or (iii) is a proxy shall have one vote and (b) on a poll every person who is so present shall have one vote in respect of each [ ](38) principal amount outstanding of Instruments of the relevant Series so produced or represented by the voting certificate so produced or in respect of which he is a proxy. Without prejudice to the obligations of the proxies named in any block voting instruction or form of proxy, any person entitled to more than one vote need not use all his votes or cast all the votes to which he is entitled in the same way. 15. A proxy named in any block voting instruction or form of proxy need not be a holder of an Instrument. - ---------- (38) The currency and amount of the smallest denomination of Instruments available in relation to the particular Series shall be deemed to be inserted here. -68- 16. Each block voting instruction and each form of proxy, together (if so required by the relevant Issuer) with proof satisfactory to such Issuer of its due execution, shall be deposited at such place as such Issuer shall designate not less than 24 hours before the time appointed for holding the meeting or adjourned meeting at which the proxy named in the block voting instruction or form of proxy proposes to vote and in default the block voting instruction or form of proxy shall not be treated as valid unless the chairman of the meeting decides otherwise before such meeting or adjourned meeting proceeds to business. A certified copy of each such block voting instruction and form of proxy and satisfactory proof as aforesaid (if applicable) shall, be deposited with the Issuer at such place as aforesaid before the commencement of the meeting or adjourned meeting but such Issuer shall not thereby be obliged to investigate or be concerned with the validity of, or the authority of the proxy named in, any such block voting instruction or form of proxy. 17. Without prejudice to paragraph 1, any vote given in accordance with the terms of a block voting instruction or form of proxy shall be valid notwithstanding the previous revocation or amendment of the block voting instruction or form of proxy or of any of the Instrument holders' instructions pursuant to which it was executed, provided that no intimation in writing of such revocation or amendment shall have been received by the relevant Issuer or by the chairman of the meeting, in each case not less than 24 hours before the commencement of the meeting or adjourned meeting at which the block voting instruction or form of proxy is used. 18. A meeting of the holders of Instruments shall, in respect of the Instruments of the relevant Series and subject to the provisions contained in the Conditions, in addition to the powers hereinbefore given, but without prejudice to any powers conferred on other persons by these presents, have the following powers exercisable by Extraordinary Resolution only namely: (a) power with the approval of the relevant Issuer to sanction any modification, abrogation, variation or compromise of, or arrangement in respect of, the rights of the holders of Instruments and/or Coupons in respect of the Instruments of the relevant Series, against the relevant Issuer, whether such rights shall arise under the Instruments of that Series, the Deed of Covenant executed by such Issuer or otherwise; (b) power to assent to any modification to the provisions contained herein or of the Instruments or Coupons of the relevant Series which shall be proposed by the Issuer; (c) power to sanction any proposal by the relevant Issuer for the exchange or substitution for the Instruments of the relevant Series of, or the conversion of those Instruments into, shares, stock, bonds, debentures, debenture stock or other obligations or securities of the relevant Issuer or any other body corporate formed or to be formed otherwise than in accordance with any provisions of the Conditions applicable to the Instruments of the relevant Series; (d) power to assent to any modification of the provisions contained in the Instruments or the Coupons of the relevant Series, the Conditions thereof, this -69- Schedule, the Fiscal Agency Agreement or the Deed of Covenant executed by such Issuer which shall be proposed by the relevant Issuer; (e) power to waive or authorise any breach or proposed breach by the relevant Issuer of its obligations under the Conditions applicable to the Instruments of the relevant Series or any act or omission which might otherwise constitute an event of default under the Conditions applicable to the Instruments of the relevant Series; (f) power to authorise the Fiscal Agent, the Registrar or any other person to concur in and execute and do all such deeds, instruments, acts and things as may be necessary to carry out and give effect to any Extraordinary Resolution; (g) power to give any authority, direction or sanction which under the Conditions applicable to the Instruments of the relevant Series is required to be given by Extraordinary Resolution; (h) power to appoint any persons (whether holders of Instruments or not) as a committee or committees to represent the interests of the holders of Instruments in respect of the Instruments of the relevant Series and to confer upon such committee or committees any powers or discretions which such holders of Instruments could themselves exercise by Extraordinary Resolution; and (i) power to approve other security as contemplated by Condition 4.01. Provided that the special quorum provisions contained in the provisos to paragraphs 5 and 6 shall apply in relation to any Extraordinary Resolution for the purpose of making modification of the provisions contained in the Instruments or the Coupons of any Series or the Conditions applicable thereto which: (i) varies the date of maturity or any date of redemption of any of the Instruments of the relevant Series or any date for payment of any principal or interest in respect thereof; or (ii) reduces or cancels the principal amount of the Instruments of the relevant Series or any amount payable thereon, varies any provision regarding the calculation of the rate of interest or any other amount payable thereon or varies the rate of discount, rate of amortisation or any other rate of return applicable thereto; or (iii) modifies the provisions contained in this Schedule concerning the quorum required at any meeting of holders of Instruments in respect of the Instruments of the relevant Series or any adjournment thereof or concerning the majority required to pass an Extraordinary Resolution; or (iv) varies the currency in which any payment (or other obligation) in respect of the Instruments of the relevant Series is to be made; or (v) amends this proviso in any manner. 19. An Extraordinary Resolution passed at a meeting of the holders of Instruments in respect of the Instruments of the relevant Series duly convened and held in accordance with -70- these presents shall be binding upon all the holders of Instruments of the relevant Series, whether present or not present at such meeting, and upon all the holders of all Coupons in respect of Instruments of the relevant Series and each of the holders of Instruments and Coupons shall, in respect of the Instruments of that Series, be bound to give effect thereto accordingly. The passing of any such resolution shall be conclusive evidence that the circumstances of such resolution justify the passing thereof. 20. The expression "EXTRAORDINARY RESOLUTION" when used in these presents means a resolution passed at a meeting of the holders of Instruments in respect of the Instruments of the relevant Series duly convened and held in accordance with the provisions contained herein by a majority consisting of not less than three-fourths of the votes cast thereon. 21. Minutes of all resolutions and proceedings at every such meeting as aforesaid shall be made and duly entered in books to be from time to time provided for that purpose by the relevant Issuer and any such minutes as aforesaid, if purporting to be signed by the chairman of the meeting at which such resolutions were passed or proceedings transacted or by the chairman of the next succeeding meeting of the holders of Instruments in respect of the Instruments of the relevant Series, shall be conclusive evidence of the matters therein contained and, until the contrary is proved, every such meeting in respect of the proceedings of which minutes have been made and signed as aforesaid shall be deemed to have been duly convened and held and all resolutions passed or proceedings transacted thereat to have been duly passed and transacted. 22. So long as the relevant Instruments are represented by a global instrument, for the purposes of this Schedule the holder of the global instrument shall be deemed to be two persons holding or representing such principal amount of Instruments as are, at the relevant time, represented by such global instrument. 23. Any Instruments which have been purchased or are held by (or on behalf of) the relevant Issuer or any affiliate of the Issuer or ABB Ltd or any subsidiary of ABB Ltd but which have not been cancelled shall, unless or until resold, be deemed not to be outstanding for the purposes of this Schedule. -71- THE SIXTH SCHEDULE FORM OF DEED OF ASSUMPTION This Deed of Assumption is made on [ ], [ ] between [ ] (the "ISSUER"), a company incorporated under the laws of [ ] whose registered/principal office is situated at [ ] and [ ] (the "SUBSTITUTED DEBTOR") a company incorporated in [ ] whose registered/principal office is situated at [ ]. WHEREAS: (A) The Issuer has issued [INSERT AGGREGATE PRINCIPAL AMOUNT AND TITLE OF THE INSTRUMENTS] (the "INSTRUMENTS", each holder of such Instruments being an "INSTRUMENTHOLDER") [and any interest coupons attached to such Instruments (the "COUPONS", each holder of such Coupons being a "COUPONHOLDER")] pursuant to a Fiscal Agency Agreement dated 10 March 1993 and amended and restated on 30 May 2001 (the "FISCAL AGENCY AGREEMENT") between Banque Generale du Luxembourg S.A. (the "FISCAL AGENT"), the Issuer, the other companies named therein as issuers and the paying agents and registrars named therein. (B) The Issuer proposes, pursuant to Condition 15 of the Terms and Conditions of the Instruments (the "CONDITIONS") to substitute the Substituted Debtor as principal debtor in respect of the Instruments. NOW THIS DEED WITNESSETH AS FOLLOWS: 1. The Substituted Debtor hereby agrees that, with effect from and including the effective date hereof, it shall be the "Issuer" for all purposes in respect of the Instruments and the Coupons and accordingly it shall assume all the obligations and liabilities and shall be entitled to all the rights and benefits on the part of the Issuer contained therein. 2. The Substituted Debtor hereby acknowledges and agrees that, with effect from and including the effective date hereof: (a) the Issuer is released from all its liabilities, in its capacity as issuer of the Instruments, in respect of the Instruments; and (b) the Conditions are amended in accordance with the Schedule hereto. 3. The Substituted Debtor and the Issuer hereby jointly and severally agree that the existing [Temporary Global Instrument, Permanent Global Instrument, Registered Instrument(s) or, as the case may be, Definitive Instruments] shall continue in full force and effect on the understanding that, with effect from and including the effective date hereof: (a) all references to "[NAME OF ISSUER]" shall be read and construed as references to the Substituted Debtor; and -72- (b) the Conditions shall be amended as set out in the Schedule hereto, together with any other consequential amendments which may be appropriate in order to preserve the rights of the Instrumentholders and (if any) Couponholders. 4. (A) The Substituted Debtor and the Issuer hereby acknowledge and covenant that the benefit of the undertakings and the covenants binding upon them contained in this Deed of Assumption shall be for the benefit of each and every Instrumentholder and (if any) Couponholder whether or not such Instrumentholder or Couponholder was an initial subscriber of such Instrument and each Instrumentholder and (if any) Couponholder shall be entitled severally to enforce the said obligations against the Substituted Debtor. (B) This Deed of Assumption shall be deposited with and held by the Fiscal Agent and the Substituted Debtor, and the Issuer and the Substituted Debtor hereby acknowledge the right of every Instrumentholder and Couponholder to production of this Deed of Assumption and upon request and payment of the expenses incurred in connection therewith, the production of a copy hereof certified by the Fiscal Agent to be a true and complete copy. 5. The illegality, invalidity or unenforceability of any provision of this Deed of Assumption under the law of any jurisdiction shall not affect its legality, validity or enforceability under the law of any other jurisdiction nor the legality, validity or enforceability of any other provision. 6. This Deed of Assumption may only be amended in the same way as the other Conditions of the Instruments are capable of amendment pursuant to the Fifth Schedule of the Fiscal Agency Agreement. 7. (A) This Deed of Assumption shall be governed by and construed in accordance with the laws of England. (B) The Courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Deed of Assumption and accordingly any legal action or proceedings arising out of or in connection with this Deed of Assumption ("PROCEEDINGS") may be brought in such courts. Each of the Substituted Debtor and the Issuer irrevocably submits to the jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. These submissions are for the benefit of each of the Instrumentholders and the Couponholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). (C) Each of the Substituted Debtor and the Issuer irrevocably appoints ABB Limited at its registered office (presently at Orion House, 5 Upper St. Martin's Lane, London WC2H 9EA) as its authorised agent for service of process in England in respect of any Proceedings. If for any reason such agent shall cease to be such agent for service of process or shall no longer have a registered office in England, the Substituted Debtor and the Issuer shall appoint another agent for service of process in England within twenty-one days and if the Issuer and/or the Substituted Debtor fails to make any such -73- appointment within twenty-one days, the Fiscal Agent shall be entitled to appoint such a person by notice to the Issuer and/or the Substituted Debtor. IN WITNESS whereof this Deed has been executed by and on behalf of the parties hereto as of the day and year first above written. EXECUTED as a deed under Seal by ) [THE SUBSTITUTED DEBTOR] ) acting by [ ] and [ ] ) in the presence of: ) Witness: Name: Address: Occupation: Witness: Name: Address: Occupation: EXECUTED as a deed under Seal by ) [THE ISSUER] ) acting by [ ] and [ ] ) in the presence of: ) Witness: Name: Address: Occupation: Witness: Name: Address: Occupation: THE SCHEDULE POST-SUBSTITUTION AMENDMENTS TO THE CONDITIONS OF THE INSTRUMENTS OF THE RELEVANT SERIES -74- 1. Following any substitution pursuant to Condition 15, the Conditions of the Instruments of the relevant Series shall apply as if all references to the "Issuer" therein were to the Substituted Debtor. 2. In the event that ABB Ltd shall become the Substituted Debtor the Conditions shall apply with the following further amendments: (i) Conditions 4.02, 4.03 and Condition 7.01(v) shall not apply to such Instruments; (ii) the words "___ its obligation set out in Condition 4.02 ___" to "___ performance or observance of any of its other___" in lines 1 to 5 of Condition 7.01(ii) shall be deleted and replaced by the word "any"; (iii) Condition 15 shall not apply to such Instruments and, in respect of such Instruments, shall be deemed to be replaced with the following: "the Issuer may be replaced, and any direct or indirect subsidiary of the Issuer may be substituted for the Issuer, as principal debtor in respect of the Instruments, without the consent of the Holders of the Instruments or Coupons. If the Issuer shall determine that any such subsidiary shall become the principal debtor (in such capacity, the "SUBSTITUTED DEBTOR"), the Issuer shall give not less than 30 nor more than 45 days' notice, in accordance with Condition 14, to the Holders of the Instruments of such event and, immediately on the expiry of such notice, the Substituted Debtor shall enter into a Deed of Assumption, the form of which is set out in the Sixth Schedule to the Fiscal Agency Agreement and become the principal debtor in respect of the Instruments in place of the Issuer and the Holders of the Instruments shall thereupon cease to have any rights or claims whatsoever against the Issuer. However, no such substitution shall take effect (i) until such Substituted Debtor shall have entered into a keep-well agreement with ABB Ltd substantially in the form of other keep-well agreements entered into by ABB Ltd with certain of its direct or indirect subsidiaries, (ii) until such Substituted Debtor shall have executed a deed of covenant substantially in the form of the Deed of Covenant, (iii) in any case, until the Substituted Debtor shall have provided such documents as may be necessary to make the Deed of Assumption, the Instruments, the Fiscal Agency Agreement, such deed of covenant and such keep-well agreement the legal, valid and binding obligations of, as appropriate, the Substituted Debtor and ABB Ltd together with legal opinions, either unqualified or subject only to normal, usual or appropriate qualifications and assumptions to the effect that the Deed of Assumption, the Instruments, the Fiscal Agency Agreement, such deed of covenant and such keep-well agreement are legal, valid and binding obligations of, as appropriate, ABB Ltd and the Substituted Debtor, (iv) the Substituted Debtor shall have obtained all necessary governmental and regulatory approvals and consents, if any, for the substitution, and (v) the Substituted Debtor shall have appointed the process agent appointed by the Issuer in Condition 18.3 as its agent in England to receive service of process on its behalf in relation to any legal action or proceedings arising out of or in -75- connection with the Instruments and the Coupons. Upon any such substitution, the Instruments and Coupons will, if necessary, be deemed to be modified in all appropriate respects." -76- THE SEVENTH SCHEDULE REGULATIONS CONCERNING TRANSFERS OF REGISTERED INSTRUMENTS AND EXCHANGES OF BEARER INSTRUMENTS FOR REGISTERED INSTRUMENTS 1. Each Registered Instrument shall be in a principal amount equal to the minimum denomination specified in the relevant Pricing Supplement or an integral multiple thereof. 2. The Registered Instruments are transferable in a principal amount equal to the minimum denomination specified in the relevant Pricing Supplement or an integral multiple thereof by execution of the form of transfer endorsed under the hand of the transferor or of a duly appointed attorney on its behalf or, where the transferor is a corporation, under its seal or signed on its behalf by its duly appointed attorney or a duly authorised officer or officers of the corporation. In this Schedule "transferor" shall where the context permits or requires include joint transferors and be construed accordingly. 3. The Registered Instrument to be transferred must be delivered for registration to the specified office of the Registrar accompanied by such other evidence (including legal opinions) as the Registrar may reasonably require to prove the title of the transferor or his right to transfer the Registered Instrument and his identity and, if the form of transfer is executed by some other person on his behalf or in the case of the execution of a form of transfer on behalf of a corporation by an officer or officers or an attorney, the authority of that person or those persons to do so. The signature of the person effecting a transfer of a Registered Instrument shall conform to any list of duly authorised specimen signatures supplied by the registered holder or be certified by a recognised bank, notary public or in such other manner as the Registrar may require. 4. The executors or administrators of a deceased holder of a Registered Instrument (not being one of several joint holders) and in the case of the death of one or more of joint holders the survivor or survivors of such joint holders shall be the only persons recognised by the relevant Issuer as having any title to such Registered Instruments. 5. Any person becoming entitled to Registered Instruments in consequence of the death or bankruptcy of the holder of such Registered Instruments may, upon producing such evidence that he holds the position in respect of which he proposes to act under this paragraph or of his title as the Issuer shall require (including legal opinions), be registered himself as the holder of such Registered Instruments or, subject to the preceding paragraphs as to transfer, may transfer such Registered Instruments. The relevant Issuer and the Registrar may retain any amount payable upon the Registered Instruments to which any person is so entitled until such person shall be so registered or shall duly transfer the Registered Instruments. 6. Unless otherwise requested by him and agreed by the relevant Issuer, the holder of Registered Instruments or the holder of Bearer Instruments, the subject of a request for an exchange for Registered Instruments shall be entitled to receive only one Registered Instrument in respect of his holding or in respect of the Bearer Instruments, the subject of a particular request for an exchange. -77- 7. The joint holders of a Registered Instrument shall be entitled to one Registered Instrument only in respect of their joint holding which shall, except where they otherwise direct, be delivered to the joint holder whose name appears first in the Register in respect of the joint holding. 8. Where there is more than one transferee (to hold other than as joint holders), separate forms of transfer (obtainable from the specified office of the Registrar) must be completed in respect of each new holding. 9. Where a holder of a Registered Instrument has transferred part only of his holding comprised therein there shall be delivered to him a Registered Instrument in respect of the balance of such holding. 10. The relevant Issuer, the Registrar and the Fiscal Agent shall, save in the case of the issue of replacement Registered Instruments, make no charge to the holders for the registration of any holding of Registered Instruments or any transfer of Registered Instruments or in respect of any exchange of Bearer Instruments for Registered Instruments or for the issue of any Registered Instruments or for the delivery of Registered Instruments at the specified office of the Registrar. 11. Subject always to the terms and conditions applicable to the Instruments of the relevant Series, the Registrar will within three Relevant Banking Days of the transfer date or the exchange date applicable to a transfer of Registered Instruments or an exchange of Bearer Instruments for Registered Instruments make available at its specified office a new Registered Instrument in respect of the Registered Instrument transferred or in respect of Bearer Instruments the subject of a request for an exchange for Registered Instruments. In the case of a transfer of part only of a Registered Instrument, a new Registered Instrument in respect of the balance of the Registered Instrument transferred will be so delivered to the transferor. -78- THE EIGHTH SCHEDULE THE SPECIFIED OFFICES OF THE PAYING AGENTS AND THE REGISTRARS The Fiscal Agent and Principal Registrar: Banque Generale du Luxembourg S.A. 50, Avenue J.F. Kennedy L-2951 Luxembourg Telex: 3401 BGL lu Fax: +352 4242 4200 Attention: Fiscal and Paying Agency Department The other Paying Agent: Banque Generale du Luxembourg (Suisse) S.A. 57 Rennweg CH-8023 Zurich Switzerland Telex: BGL Zurich 813003 BGL CH Fax: +41 12119908 The Alternative Registrar: The Chase Manhattan Bank 15th Floor 450 West 33rd Street New York, N.Y. 10001 2697 United States of America Telephone: +1 212 946 3009 Fax: +1 212 946 8177 Attention: Manager, Global Trust Services -79- SIGNATURES ABB INTERNATIONAL FINANCE LIMITED By: By: ABB FINANCE INC. By: By: ABB CAPITAL B.V. By: By: BANQUE GENERALE DU LUXEMBOURG S.A. as Fiscal Agent and Principal Registrar By: By: BANQUE GENERALE DU LUXEMBOURG (SUISSE) S.A. as Paying Agent By: By: THE CHASE MANHATTAN BANK as Alternative Registrar By: For the purposes of Article 1 of the Protocol annexed to the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters signed at Brussels on 27 September 1968, the undersigned expressly and specifically agrees in the terms of Clause 18.2. BANQUE GENERALE DU LUXEMBOURG S.A. By: By: -80- EX-2.4 5 a2072395zex-2_4.txt EXHIBIT 2.4 EXHIBIT 2.4 CONFORMED COPY ABB INTERNATIONAL FINANCE N.V. PROGRAMME FOR THE ISSUANCE OF DEBT INSTRUMENTS -------------------------------- DEED OF COVENANT -------------------------------- 10 March 1993 Clifford Chance London T H I S D E E D is made the 10th day of March 1993 - ---------------- BY: (1) ABB INTERNATIONAL FINANCE N.V. (the "ISSUER") IN FAVOUR OF (2) THE ACCOUNT HOLDERS from time to time (the "ACCOUNT HOLDERS") of Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System and Cedel S.A. and of any other clearing system to which Instruments or any interest therein may from time to time be credited (together, the "CLEARING SYSTEMS" and each a "CLEARING SYSTEM"). WHEREAS: (A) The Issuer has entered into a Dealership Agreement dated 10 March 1993 and made between itself and ABN AMRO Bank N.V., Credit Suisse First Boston Limited, Deutsche Bank AG London, Goldman Sachs International Limited, Lehman Brothers International (Europe), J.P. Morgan Securities Ltd., Morgan Stanley International, NatWest Capital Markets Limited, Swiss Bank Corporation and UBS Phillips & Drew Securities Limited as dealers (the "DEALERS", which expression shall include any institution appointed as a dealer in accordance therewith) under which debt instruments ("INSTRUMENTS") may from time to time be sold by the Issuer to, and purchased by, a Dealer. Such Instruments may be represented initially by a temporary global instrument (the "TEMPORARY GLOBAL INSTRUMENT") exchangeable in accordance with its terms for a permanent global instrument (the "PERMANENT GLOBAL INSTRUMENT") or, as the case may be, definitive Instruments ("DEFINITIVE INSTRUMENTS") and/or (if the Temporary Global Instrument so provides) registered instruments ("REGISTERED INSTRUMENTS"). Permanent Global Instruments are, in accordance with their respective terms, exchangeable for Definitive Instruments and/or (if the Permanent Global Instrument so provides) Registered Instruments. References herein to a "GLOBAL INSTRUMENT" shall, as the context may require, be to a Permanent Global Instrument or, as the case may be, a Temporary Global Instrument. A Global Instrument will be delivered to a depositary or a common depositary for any one or more of the Clearing Systems for credit to such securities clearance (or any other) account or accounts with any Clearing System as may be determined by the terms and conditions and operating procedures or management regulations (the "OPERATING REGULATIONS") of the relevant Clearing System with its respective participants. (B) An Account Holder, to whose securities clearance (or any other) account with a Clearing System is credited rights in respect of a Global Instrument, may be entitled, under and in accordance with the Operating Regulations of the relevant Clearing System, to instruct the relevant Clearing System to debit its securities clearance (or any other) account with rights in respect of Instruments represented by the Global Instrument and credit the same to the securities clearance (or any other) account or accounts of other Account Holders with the same or another Clearing System. (C) In certain circumstances, indicated in the relevant Global Instrument, such Global Instrument will become void. In such circumstances, subject to and in accordance with the terms of this Deed, each Relevant Account Holder (as defined below) will acquire against the Issuer all those rights which such Relevant Account Holder would have acquired if, immediately prior to such Global Instrument becoming void, such Relevant Account Holder were the holder of Definitive Instruments and/or Registered Instruments issued by the Issuer in exchange for its interest in the relevant Global Instrument, including, without limitation, rights to receive principal, interest or any other amount due in respect of such Definitive Instruments and/or Registered Instruments (the "DIRECT RIGHTS"). For these purposes, any reference to the "RELEVANT ACCOUNT HOLDERS" is to those Account Holders (other than the Clearing Systems to the extent to which they are account holders with each other for the purposes of operating the "bridge" between them) to whose securities clearance (or any other) accounts rights in respect of Instruments represented by the Global Instrument are, at the time at which the Global Instrument becomes void, credited and any reference to a "RELEVANT ACCOUNT HOLDER" is to any one of them. THIS DEED WITNESSES as follows: 1. If a Global Instrument becomes void in accordance with its terms, then each Relevant Account Holder shall acquire against the Issuer the Direct Rights. The Issuer agrees that such Direct Rights shall, by virtue of this Deed, be so acquired by such Relevant Account Holder immediately upon the relevant Global Instrument becoming void, without any need for any further action by any person. 2. The records of the relevant Clearing System shall, in the absence of manifest error, be conclusive as to the identity of each Relevant Account Holder and the principal amount of rights in respect of the Instruments represented by any Global Instrument credited to the securities clearance account of each such Relevant Account Holder at any time. Any statement issued by a Clearing System as to its records shall, in the absence of manifest error, be conclusive evidence of the records of the relevant Clearing System for the purposes of this Clause 2 (but without prejudice to any other means of producing such records in evidence). 3. All amounts payable in respect of this Deed by the Issuer will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature ("TAXES") imposed or levied by or on behalf of its jurisdiction of incorporation or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, subject to the exceptions and limitations set forth below, the Issuer will pay such additional amounts as may be necessary in order that the net amounts receivable by any Relevant Account Holder after such withholding or deduction shall equal the respective amounts which would have been receivable by such Relevant Account Holder in the absence of such withholding or deduction; except that no such additional amounts shall be payable to any Relevant Account Holder (or to a third party on behalf of such Relevant Account Holder): (i) where such Relevant Account Holder is liable to such Taxes by reason of his having some connection with the jurisdiction of incorporation of the Issuer other than the mere fact of being a Relevant Account Holder; or (ii) where such Relevant Account Holder is able to avoid such withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority. 4. This Deed is governed by, and shall be construed in accordance with, English law. 5. In relation to any legal action or proceedings arising out of or in connection with this Deed ("PROCEEDINGS"), the Issuer irrevocably submits to the jurisdiction of the courts of England and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of each Relevant Account Holder and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). 6. The Issuer appoints Asea Brown Boveri Limited, incorporated in England, of Orion House, 5 Upper St. Martin's Lane, London WC2H 9EA, as its agent in England to receive service of process in any Proceedings in England. If for any reason such process agent ceases to act as such or no longer has an address in England, the Issuer agrees to appoint a substitute process agent and to notify the Relevant Account Holders of such appointment in accordance with Condition 14 (as if the relevant Global Instrument had been exchanged for Definitive Instruments) and failing such appointment within 21 days, any Relevant Account Holder shall be entitled to appoint such a person by notice to the Issuer. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. IN WITNESS WHEREOF this Deed has been executed as a deed by the Issuer and is intended to be and is hereby delivered on the day and year first before written. EXECUTED as a deed under ) By: /s/ JAN ROXENDAL Seal by ABB INTERNATIONAL )(L.S.) FINANCE N.V. ) ) By: /s/ J. J. M. VERHAAK By Proxy: J. C. W. van Burg J. C. W. VAN BURG (1) acting by JAN ROXENDAL ) In the presence of: Witness signature: /s/ A. BAUMER Witness name: Antje Baumer Witness address: Flurstrasse 13 CH-8302 Kloten Witness occupation: Secretary (2) acting by ) JAAP VAN BURG In the presence of: Witness signature: /s/ B. BEKKERING Witness name: Bart Bekkering Witness address: Jongbloed K-115 Curacao, Neth Antilles Witness occupation: front desk officer EX-2.5 6 a2072395zex-2_5.txt EXHIBIT 2.5 Exhibit 2.5 CONFORMED COPY ABB FINANCE INC. PROGRAMME FOR THE ISSUANCE OF DEBT INSTRUMENTS -------------------------------- DEED OF COVENANT -------------------------------- 10 March 1993 Clifford Chance London T H I S D E E D is made the 10th day of March 1993 - ---------------- BY: (1) ABB FINANCE INC. (the "ISSUER") IN FAVOUR OF (2) THE ACCOUNT HOLDERS from time to time (the "ACCOUNT HOLDERS") of Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System and Cedel S.A. and of any other clearing system to which Instruments or any interest therein may from time to time be credited (together, the "CLEARING SYSTEMS" and each a "CLEARING SYSTEM"). WHEREAS: (A) The Issuer has entered into a Dealership Agreement dated 10 March 1993 and made between itself and ABN AMRO Bank N.V., Credit Suisse First Boston Limited, Deutsche Bank AG London, Goldman Sachs International Limited, Lehman Brothers International (Europe), J.P. Morgan Securities Ltd., Morgan Stanley International, NatWest Capital Markets Limited, Swiss Bank Corporation and UBS Phillips & Drew Securities Limited as dealers (the "DEALERS", which expression shall include any institution appointed as a dealer in accordance therewith) under which debt instruments ("INSTRUMENTS") may from time to time be sold by the Issuer to, and purchased by, a Dealer. Such Instruments may be represented initially by a temporary global instrument (the "TEMPORARY GLOBAL INSTRUMENT") exchangeable in accordance with its terms for a permanent global instrument (the "PERMANENT GLOBAL INSTRUMENT") or, as the case may be, definitive Instruments ("DEFINITIVE INSTRUMENTS") and/or (if the Temporary Instrument so provides) registered instruments ("REGISTERED INSTRUMENTS"). Permanent Global Instruments are, in accordance with their respective terms, exchangeable for Definitive Instruments and/or (if the Permanent Global Instrument so provides) Registered Instruments. References herein to a "GLOBAL INSTRUMENT" shall, as the context may require, be to a Permanent Global Instrument or, as the case may be, a Temporary Global Instrument. A Global Instrument will be delivered to a depositary or a common depositary for any one or more of the Clearing Systems for credit to such securities clearance (or any other) account or accounts with any Clearing System as may be determined by the terms and conditions and operating procedures or management regulations (the "OPERATING REGULATIONS") of the relevant Clearing System with its respective participants. (B) Pursuant to a guarantee (the "Guarantee") dated as of 15 December 1989 Asea Brown Boveri Inc. (the "GUARANTOR") has unconditionally guaranteed payment when due of, among other things, all obligations of the Issuer for money borrowed pursuant to debt instruments (including the Instruments). (C) An Account Holder, to whose securities clearance (or any other) account with a Clearing System is credited rights in respect of a Global Instrument, may be entitled, under and in accordance with the Operating Regulations of the relevant Clearing System, to instruct the relevant Clearing System to debit its securities clearance (or any other) account with rights in respect of Instruments represented by the Global Instrument and credit the same to the securities clearance (or any other) account or accounts of other Account Holders with the same or another Clearing System. (D) In certain circumstances, indicated in the relevant Global Instrument, such Global Instrument will become void. In such circumstances, subject to and in accordance with the terms of this Deed, each Relevant Account Holder (as defined below) will acquire against the Issuer all those rights which such Relevant Account Holder would have acquired if, immediately prior to such Global Instrument becoming void, such Relevant Account Holder were the holder of Definitive Instruments and/or Registered Instruments issued by the Issuer in exchange for its interest in the relevant Global Instrument, including, without limitation, rights to receive principal, interest or any other amount due in respect of such Definitive Instruments and/or Registered Instruments (the "DIRECT RIGHTS"). For these purposes, any reference to the "RELEVANT ACCOUNT HOLDERS" is to those Account Holders (other than the Clearing Systems to the extent to which they are account holders with each other for the purposes of operating the "bridge" between them) to whose securities clearance (or any other) accounts rights in respect of Instruments represented by the Global Instrument are, at the time at which the Global Instrument becomes void, credited and any reference to a "RELEVANT ACCOUNT HOLDER" is to any one of them. THIS DEED WITNESSES as follows: 1. If a Global Instrument becomes void in accordance with its terms, then each Relevant Account Holder shall acquire against the Issuer the Direct Rights. The Issuer agrees that such Direct Rights shall, by virtue of this Deed, be so acquired by such Relevant Account Holder immediately upon the relevant Global Instrument becoming void, without any need for any further action by any person. 2. The records of the relevant Clearing System shall, in the absence of manifest error, be conclusive as to the identity of each Relevant Account Holder and the principal amount of rights in respect of the Instruments represented by any Global Instrument credited to the securities clearance account of each such Relevant Account Holder at any time. Any statement issued by a Clearing System as to its records shall, in the absence of manifest error, be conclusive evidence of the records of the relevant Clearing System for the purposes of this Clause 2 (but without prejudice to any other means of producing such records in evidence). 3. The Issuer will, subject to the exceptions and limitations set forth below, pay as additional interest in respect of any amount payable in respect of this Deed, such additional amounts as are necessary in order that the net payment by the Issuer of any amount payable in respect of this Deed to a Relevant Account Holder who is not a United States person (as such term is defined below), after deduction for any present or future tax, duty, assessment or governmental charge ("TAXES") imposed or levied by the United States (as such term is defined below), or a political subdivision or taxing authority thereof or therein, imposed by withholding with respect to the amount payable, will not be less than the amount which would have been receivable by such Relevant Account Holder in the absence of such withholding or deduction; provided, however, that the foregoing obligation to pay additional amounts shall not apply to: (i) any Taxes that would not have been so imposed but for the existence of any present or former connection between such Relevant Account Holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or holder of power over, such Relevant Account Holder, if such Relevant Account Holder is an estate, trust, partnership or corporation) and the United States, including, without limitation, such Relevant Account Holder (or fiduciary, settlor, beneficiary, member, shareholder or holder of power) being considered as: (a) being or having been present or engaged in a trade or business in the United States or having or having had a permanent establishment therein; (b) having a current or former relationship with the United States, including a relationship as a citizen or resident or being treated as a resident thereof; (c) being or having been a personal holding company, a controlled foreign corporation, a foreign personal holding company, a passive foreign investment company, a private foundation or other tax-exempt organisation for United States Federal income tax purposes or a corporation that has accumulated earnings to avoid United States Federal income tax; or (d) a "10 per cent. shareholder" of the Issuer or the Guarantor as defined in Section 871(h)(3) of the United States Internal Revenue Code of 1986, as amended (the "CODE"); (ii) any Relevant Account Holder who is a fiduciary or partnership or other than the sole beneficial owner of the rights of such Relevant Account Holder under this Deed, but only to the extent that a beneficiary or settlor with respect to such fiduciary or member of such partnership or a beneficial owner of the rights of such Relevant Account Holder under this Deed would not have been entitled to the payment of an additional amount had such beneficiary, settlor, member or beneficial owner been the Relevant Account Holder; (iii) any Taxes that would not have been imposed or withheld but for the failure of the Relevant Account Holder, if required, to comply with certification, identification or information reporting requirements under statute or regulations with respect to the payment, concerning the nationality, residence, identity or connection with the United States of the Relevant Account Holder or a beneficial owner of the rights of such Relevant Account Holder under this Deed, if such compliance is required by statute, or by regulation of the United States, as a precondition to relief or exemption from such Taxes; (iv) any estate, inheritance, gift, sales, transfer, wealth or personal property tax or any similar tax, duty, assessment or governmental charge; (v) any Taxes that are payable otherwise than by withholding by the Issuer from the payment of the amount payable in respect of this Deed; or (vi) any Relevant Account Holder who is able to avoid any Taxes by making a declaration of non-residence or other claim for exemption to the relevant tax authority; and (vii) any combination of times (i), (ii), (iii), (iv), (v) and (vi). As used in this Clause 3, "UNITED STATES" means the United States of America, the Commonwealth of Puerto Rico and each possession of the United States of America and place subject to its jurisdiction and "UNITED STATES PERSON" means an individual who is a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or an estate or trust the income of which is subject to United States Federal income taxation regardless of its source. 4. This Deed is governed by, and shall be construed in accordance with, English law. 5. In relation to any legal action or proceedings arising out of or in connection with this Deed ("PROCEEDINGS"), the Issuer irrevocably submits to the jurisdiction of the courts of England and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of each Relevant Account Holder and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of proceedings in one or more jurisdiction preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). 6. The Issuer appoints Asea Brown Boveri Limited, incorporated in England, of Orion House, 5 Upper St. Martin's Lane, London WC2H 9EA, as its agent in England to receive service of process in any Proceedings in England. If for any reason such process agent ceases to act as such or no longer has a an address in England, the Issuer agrees to appoint a substitute process agent and to notify the Relevant Account Holders of such appointment in accordance with Condition 14 (as if the relevant Global Instrument had been exchanged for Definitive Instruments) and failing such appointment within 21 days, any Relevant Account Holder shall be entitled to appoint such a person by notice to the Issuer. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. 7. This Deed is governed by, and shall be construed in accordance with, English law. IN WITNESS WHEREOF this Deed has been executed as a deed by the Issuer and is intended to be and is hereby delivered on the day and year first before written. EXECUTED as a deed under ) BY: /s/ JAN ROXENDAL SEAL BY ABB FINANCE INC. ) (L.S.) ) BY: /s/ STEPHAN CARLQUIST (1) acting by JAN ROXENDAL ) In the presence of: Witness signature: /s/ A. BAUMER Witness name: ANTJE BAUMER Witness address: FLURSTRASSE 13 CH-8302 KLOTEN Witness occupation: SECRETARY (2) acting by STEPHAN CARLQUSIT ) In the presence of Witness signature: /s/ DANIEL SHINDLEMAN Witness name: DANIEL SHINDLEMAN Witness address: JUSTRAIN 49 CH-8706 MEILEN, SWITZERLAND Witness occupation: COUNSEL EX-2.6 7 a2072395zex-2_6.txt EXHIBIT 2.6 EXHIBIT 2.6 CONFORMED COPY ABB CAPITAL B.V. PROGRAMME FOR THE ISSUANCE OF DEBT INSTRUMENTS -------------------------------- DEED OF COVENANT -------------------------------- 10 March 1993 Clifford Chance London T H I S D E E D is made the 10th day of March 1993 - ---------------- BY: (1) ABB CAPITAL B.V. (the "ISSUER") IN FAVOUR OF (2) THE ACCOUNT HOLDERS from time to time (the "ACCOUNT HOLDERS") of Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System and Cedel S.A. and of any other clearing system to which Instruments or any interest therein may from time to time be credited (together, the "CLEARING SYSTEMS" and each a "CLEARING SYSTEM"). WHEREAS: (A) The Issuer has entered into a Dealership Agreement dated 10 March 1993 and made between itself and ABN AMRO Bank N.V., Credit Suisse First Boston Limited, Deutsche Bank AG London, Goldman Sachs International Limited, Lehman Brothers International (Europe), J.P. Morgan Securities Ltd., Morgan Stanley International, NatWest Capital Markets Limited, Swiss Bank Corporation and UBS Phillips & Drew Securities Limited as dealers (the "DEALERS", which expression shall include any institution appointed as a dealer in accordance therewith) under which debt instruments ("INSTRUMENTS") may from time to time be sold by the Issuer to, and purchased by, a Dealer. Such Instruments may be represented initially by a temporary global instrument (the "TEMPORARY GLOBAL INSTRUMENT") exchangeable in accordance with its terms for a permanent global instrument (the "PERMANENT GLOBAL INSTRUMENT") or, as the case may be, definitive Instruments ("DEFINITIVE INSTRUMENTS") and/or (if the Temporary Global Instrument so provides) registered instruments ("REGISTERED INSTRUMENTS"). Permanent Global Instruments are, in accordance with their respective terms, exchangeable for Definitive Instruments and/or (if the Permanent Global Instrument so provides) Registered Instruments. References herein to a "GLOBAL INSTRUMENT" shall, as the context may require, be to a Permanent Global Instrument or, as the case may be, a Temporary Global Instrument. A Global Instrument will be delivered to a depositary or a common depositary for any one or more of the Clearing Systems for credit to such securities clearance (or any other) account or accounts with any Clearing System as may be determined by the terms and conditions and operating procedures or management regulations (the "OPERATING REGULATIONS") of the relevant Clearing Systems with its respective participants. (B) An Account Holder, to whose securities clearance (or any other) account with a Clearing System is credited rights in respect of a Global Instrument, may be entitled, under and in accordance with the Operating Regulations of the relevant Clearing System, to instruct the relevant Clearing System to debit its securities clearance (or any other) account with rights in respect of Instruments represented by the Global Instrument and credit the same to the securities clearance (or any other) account or accounts of other Account Holders with the same or another Clearing System. (C) In certain circumstances, indicated in the relevant Global Instrument, such Global Instrument will become void. In such circumstances, subject to and in accordance with the terms of this Deed, each Relevant Account Holder (as defined below) will acquire against the Issuer all those rights which such Relevant Account Holder would have acquired if, immediately prior to such Global Instrument becoming void, such Relevant Account Holder were the holder of Definitive Instruments and/or Registered Instruments issued by the Issuer in exchange for its interest in the relevant Global Instrument, including, without limitation, rights to receive principal, interest or any other amount due in respect of such Definitive Instruments and/or Registered Instruments (the "DIRECT RIGHTS"). For these purposes, any reference to the "RELEVANT ACCOUNT HOLDERS" is to those Account Holders (other than the Clearing Systems to the extent to which they are account holders with each other for the purposes of operating the "bridge" between them) to whose securities clearance (or any other) accounts rights in respect of Instruments represented by the Global Instrument are, at the time at which the Global Instrument becomes void, credited and any reference to a "RELEVANT ACCOUNT HOLDER" is to any one of them. THIS DEED WITNESSES as follows: 1. If a Global Instrument becomes void in accordance with its terms, then each Relevant Account Holder shall acquire against the Issuer the Direct Rights. The Issuer agrees that such Direct Rights shall, by virtue of this Deed, be so acquired by such Relevant Account Holder immediately upon the relevant Global Instrument becoming void, without any need for any further action by any person. 2. The records of the relevant Clearing System shall, in the absence of manifest error, be conclusive as to the identity of each Relevant Account Holder and the principal amount of rights in respect of the Instruments represented by any Global Instrument credited to the securities clearance account of each such Relevant Account Holder at any time. Any statement issued by a Clearing System as to its records shall, in the absence of manifest error, be conclusive evidence of the records of the relevant Clearing System for the purposes of this Clause 2 (but without prejudice to any other means of producing such records in evidence). 3. All amounts payable in respect of this Deed by the Issuer will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature ("TAXES") imposed or levied by or on behalf of its jurisdiction of incorporation or any political subdivision thereof or any authority therein or thereof having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, subject to the exceptions and limitations set forth below, the Issuer will pay such additional amounts as may be necessary in order that the net amounts receivable by any Relevant Account Holder after such withholding or deduction shall equal the respective amounts which would have been receivable by such Relevant Account Holder in the absence of such withholding or deduction; except that no such additional amounts shall be payable to any Relevant Account Holder (or to a third party on behalf of such Relevant Account Holder): (i) where such Relevant Account Holder is liable to such Taxes by reason of his having some connection with the jurisdiction of incorporation of the Issuer other than the mere fact of being a Relevant Account Holder; or (ii) where such Relevant Account Holder is able to avoid such withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority. 4. This Deed is governed by, and shall be construed in accordance with, English law. 5. In relation to any legal action or proceedings arising out of or in connection with this Deed ("PROCEEDINGS"), the Issuer irrevocably submits to the jurisdiction of the courts of England and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of each Relevant Account Holder and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any jurisdiction (whether concurrently or not). 6. The Issuer appoints Asea Brown Boveri Limited incorporated in England, of Orion House, 5 Upper St. Martin's Lane, London WC2H 9EA, as its agent in England to receive service of process in any Proceedings in England. If for any reason such process agent ceases to act as such or no longer has an address in England, the Issuer agrees to appoint a substitute process agent and to notify the Relevant Account Holders of such appointment in accordance with Condition 14 (as if the relevant Global Instrument had been exchanged for Definitive Instruments) and failing such appointment within 21 days any Relevant Account Holder shall be entitled to appoint such a person by notice to the Issuer. Nothing contained herein shall affect the right to serve process in any other manner permitted by law. IN WITNESS WHEREOF this Deed has been executed as a deed by the Issuer and is intended to be and is hereby delivered on the day and year first before written. EXECUTED as a deed under ) By: /s/ JAN ROXENDAL Seal by ABB CAPITAL B.V. )(L.S.) ) By: /s/ BRIAN VAN REIJN (1) acting by JAN ROXENDAL ) In the presence of: Witness signature: /s/ A. BAUMER Witness name: Antje Baumer Witness address: Flurstrasse 13 CH-8302 Kloten Witness occupation: Secretary (2) acting by ) BRIAN N. VAN REIJN In the presence of: Witness signature: /s/ G. Y. HAUS Witness name: G. Y. Haus Witness address: Robert Kochlaan 628 2035 Bu Haarlem Witness occupation: Secretary EX-4.1 8 a2072395zex-4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 CONFORMED COPY ABB Ltd - and - ALSTOM - and - ABB ALSTOM Power NV - -------------------------------------------------------------------------------- SHARE PURCHASE AND SETTLEMENT AGREEMENT dated as of March 31, 2000 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ARTICLE 1 Definitions and Interpretation.................................................... 3 1.1 Definitions......................................................................... 3 1.2 Interpretation...................................................................... 16 1.3 Exhibits, Schedules and Annexes..................................................... 17 ARTICLE 2 Nature of Settlement and Purchase of Shares ...................................... 17 2.1 The Settlement ..................................................................... 17 2.2 Purchase and Transfer of Shares .................................................... 18 2.3 Consideration for the Settlement and the Transferred Shares ........................ 18 2.4 Effective Date ..................................................................... 21 2.5 Other Adjustments. ................................................................. 21 2.6 Absolute Obligations; No Set-off Against Purchase Price. ........................... 25 2.7 Nature of the Settlement ........................................................... 25 ARTICLE 3 Related Agreements and Instruments; Pre-Closing Matters .......................... 26 3.1 Releases and Ancillary Agreements .................................................. 26 3.2 Intellectual Property .............................................................. 26 3.3 Purchase of Babcock ................................................................ 27 3.4 ABB Ltd/JC Payment ................................................................. 27 3.5 Capitalization of Combustion Engineering, Inc....................................... 28 3.6 Other Adjustments .................................................................. 28 3.7 Powers of Attorney ................................................................. 28 3.8 Press Release, Public Announcements ................................................ 29 ARTICLE 4 Regulatory Approvals; Regulatory Actions.......................................... 30 4.1 Regulatory Approvals Generally ..................................................... 30 4.2 Compliance With Non-U.S. Regulations................................................ 30 4.3 Compliance with U.S. Regulations.................................................... 30 4.4 Consultation with Workers Representatives........................................... 31 4.5 Regulatory Action................................................................... 32 ARTICLE 5 Representations and Warranties.................................................... 32 5.1 Representations and Warranties of ABB Ltd........................................... 32 5.2 Further Representations and Warranties of ABB Ltd................................... 34 5.3 Representations and Warranties of ALSTOM............................................ 35 5.4 Representations and Warranties of the JC............................................ 36 ARTICLE 6 Conditions Precedent to Closing................................................... 38 6.1 Conditions Precedent to ABB Ltd's Obligations....................................... 38 6.2 Conditions Precedent to ALSTOM's Obligations........................................ 39 6.3 Conditions Precedent to the JC's Obligations ....................................... 41 ARTICLE 7 Closing........................................................................... 42 7.1 Time and Place of Closing........................................................... 42 7.2 Deliveries by ABB Ltd .............................................................. 43 7.3 Deliveries by ALSTOM................................................................ 44 7.4 Deliveries by the JC ............................................................... 44 7.5 Delayed Closing..................................................................... 45 ARTICLE 8 Covenants......................................................................... 45 8.1 Covenants Pending Settlement Closing................................................ 45 8.2 Covenants Post Settlement Closing................................................... 47
-i- 8.3 Financial Reporting Covenant........................................................ 50 ARTICLE 9 Nature of Representations, Warranties and Covenants; Indemnification.............. 51 9.1 Nature of Representations, Warranties and Covenants................................. 51 9.2 Indemnities......................................................................... 51 ARTICLE 10 Contribution of ABB Ltd Post-Settlement Closing Transferred Assets to the JC..... 51 10.1 Contribution; Assumption of Liabilities. ........................................... 51 10.2 Method of Transfer. ................................................................ 52 10.3 No Encumbrances..................................................................... 53 10.4 Identity of ABB Ltd Post-Settlement Closing Transferred Assets...................... 53 10.5 Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets....................... 53 10.6 Reconciliation for Post-Settlement Closing Transfers................................ 55 10.7 Information ........................................................................ 56 ARTICLE 11 Principles Applicable to the ABB Ltd Post-Settlement Closing Transferred Assets 57 11.1 Contracts and Consents.............................................................. 57 11.2 Intellectual Property............................................................... 59 11.3 Employees; Employee Benefits and Pensions Matters................................... 60 11.4 Certain Real Estate................................................................. 60 11.5 Existing Contracts between ABB Ltd Group and the JC Group .......................... 61 11.6 Guarantees.......................................................................... 63 11.7 Investment Projects................................................................. 65 11.8 Transfer of Title................................................................... 65 ARTICLE 12 Provisions Relating to ABB Ltd Post-Settlement Closing Transferred Assets ....... 65 12.1 Conduct of Business in the Ordinary Course.......................................... 65 12.2 Notification to Regulatory Authorities ............................................. 66 12.3 Regulatory Action................................................................... 67 12.4 Insurance........................................................................... 67 ARTICLE 13 Consequences of Non-Transfers of ABB Ltd Post-Settlement Closing Assets.......... 68 13.1 Continued Transfer Efforts.......................................................... 68 13.2 Transfers of Non-ABB Ltd Business................................................... 69 ARTICLE 14 Tax Matters with Respect to the JC............................................... 70 14.1 Claims or Elections ................................................................ 70 14.2 Information ........................................................................ 70 14.3 Tax Losses ......................................................................... 70 14.4 Investigations ..................................................................... 71 14.5 Records ............................................................................ 71 14.6 Certain Tax Matters ................................................................ 71 14.7 Combustion Engineering ............................................................. 71 14.8 Tax Liabilities .................................................................... 72 ARTICLE 15 Non-Competition; Non-Solicitation ............................................... 72 15.1 Non-competition .................................................................... 72 15.2 Exceptions ......................................................................... 73 15.3 Non-solicitation; Non-hiring ....................................................... 75 ARTICLE 16 Confidentiality ................................................................. 76 16.1 Confidentiality .................................................................... 76 16.2 Extended Parties ................................................................... 77 16.3 Excluded Information ............................................................... 78
-ii- ARTICLE 17 Termination of Agreement ........................................................ 80 17.1 Termination of Agreement ........................................................... 80 17.2 Effect of Termination .............................................................. 81 18.3 Dutch Civil Code ................................................................... 81 ARTICLE 18 Miscellaneous ................................................................... 81 18.1 Expenses. .......................................................................... 81 18.2 Notices ............................................................................ 82 18.3 Entire Agreement ................................................................... 83 18.4 Assignment ......................................................................... 84 18.5 Binding Effect ..................................................................... 85 18.6 Headings ........................................................................... 85 18.8 Severability. ...................................................................... 85 18.8 Applicable Law ..................................................................... 86 18.9 Arbitration ........................................................................ 86 18.10 Counterparts ....................................................................... 86 18.11 No Third Party Beneficiaries ....................................................... 86 18.12 Controlling Document ............................................................... 87 18.13 Status of Affiliates ............................................................... 87 18.14 The JC ............................................................................. 87 18.15 Preservation ....................................................................... 87
-iii- EXHIBITS A ALSTOM Release B Joint Venture Termination Agreement C Shareholders Termination Agreement D Guaranty Termination Agreement E Keep-Well Termination Agreement F JC Release G ABB Ltd Release H Combustion Engineering and Connecticut Valley Agreement I Powerformer License Agreement Term Sheet J Press Releases K Windsor Site Lease Term Sheet L 1998 Net Equity Values SCHEDULES 2.5(a) Outstanding Open Items 5.1(e) Consents by ABB Ltd 5.3(e) Closing Regulatory Approvals to be obtained by ALSTOM 5.4(e) Consents by the JC 10.5(b) Disposable Assets 14.6 Certain Tax Matters 15.1 Prohibited Activities 15.2(b) List of Ventures ANNEXES A The ALSTOM Business B Part A: The ABB Ltd Business Part B: Permitted Encumbrances Part C: ABB Ltd Post-Settlement Closing Transferred Assets C Description of the Field D Intellectual Property Rights and Know-How E Indemnities F Employees, Employee Benefits and Pension Provisions G Real Estate Provisions H Investment Projects I Undertakings and Indemnity Agreement J ABB Ltd Business Guarantees K Warranties Part A: Warranties Part B: Nature of Warranties -iv- SHARE PURCHASE AND SETTLEMENT AGREEMENT This Share Purchase and Settlement Agreement (the "Agreement") dated as of March 31, 2000 by and among ABB Ltd, a corporation organized and existing under the laws of Switzerland ("ABB Ltd"), ALSTOM, a corporation organized and existing under the laws of France ("ALSTOM"), and ABB ALSTOM Power NV, a corporation organized and existing under the laws of The Netherlands (the "JC"). W I T N E S S E T H: WHEREAS, ALSTOM and ABB Handels- und Verwaltungs AG, a corporation incorporated under the laws of Switzerland ("ABB HV"), entered into a Joint Venture Agreement, dated March 23, 1999, as amended and supplemented by the Supplemental Agreement and Closing Memorandum and Agreement each dated June 30, 1999 (the "Joint Venture Agreement"), with the objectives and for the purpose set out in the Recitals thereto, including the establishment of the JC as a company jointly owned, directly or indirectly, by ALSTOM and ABB Ltd; WHEREAS, ALSTOM, ABB Asea Brown Boveri Ltd, a corporation organized and existing under the laws of Switzerland ("ABB Asea Brown Boveri"), ABB AG, a corporation organized and existing under the laws of Switzerland ("ABB AG"), and ABB AB, a corporation organized and existing under the laws of Sweden ("ABB AB"), entered into a Shareholders Agreement, dated March 23, 1999, as amended by the Supplemental Agreement dated June 30, 1999 (the "Shareholders Agreement"), relating to the ownership and management of the JC; -1- WHEREAS, subsequent to the execution of the Joint Venture Agreement and the Shareholders Agreement, the ABB Ltd Group (as defined below) was reorganized in such a manner that ABB Ltd has become the Parent Company of the group of companies commonly referred to as the "ABB Group" including, without limitation, ABB Asea Brown Boveri, ABB AG, ABB AB and ABB HV; WHEREAS, ALSTOM has delivered written notices to ABB Asea Brown Boveri that material disputes have arisen under certain terms and provisions of the Joint Venture Agreement; WHEREAS, ABB Ltd has reserved the right to deliver its own written notices to ALSTOM with respect to material disputes that have arisen under the terms and provisions of the Joint Venture Agreement; and WHEREAS, each of ALSTOM and ABB Ltd desire to resolve the disputes on an amicable basis and thus avoid the referral of such disputes to arbitration under the Rules of Arbitration of the International Chamber of Commerce in accordance with the provisions of the Joint Venture Agreement and, in connection therewith, ALSTOM has agreed to purchase, and ABB Ltd has agreed to sell, all of the Class B Shares of the JC, on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: -2- ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS. The following capitalized terms shall have the following respective meanings, unless the context otherwise requires: "1998 Net Equity Values" as defined in Article 10.6; "ABB AB" as defined in the Recitals; "ABB AB Group" at any date, ABB AB and its Subsidiaries for the time being, but in any event excluding the JC Group; "ABB AG" as defined in the Recitals; "ABB AG Group" at any date, ABB AG and its Subsidiaries for the time being, but in any event excluding the JC Group; "ABB ALSTOM Power, Inc." as defined in Article 2.3(c); "ABB Asea Brown Boveri" as defined in the Recitals; "ABB Asea Brown Boveri Group" at any date, ABB Asea Brown Boveri and its Subsidiaries for the time being, but in any event excluding the JC Group; "ABB HV" as defined in the Recitals; "ABB Ltd" as defined in the Introductory Paragraph; "AAB Ltd/AAP Inc. Payment" as defined in Article 2.3(c); "ABB Ltd/ALSTOM Adjustment as defined in Article 3.6; Payment" "ABB Ltd Ancillary as defined in Article 2.3(b); Agreements" "ABB Ltd Business" the "ABB Ltd Business" required to have been transferred to the JC pursuant to the Joint Venture Agreement, as specified in Part A of Annex C to the Joint Venture Agreement (a copy of which is attached hereto as Part A of Annex B hereto); -3- "ABB Ltd Business Contract" any Contract of any member of the ABB Ltd Group, which as of the Settlement Closing Date predominantly relates to the ABB Ltd Business and is in effect in whole or in part as of the Settlement Closing Date; "ABB Ltd Business Contracts as defined in Article 11.1(b); Transfer Consents" "ABB Ltd Business Contracts as defined in Article 11.6(a); Guarantees" "ABB Ltd Business Guarantee" any guarantee, letter of credit reimbursement agreement, insurance bond, commitment with bond issuers (including without limitation Sirius, American International Group and Chubb), letter of comfort, or other similar support arrangement by any member of the ABB Ltd Group solely with respect to JC Liabilities, entered into prior to the date hereof or, at the request of the JC, after the date hereof other than any ABB Ltd Financial Institution Guarantee; "ABB Ltd/CE Capital as defined in Article 3.5(b); Contribution" "ABB Ltd Excluded as defined in Annex E; Liabilities" "ABB Ltd Financial any guarantee, letter of credit, insurance bond, Institution Guarantee" or other similar support arrangement (including, without limitation, financial and credit enhancement facilities) issued by any member of the ABB Ltd Group that is a financial institution or in the business of providing any such support arrangement, in relation to any Contract or Liability of any member of the JC Group or any ABB Ltd Transferred Company; "ABB Ltd Financial any conflict with, any violation of or default Instrument Default" (with or without notice or lapse of time, or both) under, giving rise to a right of termination, revocation, withdrawal, suspension, modification or cancellation (in whole or in part) of or under, giving rise to a right of first refusal (or similar right) under or with respect to, giving rise to a right of acceleration of any obligation under or a right to require repayment of any amount under, resulting in the loss of a benefit under, or resulting in the creation of any Encumbrance upon -4- any of the respective properties and assets of any member of the JC Group (including without limitation any ABB Ltd Transferred Company included in the ABB Ltd Post-Settlement Closing Transferred Assets) or any member of the ALSTOM Group under, any ABB Ltd Business Guarantee in respect of any ABB Ltd Financial Institution Guarantee; "ABB Ltd Group" at any date, ABB Ltd and its Subsidiaries for the time being, but in any event excluding the JC Group; "ABB Ltd/JC Payment" as defined in Article 3.4; "ABB Ltd Marks" as defined in Annex D; "ABB Ltd Marks License Agreements" as defined in Article 8.2(d); "ABB Ltd Post-Settlement all Assets (including without limitation, Closing Transferred Assets" undertakings) which were required under the terms of the Joint Venture Agreement directly or indirectly to have been transferred by the "ABB Ltd Group," but which as of the date hereof have not been directly or indirectly transferred into the direct or indirect ownership of a member of the JC Group, including without limitation the Assets described in Part C of Annex B but in any event excluding (for the avoidance of doubt) any shares or other equity interest in the CE Companies; "ABB Ltd Release" as defined in Article 2.3(b); "ABB Ltd Reorganisation" as defined in the Joint Venture Agreement; "ABB Ltd Transferred (i) all of the undertakings directly or indirectly Companies" contributed by the "ABB Ltd Group" to the JC Group pursuant to the Joint Venture Agreement prior to the date hereof (including without limitation all of the undertakings listed on Part B of Annex C to the Joint Venture Agreement), and (ii) all of the undertakings comprised in the ABB Ltd Post-Settlement Closing Transferred Assets, but in any event excluding (under both clauses (i) and (ii)) the CE Companies; "ABB Ltd Wire Transfer Instructions" as defined in Article 2.3(a); -5- "ABB Powers of Attorney" as defined in Article 3.7(a); "Absolute Obligations" as defined in Article 2.6; "Affiliate" in relation to an undertaking, any Subsidiary of such undertaking, and any other undertaking in which for the time being that undertaking (or any Subsidiary thereof) directly or indirectly owns or controls: (i) fifty per cent (50%) or more of the issued shares; (ii) shares conferring fifty per cent (50%) or more of the voting rights exercisable at all general meetings; or (iii) the right to nominate directors holding fifty per cent (50%) or more of the voting rights exercisable by the directors of the said undertaking, provided that no member of the JC Group shall be considered an Affiliate of ABB Ltd or (until consummation of the Settlement Closing) ALSTOM; "Agreement" this Share Purchase and Settlement Agreement; "ALSTOM" as defined in the Introductory Paragraph; "ALSTOM Ancillary as defined in Article 2.3(a); Agreements" "ALSTOM Business" the "ALSTOM Business" required to have been transferred to the JC pursuant to the Joint Venture Agreement, as specified in Part A of Annex A to the Joint Venture Agreement (a copy of which is attached hereto as Annex A); "ALSTOM Group" at any date, ALSTOM and its Subsidiaries for the time being, but in any event excluding the JC Group; "ALSTOM Power of Attorney" as defined in Article 3.7(b); "ALSTOM Release" as defined in Article 2.3(a); "ALSTOM Reorganisation" as defined in the Joint Venture Agreement; "ALSTOM Wire Transfer as defined in Article 3.4; Instructions" "ALSTOM Transferred all of the undertakings directly or indirectly Companies" contributed by the "ALSTOM Group" to the JC Group pursuant to the Joint Venture Agreement prior to the date hereof (including without limitation all of the undertakings listed on Part B of Annex A to the Joint Venture Agreement); -6- "Ancillary Agreements" as defined in Article 2.3(b); "Articles" Articles of Association of the JC; "Asea Brown Boveri Inc." as defined in Article 2.3(b); "Assets" all tangible and intangible property, including without limitation cash, leases, licenses, Intellectual Property Rights, Know-How and/or any other right over or interest in property; "Balanced Netting Position" as defined in Article 2.5(b)(i); "Business Day" a day on which banks generally in London and Zurich are open for a full range of business; "Business Documents" as defined in Article 8.2(c); "Businesses" the ALSTOM Business and the ABB Ltd Business; "CE Asset Purchase Agreement" that certain Asset Purchase Agreement dated as of December 29, 1999, by and between Combustion Engineering, Inc. and ABB ALSTOM Power, Inc.; "CE Closing" as defined in Article 7.1; "CE Companies" Combustion Engineering, Inc. and Connecticut Valley Claim Service Co., Inc.; "CGS" Connecticut General Statutes; "Class B Shares" as defined in the Articles; "Closing" as defined in the Joint Venture Agreement; "Closing Date" June 30, 1999; "Closing Regulatory all consents (including the expiry of any period Approvals" following a notification such that consent is deemed to be given or no consent is required), approvals, waivers and filings of or with any Regulatory Authority as are required to be obtained or made by any of ALSTOM, ABB Ltd, the JC or any of their respective Affiliates prior to the Settlement Closing in connection with the Settlement Closing Matters; -7- "Combustion Engineering as defined in Article 2.3(b); and Connecticut Valley Agreement" "Combustion Engineering, as defined in Article 2.3(c); Inc." "Connecticut ECA" as defined in Article 4.3; "Connecticut Form III" as defined in Article 4.3; "Contracts" with respect to any person, all contracts, engagements and similar obligations of, rights, benefits and licenses enjoyed by, and bonds, guarantees and other commitments relating, to such person; "Default" (i) any conflict with, any violation of or default (with or without notice or lapse of time, or both) under, giving rise to a right of termination, revocation, withdrawal, suspension, modification or cancellation (in whole or in part) of or under, giving rise to a right of first refusal (or similar right) under or with respect to, giving rise to a right of acceleration of any obligation under or a right to require repayment of any amount under, resulting in the loss of a benefit under, or resulting in the creation of any Encumbrance upon any of the respective properties and assets of any member of the JC Group (including without limitation any ABB Ltd Transferred Company included in the ABB Ltd Post-Settlement Closing Transferred Assets) or any member of the ALSTOM Group under, any Contract to which any member of the JC Group (including without limitation any ABB Ltd Transferred Company included in the ABB Ltd Post-Settlement Closing Transferred Assets) or any member of the ALSTOM Group is a party or by which it or any of its Assets is bound, (ii) any member of the JC Group (including without limitation any ABB Ltd Transferred Company included in the ABB Ltd Post-Settlement Closing Transferred Assets) or any member of the ALSTOM Group incurring any liability or obligation of any nature whatsoever under any Contract or (iii) any violation of any statute, law or regulation, or order of a Regulatory Authority, applicable to any member of the JC Group (including without limitation any ABB Ltd Transferred Company included in the ABB Ltd Post-Settlement Closing Transferred Assets) or any member of the ALSTOM Group; "Disposable Assets" as defined in Article 10.5(b); -8- "Elektrim Case" as defined in Schedule 14.6; "Encumbrance" any mortgage, charge, lien, hypothecation, pledge, claim, option, usufruct, security interest, voting agreement (other than the Shareholders Agreement), restriction on transfer (other than as set forth in the Shareholders Agreement or the Articles) or any other form of encumbrance, but excluding (other than with respect to the Transferred Shares) encumbrances arising in the ordinary course of the relevant Business that do not secure indebtedness for borrowed money (or any similar obligation) and do not, individually or in the aggregate, materially affect the value of any property or the use thereof for the purposes of the relevant Business; "Euros" the official currency of the European Union; "Extended Parties" the Parties, ABB Asea Brown Boveri, ABB AG and ABB AB (and "Extended Party" shall be construed accordingly); "Field" as described in Annex C; "Financial Transactions" as defined in Article 2.5(b); "Gadelius Case" as defined in Schedule 14.6; "GE" General Electric Company of the United States; "Group" the ALSTOM Group or the ABB Ltd Group, or in the context where used, the ABB AB Group, the ABB AG Group or the ABB Asea Brown Boveri Group; "Guaranty Termination as defined in Article 2.3(a); Agreement" "IAS" International Accounting Standards; "ISDA Agreement" as defined in Article 2.5(b)(ii); "Indemnified Parties" as defined in Annex E; "Intellectual Property as defined in Annex D; Rights" "IP Conveyance Instruments" as defined in Article 3.2; -9- "JC" as defined in the Introductory Paragraph; "JC/ABB Contract" as defined in Article 11.5(a); "JC/ABB Service Contracts" as defined in Article 11.5(d); "JC/CE Capital Contribution" as defined in Article 3.5; "JC Group" at any date, the JC and its Subsidiaries for the time being; "JC Liabilities" (i) all Liabilities of the ABB Ltd Business, and (ii) all Liabilities of the ABB Ltd Transferred Companies or the ABB Ltd Post-Settlement Closing Transferred Assets constituting Liabilities of the ABB Ltd Business, in the case of both (i) and (ii) other than the Excluded Liabilities (as defined in Annex E); "JC Power of Attorney" as defined in Article 3.7(c); "JC Release" as defined in Article 2.3(a); "Joint Venture Agreement" as defined in the Recitals; "Joint Venture Termination as defined in Article 2.3(a); Agreement" "Keep-Well Termination as defined in Article 2.3(a); Agreement" "Know-How" as defined in Annex D; "Liabilities" all liabilities, obligations, losses, damages, deficiencies, obligations, debts and Taxes, all claims, demands, actions, lawsuits or other proceedings (including without limitation administrative proceedings, cost recovery actions, indemnification and contribution actions) by a Regulatory Authority or by any other third party (including without limitation any of the foregoing sounding in tort, successor liability, strict liability, joint and several liability, assumption of liability, contribution, indemnity, contract, warranty or any other theory of law or equity), and all judgments, orders, injunctions, assessments, fines, diminutions in value, punitive damages, compliance costs, response action costs, removal, remediation and cleanup costs, corrective action costs, natural resource damages, penalties, levies, surcharges, recoveries, interest, other costs -10- and expenses, including without limitation legal expenses and other defense costs, in each case whether past, present or future (and regardless of whether known or unknown, fixed or contingent, disclosed or undisclosed, asserted or unasserted as of the date of this Agreement or as of the Settlement Closing Date); "Long-Term Investments" as defined in Article 2.5(b)(i); "Management Board" the board of managers of the JC; "Master Set-Off and Netting as defined in Article 2.5(b); Agreement" "Non-Listed ABB Ltd as defined in Article 10.5; Post-Settlement Closing Transferred Assets" "On-Balance Sheet as defined in Article 2.5(b); Transactions" "Off-Balance Sheet as defined in Article 2.5(b); Transactions" "Other Party" ALSTOM, in relation to ABB Ltd, or ABB Ltd, in relation to ALSTOM; "Parent Company" in relation to any particular undertaking (the "Specified Undertaking")": (i) if such Specified Undertaking is not a Subsidiary of any other undertaking, such Specified Undertaking itself; or (ii) if such Specified Undertaking is a Subsidiary of any other undertaking, such other undertaking (or, if there are two or more such other undertakings, the undertaking from among such other undertakings that is not itself a Subsidiary of any other undertakings); "Parties" ALSTOM, ABB Ltd and the JC (and "Party" shall be construed accordingly); "Parties Transferred the ALSTOM Transferred Companies (in the case of Companies" ALSTOM) or the ABB Ltd Transferred Companies (in the case of ABB Ltd); -11- "Permitted Encumbrance" an Encumbrance which: (i) arises (or has arisen) in the ordinary course of business of the ABB Ltd Business; or (ii) is described in Part B of Annex B; "Permitted Exceptions" as defined in Annex K; "Permitted Merger in the case of ABB Ltd, ALSTOM or the JC, (i) any Transaction" merger or consolidation of such Party with or into any third party or (ii) the sale or other transfer of all or substantially all of such Party's assets, or all or substantially all of the assets of the Group of such Party considered as a whole, to any third party (or any related group of third parties), whether in a single transaction or in a series of related transactions; "PLDOL" as defined in Schedule 14.6; "PLDOL Matter" as defined in Schedule 14.6; "PLZAM" as defined in Schedule 14.6; "Post-Settlement Closing as defined in Article 2.5(b)(i); Netting Payment" "Powerformer License as defined in Article 3.2; Agreement" "Prohibited Activities" the activities set out in Schedule 15.1; "Purchase Price" as defined in Article 2.3(a); "Reconciliation Statement" as defined in Article 10.6; "Regulatory Action" (i) the taking of any action: (ii) the institution of proceedings in any court of competent jurisdiction; or (iii) the proposal or enactment of any statute or regulation by any Regulatory Authority, -12- in each case being an action or proceeding which (if successfully pursued by the person initiating the same) would, or a statute or regulation which (when enacted) would, prohibit, restrict or delay the effect of any of the Settlement Closing Matters, any transfer of ABB Ltd Post-Settlement Closing Transferred Assets or the carrying on of the business of the JC Group in the ordinary course after the Settlement Closing or after the date of any transfer of ABB Ltd Post-Settlement Closing Transferred Assets, and/or result in the making of any order for the payment of any penalty or damages by any member of the ALSTOM Group, the ABB Ltd Group or the JC Group in connection with the transactions contemplated by this Agreement; "Regulatory Approvals" all consents (including the expiry of any period following a notification such that consent is deemed to be given or no consent is required), approvals, waivers and filings of or with any Regulatory Authority as are required to be obtained or made by any of ALSTOM, ABB Ltd, the JC or any of their respective Affiliates in connection with the execution, delivery and performance of this Agreement and the Settlement Documents by the respective parties (or contemplated parties) thereto and the consummation of the transactions contemplated herein and therein; "Regulatory Authority" any government (including without limitation any political subdivision or instrumentality of any government), any governmental, quasi-governmental, supranational or state agency, department or regulatory body or authority, or any stock exchange; "Releases" the ABB Ltd Release, the ALSTOM Release and the JC Release; "Reorganisations" the ALSTOM Reorganisation and the ABB Ltd Reorganisation; "Required Workers' as defined in Article 4.4; Consultations" "Restricted Employee" as defined in Article 15.3; "Rules" as defined in Article 18.9; -13- "Settlement" as defined in Article 2.1; "Settlement Closing" as defined in Article 7.1; "Settlement Closing Date" as defined in Article 7.1; "Settlement Closing Matters" the execution and delivery of the Ancillary Agreements contemplated hereby to be executed and delivered prior to or at the Settlement Closing, the performance by the Parties of their respective obligations under this Agreement and the Ancillary Agreements specifically contemplated to be performed prior to or at the Settlement Closing and the consummation of the transactions specifically contemplated herein and therein to be consummated prior to or at the Settlement Closing; "Settlement Documents" as defined in Article 2.3(b); "Share" any participating interest in any undertaking; "Shareholders Agreement" as defined in the Recitals; "Shareholders Termination as defined in Article 2.3(a); Agreement" "Specified Undertaking" as defined in the definition of "Parent Company"; "Stibbe" as defined in Article 7.1; "Subsidiary" in relation to an undertaking, any other undertaking in which for the time being the first mentioned undertaking owns or controls, directly or indirectly: (i) more than fifty per cent (50%) of the issued shares; or (ii) shares conferring more than fifty per cent (50%) of the voting rights exercisable at all general meetings; or (iii) the right to nominate directors who together hold a majority of the voting rights exercisable by the directors of the said undertaking, -14- and so that an undertaking which is a Subsidiary of another shall also be a Subsidiary of any undertaking of which that other is a Subsidiary; "Supervisory Directors B" members of the Supervisory Board of the JC appointed by the General Meeting of Shareholders from a list of nominees submitted by the holders of Class B Shares; "Tax Benefit" as defined in Article 14.7; "Tax Matters" as defined in Schedule 14.6; "Taxes" any and all forms of taxes, levies, imposts, duties and other charges in the nature of taxation imposed by the government of any country or by any state or municipal authority anywhere in the world; "Taxing Authority" any authority of any government of any country, state, county, city or locality (or any political subdivision or any instrumentality thereof) authorized or required to collect or impose Taxes or enforce any law imposing Taxes; "Tax Return" any tax return or other filing in respect of Taxes; "Transfer Date Net Equity as defined in Article 10.6; Value" "Transferor" the meaning attributed thereto in Article 11.1(d); "Transferred Assets" as defined in Article 10.6; "Transferred Shares" as defined in Article 2.2; "undertaking" a body corporate or unincorporate, a partnership or any other entity. "Undertakings and Indemnity the agreement set forth in Annex I; Agreement" "US GAAP" U.S. generally accepted accounting principles; "Warranties" as defined in Annex K; "Warranties Breach" as defined in Annex E; -15- "Warrantor" ABB Ltd or ALSTOM, as the case may be; and "Windsor Site Lease" an agreement between Combustion Engineering, Inc. and a Subsidiary of the JC designated by the JC on the basis of the term sheet attached as Exhibit K hereto and as agreed between the Parties. 1.2 INTERPRETATION. In this Agreement: (a) terms defined in the singular shall have a correlative meaning when used in the plural and vice versa; (b) references to persons shall include individuals, undertakings and governmental, supranational and state agencies and regulatory bodies; (c) references to Recitals, Articles, Exhibits, Schedules and Annexes and parts thereof, unless a contrary intention appears, are to the Recitals, Articles, Exhibits, Schedules and Annexes to this Agreement and parts thereof, respectively; (d) any reference to a document being "in the agreed terms" or "in the agreed form" is to such a document in the terms or in the form agreed between ALSTOM and ABB Ltd and for the purpose of identification signed by or on behalf of ALSTOM and ABB Ltd or in such other terms or form as may be agreed in writing between ALSTOM and ABB Ltd in substitution therefor; (e) references to any statutory provision shall include such provision as from time to time amended, whether before, on or after the date of this Agreement (unless the context in which such reference is used requires a different date), and shall be deemed to include provisions of earlier legislation (as from time to time amended) which have been re-enacted -16- (with or without modification) or replaced (directly or indirectly) by such provision and shall further include all statutory instruments or orders from time to time made pursuant thereto; (f) the headings are inserted for convenience only and shall not affect the construction of this Agreement; and (g) where reference is made to rights or obligations of ALSTOM or ABB Ltd, such rights or obligations may be assigned to or performed by an undertaking which is one hundred percent (100%) directly or indirectly owned by ALSTOM or ABB Ltd, as the case may be, provided always that the Other Party has given its prior consent to such assignment or performance (such consent not to be unreasonably withheld) and provided always that ALSTOM and ABB Ltd shall remain, for all purposes, parties to this Agreement and liable to the Other Party for the performance by any such undertaking. 1.3 EXHIBITS, SCHEDULES AND ANNEXES. The Exhibits, Schedules and Annexes form part of this Agreement and shall be construed and shall have the same full force and effect as if expressly set out in the body of this Agreement. ARTICLE 2 NATURE OF SETTLEMENT AND PURCHASE OF SHARES 2.1 THE SETTLEMENT. The Parties agree to settle all of their claims, liabilities, disputes and differences with respect to the formation, operation and activities of the JC including, without limitation, all claims, liabilities, disputes and differences, past, present and future, arising from or associated with the contribution of the ABB Ltd Business and the ALSTOM Business to the JC pursuant to the terms and provisions of the Joint Venture Agreement, on the terms and -17- conditions, and solely to the extent, set forth herein and subject to the consummation of the Settlement Closing (the "Settlement"). It is agreed among the Parties that nothing in the preceding sentence shall constitute a release of any claim, right, liability or obligation of any of the Parties, all of which releases are set forth only in the ALSTOM Release, the JC Release and the ABB Ltd Release, respectively. 2.2 PURCHASE AND TRANSFER OF SHARES. Subject to the terms and conditions of this Agreement, at the Settlement Closing, in consideration of the Purchase Price and in partial consideration of the Settlement, ABB Ltd shall sell and transfer or cause to be sold and transferred to ALSTOM, or its designated Affiliate(s), and ALSTOM shall accept, or cause to be accepted by its designated Affiliate(s), all of the outstanding Class B Shares of the JC, representing fifty percent (50%) of the issued and outstanding share capital of the JC (the "Transferred Shares"), together with all rights, title and interest in and to the Transferred Shares and all voting and economic rights and benefits associated therewith. The Transferred Shares shall be sold and transferred to ALSTOM, or its designated Affiliate(s), free and clear of any Encumbrance. 2.3 CONSIDERATION FOR THE SETTLEMENT AND THE TRANSFERRED SHARES. (a) CONSIDERATION BY ALSTOM. Without limitation, the consideration by ALSTOM for the Settlement and the Transferred Shares shall be (i) the payment by ALSTOM of the purchase price in the amount of One Billion Two Hundred Fifty Million Euros (EURO 1,250,000,000) (the "Purchase Price"), payable by wire transfer in immediately available funds to ABB Ltd or its designee on the Settlement Closing Date, in accordance with wire transfer instructions (the "ABB Ltd Wire Transfer Instructions") delivered by ABB Ltd to ALSTOM at -18- least one Business Day prior to the Settlement Closing; (ii) the execution and delivery by ALSTOM at the Settlement Closing of (A) the General Release, dated the Settlement Closing Date, in the form attached hereto as Exhibit A (the "ALSTOM Release"), (B) the Joint Venture Termination Agreement, dated the Settlement Closing Date, in the form attached hereto as Exhibit B (the "Joint Venture Termination Agreement"), (C) the Shareholders Termination Agreement, dated the Settlement Closing Date, in the form attached hereto as Exhibit C (the "Shareholders Termination Agreement"), (D) the Guaranty Termination Agreement, dated the Settlement Closing Date, in the form attached hereto as Exhibit D (the "Guaranty Termination Agreement") and (E) the Keep-Well Termination Agreement, dated the Settlement Closing Date, in the form attached hereto as Exhibit E (the "Keep-Well Termination Agreement"); and (iii) the execution and delivery by the JC at the Settlement Closing of the General Release, dated the Settlement Closing Date, in the form attached hereto as Exhibit F (the "JC Release"). The ALSTOM Release, the Joint Venture Termination Agreement, the Shareholders Termination Agreement, the Guaranty Termination Agreement and the Keep-Well Termination Agreement are hereinafter collectively referred to as the "ALSTOM Ancillary Agreements." (b) CONSIDERATION BY ABB LTD. Without limitation, the consideration by ABB Ltd for the Settlement and the receipt of the Purchase Price shall be, in part, the sale, transfer and delivery of the Transferred Shares at the Purchase Price and, in part, (1) the execution and delivery by ABB Ltd at the Settlement Closing of (i) the General Release, dated the Settlement Closing Date, in the form attached hereto as Exhibit G (the "ABB Ltd Release"), (ii) the ALSTOM Ancillary Agreements other than the ALSTOM Release and (iii) the Powerformer License Agreement and (2) the execution and delivery by Asea Brown Boveri Inc., a corporation organized and existing under the laws of the State of Delaware ("Asea Brown Boveri Inc."), of -19- the Stock Purchase Agreement, dated the Settlement Closing Date, in the form attached hereto as Exhibit H (the "Combustion Engineering and Connecticut Valley Agreement"). The documents described in clauses (1) and (2) of the preceding sentence are hereinafter collectively referred to as the "ABB Ltd Ancillary Agreements." The ALSTOM Ancillary Agreements and the ABB Ltd Ancillary Agreements are hereinafter collectively referred to as the "Ancillary Agreements." This Agreement, the Ancillary Agreements and the further agreements, certificates or other instruments executed and delivered pursuant to any of the foregoing are hereinafter collectively referred to as the "Settlement Documents." (c) COMBUSTION ENGINEERING. (1) At the Settlement Closing, the JC and ABB Ltd shall cause their respective applicable Subsidiaries to execute and deliver, and to consummate the transactions contemplated by, the Combustion Engineering and Connecticut Valley Agreement. (2) ABB Ltd shall cause Asea Brown Boveri Inc. to make a payment by wire transfer to ABB ALSTOM Power, Inc., a corporation organized and existing under the laws of the State of Delaware ("ABB ALSTOM Power, Inc."), in the amount of Ninety-Eight Million Five Hundred Thousand United States Dollars ($98,500,000) as payment in full to settle all claims and disputes and diminution in value, if any, incurred or suffered by ABB ALSTOM Power, Inc. as a result of the Transfer Agreement made as of June 27, 1999 by and between Asea Brown Boveri Inc. and ABB Power Subholding, Inc., a corporation organized and existing under the laws of the State of Delaware, and the transfer of the shares of Combustion Engineering, Inc., a corporation organized and existing under the laws of the State of Delaware ("Combustion Engineering, Inc."), to ABB ALSTOM Power, Inc. pursuant to the terms of the Joint Venture -20- Agreement. The Parties agree to treat such payment for tax purposes as a contribution to capital. The Parties further acknowledge that the releases in respect of such claims are submitted within, and are only as set forth in, the ALSTOM Release and the JC Release. Such payment (the "ABB Ltd/AAP Inc. Payment") shall be made at the Settlement Closing to the account of ABB ALSTOM Power, Inc. as notified in writing to ABB Ltd at least one (1) Business Day prior to the Settlement Closing Date. (3) Each of ABB Ltd and ALSTOM covenant to the other that from and after the Settlement Closing Date, it will not, and will cause Asea Brown Boveri Inc. and Combustion Engineering, Inc. and their respective successors and assigns not to, seek to void or rescind, or challenge in any way, the transactions consummated pursuant to the CE Asset Purchase Agreement and the Combustion Engineering and Connecticut Valley Agreement. (4) Reference is hereby made to the CE Asset Purchase Agreement and to the "CE Specified Debt" (as defined therein). The Parties agree that they shall cause their respective Subsidiaries to take such action as is necessary to procure that the principal amount of the Specified Debt is $27,140,000 as of the Settlement Closing Date. 2.4 EFFECTIVE DATE. The effective date of the Settlement and sale and transfer of the Transferred Shares shall be the Settlement Closing Date. 2.5 OTHER ADJUSTMENTS. (a) OUTSTANDING OPEN ITEMS. Prior to the date hereof, the Parties have resolved all of the outstanding open items relating to the transfer of the ABB Ltd Business to the JC, including, without limitation, those items identified in Schedule 2.5(a) hereto, in further -21- consideration of the entering into of this Agreement and the closing of the transactions contemplated herein, effective upon consummation of the Settlement Closing. (b) CERTAIN FINANCIAL TRANSACTIONS. As of the date hereof, the JC Group has entered into on-balance sheet and off-balance sheet and other financial transactions (collectively, the "Financial Transactions") with the ABB Ltd Group, in connection with the Businesses as conducted by the JC Group. Certain of the on-balance sheet transactions (the "On-Balance Sheet Transactions") are subject to a Master Set-Off and Netting Agreement, dated as of July 1, 1999, between the JC and ABB Asea Brown Boveri (the "Master Set-Off and Netting Agreement"). The off-balance sheet transactions (the "Off-Balance Sheet Transactions") have been entered into and have been conducted in accordance with the terms and conditions contained in standard ISDA agreements. Each of ALSTOM, the JC and ABB Ltd shall proceed as follows with respect to the Financial Transactions: (i) ON-BALANCE SHEET TRANSACTIONS. On the day prior to the Settlement Closing Date, ABB Ltd shall prepare and deliver or cause its Subsidiary, ABB Capital B.V. to prepare and deliver to the JC a statement setting forth the current creditor and debtor position of the parties to the Master Set-Off and Netting Agreement. Within one (1) Business Day of the receipt of such statement (but in no event prior to the consummation of the Settlement Closing), if the Settlement Closing occurs, the JC shall pay to ABB Capital B.V. the amounts (the "Post-Settlement Closing Netting Payment") necessary to bring the debtor position of the AAP Netting Group (as such term is defined in the Master Set-Off and Netting Agreement) into balance with the creditor position of the ABB Netting Group (as such term is defined in the Master Set-Off and Netting Agreement) (hereinafter, -22- the "Balanced Netting Position"). Thereafter, at the end of every two (2) weeks, ABB Ltd shall prepare and deliver, or cause ABB Capital B.V. to prepare and deliver additional statements setting forth the then current creditor and debtor position of the parties to the Master Set-Off and Netting Agreement and the JC shall make additional payments to ABB Capital B.V. as necessary to maintain the Balanced Netting Position. One hundred (100) days after the Settlement Closing Date, the Parties shall terminate or cause to be terminated the Master Set-Off and Netting Agreement and thereafter cease to enter into any additional On-Balance Sheet Transactions, provided that each Party shall remain liable to the Other Party for all obligations of its respective Group under the terms and conditions of such Master Set-Off and Netting Agreement. Notwithstanding the foregoing, in the event certain deposits of the JC Group are invested in long-term investment contracts, certificates of deposit or other similar investments (the "Long-Term Investments"), such Long-Term Investments shall continue to be maintained by the ABB Ltd Group until maturity unless otherwise instructed in writing by ALSTOM and shall be paid to ALSTOM within one (1) Business Day of their maturity or earlier termination or withdrawal, as the case may be; provided, however, that ALSTOM and the JC shall be solely liable for any premium, penalty, "break-funding" or other third-party early withdrawal, early termination or equivalent cost and any reasonable out-of-pocket expenses incurred by the ABB Ltd Group as a result of any early termination or withdrawal directed by ALSTOM. Such estimated expenses shall not be binding on the ABB Ltd Group. Upon request from ALSTOM, the ABB Ltd Group shall inform the JC and -23- ALSTOM of any anticipated premium, penalty, "break-funding" or other similar cost and any anticipated out-of-pocket expenses to be incurred by the ABB Ltd Group prior to any such early termination or withdrawal. (ii) OFF-BALANCE SHEET TRANSACTIONS. Prior to or at the Settlement Closing, the JC and ABB Ltd or its Affiliate shall enter into an ISDA agreement for a ninety (90) day term (the "ISDA Agreement"), which ISDA Agreement shall govern the Off-Balance Sheet Transactions. Upon expiration of the ISDA Agreement, the JC Group and the ABB Ltd Group shall cease to enter into any additional Off-Balance Sheet Transactions, provided that each Party shall remain liable to the Other Party for all obligations of its respective Group under the terms and conditions of the ISDA Agreement. (iii) BRAZIL AND POLAND. From and after the Settlement Closing Date, the JC Group and the ABB Ltd Group shall proceed with respect to the Financial Transactions entered into in connection with the Businesses conducted in Brazil and Poland for a term of thirty (30) days in a manner consistent with the provisions of Article 2.5(b)(i) and (ii). (iv) PROJECT SUPPORT. Following the Settlement Closing Date, ABB Ltd shall maintain or cause to be maintained in place all existing financial support provided by the ABB Ltd Group with respect to the Rosarito and Monterey, Mexico projects, in accordance with their existing terms and conditions. (v) ALSTOM SUPPORT. ALSTOM acknowledges and confirms its agreement that Financial Transactions entered into by the JC Group described -24- above and agrees to provide the financial support necessary for the JC Group to perform its obligations under such Financial Transactions and shall indemnify and hold harmless the ABB Ltd Group in accordance with the provisions of Annex E hereto as a result of any breach or failure to perform by the JC Group under such Financial Transactions. 2.6 ABSOLUTE OBLIGATIONS; NO SET-OFF AGAINST PURCHASE PRICE. (a) The obligation of ALSTOM to pay the Purchase Price for the Transferred Shares, and of ABB Ltd to cause the Transferred Shares to be sold, transferred and delivered to ALSTOM (or its designee(s)), in each case in accordance with (and subject to) the provisions of this Agreement (such obligations being referred to herein as the "Absolute Obligations"), are absolute and are not and shall not be subject to any legal or equitable right of set-off or other deduction for any reason whatsoever. (b) For the avoidance of doubt, Article 2.6(a) shall cease to have any further force or effect upon payment and performance in full of the Absolute Obligations at the Settlement Closing. 2.7 NATURE OF THE SETTLEMENT. The Parties acknowledge and agree that they have extensive knowledge and experience in financial and business matters and are capable of evaluating the merits and risks of the transactions contemplated hereby. The consideration for the Settlement has been arrived at following arm's-length negotiations between the Parties and their representatives. Prior to such negotiations, each of the Parties has been involved in the affairs of the JC and has had extensive access to financial and other information concerning the assets, liabilities, business, results of operations, financial condition and prospects of the JC and its predecessors. Accordingly, the Parties hereby irrevocably agree to be bound by the -25- determination of the consideration for the Settlement, including the Purchase Price for the Transferred Shares, notwithstanding any change in the assets, liabilities, business, results of operations, financial condition or prospects of the JC prior to, from and after the date hereof. No Party or any of its Affiliates (or any person claiming by or though any Party or its Affiliates) shall have or assert any claim or dispute (whether in contract, tort or otherwise) with respect to the negotiation of this Agreement or the resulting determination of the consideration for the Settlement or the Purchase Price for the Transferred Shares, including, without limitation, any claims or disputes premised in whole or in part on any allegation that material information pertinent to such determination was withheld or was not disclosed or made available to such Party, all of which claims and disputes are hereby irrevocably waived. Nothing in this Article 2.7 prejudices the express rights of any party under this Agreement or under any other Settlement Document. ARTICLE 3 RELATED AGREEMENTS AND INSTRUMENTS; PRE-CLOSING MATTERS 3.1 RELEASES AND ANCILLARY AGREEMENTS. At or prior to the Settlement Closing, (a) ALSTOM shall enter into, or cause its Affiliates to enter into, as the case may be, the ALSTOM Ancillary Agreements, (b) ABB Ltd shall enter into, or cause its Affiliates to enter into, as the case may be, the ABB Ltd Ancillary Agreements and (c) the JC shall enter into the JC Release and the Ancillary Agreements to which it is a party. 3.2 INTELLECTUAL PROPERTY. At or prior to the Settlement Closing, ABB Ltd or its appropriate Affiliate and ALSTOM shall enter into the Powerformer License Agreement on the basis of the term sheet attached hereto as Exhibit I (the "Powerformer License Agreement"), and -26- ABB Ltd and/or its Affiliates, and ALSTOM, shall enter into such instruments of assignment and conveyance, and such licenses, sublicenses, use agreements or other instruments, as may be necessary to provide the JC Group with ownership or use, as the case may be, of the Intellectual Property Rights and Know-How that ABB Ltd is obligated to provide, or cause to be provided, to the JC Group in accordance with the terms and conditions of Annex D (collectively, the "IP Conveyance Instruments"). Nothing in the preceding sentence is intended to, or shall, limit ABB Ltd's obligations to execute and deliver, and/or cause others to execute and deliver, any such instruments from time to time upon the request of ALSTOM after the Settlement Closing to the extent such instruments are not entered into at or prior to the Settlement Closing, or otherwise limit the obligations of ABB Ltd under Annex D. 3.3 PURCHASE OF BABCOCK. Prior to the Settlement Closing, ABB Ltd and ALSTOM shall enter into an agreement for the purchase by ABB Ltd or its appropriate Subsidiary and the sale by ALSTOM or its appropriate Subsidiary of all of the issued and outstanding shares of common stock of Babcock Australia Pty Ltd for the purchase price of Two Million Six Hundred Thousand Australian Dollars (AUD 2,600,000). The closing of the purchase of such shares shall occur on the Settlement Closing Date or as soon thereafter as is practicable. 3.4 ABB LTD/JC PAYMENT. At the Settlement Closing, ABB Ltd or its designee shall pay to the JC the amount of Two Hundred Sixty-Eight Million Euros (EURO 268,000,000) in respect of an additional equity contribution to the JC (the "ABB Ltd/JC Payment") in accordance with wire transfer instructions (the "ALSTOM Wire Transfer Instructions") delivered by ALSTOM to ABB Ltd at least one Business Day prior to the Settlement Closing. ABB Ltd agrees that the payment of the ABB Ltd/JC Payment shall not be subject to any legal or equitable right of set- -27- off, counterclaim or other deduction for any reason whatsoever, or right of refund or return, in whole or in part, for any reason whatsoever. 3.5 CAPITALIZATION OF COMBUSTION ENGINEERING, INC. (a) At the Settlement Closing, immediately prior to the consummation of the closings of the transactions contemplated herein and in the Combustion Engineering and Connecticut Valley Agreement, the JC shall contribute to Combustion Engineering, Inc. the sum of One Hundred Million U.S. Dollars ($100,000,000) the ("JC/CE Capital Contribution"). (b) At the Settlement Closing, immediately after the consummation of the closing of the transactions contemplated by the Combustion Engineering and Connecticut Valley Agreement, ABB Ltd shall cause to be contributed to Combustion Engineering, Inc. the sum of Two Hundred Million U.S. Dollars ($200,000,000) (the "ABB Ltd/CE Capital Contribution"), which shall be made as an additional capital contribution. 3.6 OTHER ADJUSTMENTS. At the Settlement Closing, ABB Ltd, or its designee, shall pay to ALSTOM, or its designee, the amount of Sixty Million Euros ((euro)60,000,000) in respect of various adjustments between the Parties with respect to matters relating to or associated with the ABB Ltd Business as contributed to the JC (the "ABB Ltd/ALSTOM Adjustment Payment"). 3.7 POWERS OF ATTORNEY. (a) On the date hereof, ABB Ltd is delivering to ALSTOM powers of attorney (the "ABB Powers of Attorney") executed by authorized senior corporate officers of each of ABB Ltd and all other relevant Affiliates of ABB Ltd authorising the individual named therein to execute this Agreement, the ABB Ltd Release and all other agreements, documents and instruments to be executed by ABB Ltd and its Subsidiaries in connection herewith, including, but not limited to, the ABB Ltd Ancillary Agreements, and to -28- take any and all actions deemed necessary or advisable to consummate the transactions contemplated hereby or thereby. (b) On the date hereof, ALSTOM is delivering to ABB Ltd a power of attorney (the "ALSTOM Power of Attorney") executed by the Chairman and Chief Executive Officer of ALSTOM authorising the individual named therein to execute this Agreement, the ALSTOM Release and all other agreements, documents and instruments to be executed by ALSTOM and its Subsidiaries in connection herewith, including, but not limited to, the ALSTOM Ancillary Agreements, and to take any and all actions deemed necessary or advisable to consummate the transactions contemplated hereby or thereby. (c) On the date hereof, the JC is delivering to ALSTOM and ABB Ltd a notarized power of attorney (the "JC Power of Attorney") executed by the President and Chief Executive Officer of the JC authorizing the individual named therein to execute this Agreement, the JC Release and all other agreements, documents and instruments to be executed by the JC in connection herewith, including, but not limited to, any of the Ancillary Agreements to which it is a party, and to take any and all actions deemed necessary or advisable to consummate the transactions contemplated hereby or thereby. 3.8 PRESS RELEASE, PUBLIC ANNOUNCEMENTS. On the date hereof and on the Settlement Closing Date, the Parties shall issue only the press releases agreed to be issued by each of the Parties, copies of which are attached hereto as Exhibit J. Except as required by law or applicable stock exchange requirements, no Party shall make any other public announcement regarding the transactions contemplated by this Agreement before or after the Settlement Closing without the -29- express written consent of the other Parties. All such other announcements shall, to the extent practicable, be provided in advance to the other Parties. ARTICLE 4 REGULATORY APPROVALS; REGULATORY ACTIONS 4.1 REGULATORY APPROVALS GENERALLY. The Parties shall use all reasonable efforts to obtain or make, as the case may be (and shall cooperate with each other in obtaining or making, as the case may be), as soon as possible, all Regulatory Approvals. Without limitation of the generality of the preceding sentence, the Parties shall cooperate with one another to ensure that all information necessary or desirable for the making of (or responding to any requests for further information consequent upon) any necessary or desirable notifications or filings in connection with the foregoing is supplied to the Party dealing with such notification or filing, with a view to ensuring that all such notifications and filings are properly, accurately and promptly made. 4.2 COMPLIANCE WITH NON-U.S. REGULATIONS. Without limiting the generality of Article 4.1, the Parties shall take all appropriate action to obtain the consent of (and all other Regulatory Approvals to be secured from) the European Union, Swiss, Canadian and South African competition and/or anti-trust authorities, in each case in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. 4.3 COMPLIANCE WITH U.S. REGULATIONS. The Parties shall cooperate in complying with the rules and regulations of U.S. Regulatory Authorities, including, without limitation, the Federal Trade Commission, the Department of Justice and the Securities and Exchange -30- Commission, in connection with obtaining all U.S. Regulatory Approvals. The Parties specifically agree that, in connection with the "Closing" under the Combustion Engineering and Connecticut Valley Agreement, (i) the "Certifying Party" (as such term is defined in Connecticut General Statutes ("CGS") Section 22a-134(6)) shall be Combustion Engineering, Inc., (ii) prior to such "Closing," such Certifying Party shall prepare, complete, execute and deliver to ABB ALSTOM Power, Inc. Sections A through C and F of "Form III" as defined in CGS Section 22a-134(12) (the "Connecticut Form III"), in form and substance satisfactory to ALSTOM and consistent with the Connecticut Form III certified by Combustion Engineering, Inc. and dated June 28, 1999, (iii) prior to such "Closing," such Certifying Party shall prepare, or cause to be prepared, and shall complete, certify and deliver to ABB ALSTOM Power, Inc. the "Environmental condition assessment form" as defined in CGS Section 22a-134(17) (the "Connecticut ECA"), in form and substance satisfactory to ALSTOM and consistent with the Connecticut ECA certified by Combustion Engineering, Inc. and dated July 7, 1999, and (iv) at such "Closing", (a) Asea Brown Boveri Inc. shall complete, execute and deliver to ABB ALSTOM Power, Inc., Section D of the Connecticut Form III, and (b) ABB ALSTOM Power, Inc. shall complete and execute Section E of the Connecticut Form III and shall deliver to Asea Brown Boveri Inc. a copy of the completed Connecticut Form III. 4.4 CONSULTATION WITH WORKERS' REPRESENTATIVES. The Parties shall, and shall cause their respective Affiliates and the JC Group to, as soon as possible after the date hereof, take all appropriate action to consult with workers' representatives, to the extent required under applicable law, with respect to the transfer of the Transferred Shares contemplated by this Agreement (collectively, the "Required Workers' Consultations"). -31- 4.5 REGULATORY ACTION. If, before or after the Settlement Closing, any material Regulatory Action is taken or threatened with respect to any Settlement Closing Matter, the Parties shall promptly meet to discuss the situation and the action to be taken as a result, and (if such be the case) whether any modification to the terms of this Agreement (or any agreement entered into pursuant hereto) shall be made, in order that any requirements (whether as a condition of giving any Regulatory Approval or otherwise) of the relevant Regulatory Authority may be reconciled with, and within the scope of, the business arrangements contemplated by this Agreement. The Parties shall thereafter co-operate in giving effect to any modifications agreed upon. ARTICLE 5 REPRESENTATIONS AND WARRANTIES 5.1 REPRESENTATIONS AND WARRANTIES OF ABB LTD. ABB Ltd hereby represents and warrants to ALSTOM as follows: (a) ABB Ltd is duly organized, validly existing and in good standing under the laws of Switzerland. ABB Ltd is the Parent Company of the group of companies commonly referred to as the "ABB Group" and, without limitation of the foregoing, of each of ABB AB, ABB AG, ABB Asea Brown Boveri and ABB HV. (b) ABB Ltd and its Subsidiaries, as applicable, have full corporate power and authority to execute, deliver and perform this Agreement, the ABB Ltd Ancillary Agreements and the other Settlement Documents to which it and they are or will be a party. -32- (c) The execution, delivery and performance of this Agreement, the ABB Ltd Ancillary Agreements and the other Settlement Documents have been duly authorized and approved by all necessary corporate action on the part of ABB Ltd and its Subsidiaries, as applicable. This Agreement has been duly executed and delivered by ABB Ltd, and the ABB Ltd Ancillary Agreements, and the other Settlement Documents to which ABB Ltd and its Subsidiaries, as applicable, are or will be a party will be duly executed and delivered by each of ABB Ltd and its Subsidiaries, as applicable, and each constitutes (or will constitute, as the case may be) a valid and legally binding obligation of ABB Ltd and its Subsidiaries, as applicable, enforceable against ABB Ltd and its Subsidiaries, as applicable, in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally. (d) The execution, delivery and performance by ABB Ltd of this Agreement do not, and the execution, delivery and performance of the ABB Ltd Ancillary Agreements and the other Settlement Documents to which ABB Ltd and its Subsidiaries, as applicable, are or will be a party by ABB Ltd and its Subsidiaries, as the case may be, and the consummation of the transactions contemplated by this Agreement, the ABB Ltd Ancillary Agreements and such other Settlement Documents (including without limitation the sale and transfer of the Transferred Shares contemplated by this Agreement) will not, violate the provisions of (i) the certificate of incorporation or articles of association, by-laws or comparable governing documents of ABB Ltd or its Subsidiaries, (ii) any material agreement to which ABB Ltd or any of its Subsidiaries is a party or by which any of them are bound, or (iii) any statute, law or regulation, or order of a Regulatory Authority, applicable to ABB Ltd or its Subsidiaries. -33- (e) Except as set forth on Schedule 5.1(e) hereto and any filings required to be made in order to comply with securities law and stock exchange requirements, no consent, approval, authorization, license or order of, or any declaration, filing or registration with, any Regulatory Authority is required to be made or obtained by ABB Ltd or any of its Subsidiaries in connection with their execution, delivery and performance of this Agreement and the ABB Ltd Ancillary Agreements. (f) As of the date of this Agreement, there are no litigations, actions, suits, arbitral or administrative proceedings, claims or governmental proceedings pending or, to the knowledge of ABB Ltd, threatened against ABB Ltd or its Subsidiaries challenging the validity of this Agreement, the ABB Ltd Release or the Ancillary Agreements, or seeking to restrain, enjoin or otherwise prohibit the transactions contemplated by this Agreement or the Ancillary Agreements. (g) ABB Ltd or its Subsidiaries has good and marketable title to the Transferred Shares, free and clear of any Encumbrance and, with the exception of the Shareholders Agreement and the Joint Venture Agreement, there are no agreements, understandings or commitments which are binding upon ABB Ltd or its Subsidiaries restricting the sale or other disposition of the Transferred Shares. At the Settlement Closing, ABB Ltd will convey (or cause to be conveyed) to ALSTOM (and/or its Affiliate designee(s)) good and marketable title to the Transferred Shares, free and clear of any Encumbrance. 5.2 FURTHER REPRESENTATIONS AND WARRANTIES OF ABB LTD. ABB Ltd hereby further represents and warrants to ALSTOM as set forth in Annex K hereto. -34- 5.3 REPRESENTATIONS AND WARRANTIES OF ALSTOM. ALSTOM hereby represents and warrants to ABB Ltd as follows: (a) ALSTOM is duly organized, validly existing and in good standing under the laws of France. ALSTOM is the Parent Company of the group known as the "ALSTOM Group." (b) ALSTOM and its Subsidiaries, as applicable, have full corporate power and authority to execute, deliver and perform this Agreement, the ALSTOM Ancillary Agreements and the other Settlement Documents to which it and they are or will be a party. (c) The execution, delivery and performance of this Agreement, the ALSTOM Ancillary Agreements and the other Settlement Documents have been duly authorized and approved by all necessary corporate action on the part of ALSTOM and its Subsidiaries, as applicable. This Agreement has been duly executed and delivered by ALSTOM, and the ALSTOM Ancillary Agreements and the other Settlement Documents to which ALSTOM and its Subsidiaries, as applicable, are or will be a party, will be duly executed and delivered by each of ALSTOM and its Subsidiaries, as applicable, and each constitutes (or will constitute, as the case may be) a valid and legally binding obligation of ALSTOM and its Subsidiaries, as applicable, enforceable against ALSTOM and its Subsidiaries, as applicable, in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally. (d) The execution, delivery and performance by ALSTOM of this Agreement do not, and the execution, delivery and performance of the ALSTOM Ancillary Agreements and other Settlement Documents to which ALSTOM and its Subsidiaries, as applicable, are or will be -35- a party, by ALSTOM and its Subsidiaries, as the case may be, and the consummation of the transactions contemplated by this Agreement, the ALSTOM Ancillary Agreements and such other Settlement Documents (including without limitation the purchase and acceptance of the Transferred Shares contemplated by this Agreement) will not, violate the provisions of (i) the certificate of incorporation or articles of association, by-laws or comparable governing documents of ALSTOM or its Subsidiaries, (ii) any material agreement to which ALSTOM or its Subsidiaries are a party or by which any of them are bound, or (iii) any statute, law or regulation, or order of a Regulatory Authority, applicable to ALSTOM or its Subsidiaries. (e) Except (i) for the Regulatory Approvals described in Articles 4.2 and 4.3 hereof, any filings required to be made in order to comply with securities laws and stock exchange requirements and any filings relating to Taxes, or (ii) as otherwise as set forth on Schedule 5.3(e) hereto, there are no Closing Regulatory Approvals required to be obtained or made by ALSTOM or its Subsidiaries. (f) As of the date of this Agreement, there are no litigations, actions, suits, arbitral or administrative proceedings, claims or governmental proceedings pending or, to the knowledge of ALSTOM, threatened against ALSTOM or its Subsidiaries challenging the validity of this Agreement, the ALSTOM Release or the Ancillary Agreements, or seeking to restrain, enjoin or otherwise prohibit the transactions contemplated by this Agreement or the Ancillary Agreements. 5.4 REPRESENTATIONS AND WARRANTIES OF THE JC. The JC hereby represents and warrants to each of ABB Ltd and ALSTOM as follows: -36- (a) The JC is duly organized and validly existing under the laws of The Netherlands. (b) The JC has full corporate power and authority to execute, deliver and perform this Agreement, the JC Release, and the other Settlement Documents to which it is or will be a party. (c) The execution, delivery and performance of this Agreement and the JC Release have been duly authorized and approved by all necessary corporate action on the part of the JC. This Agreement has been duly executed and delivered by the JC and the JC Release will be duly executed and delivered by the JC and each constitutes or will constitute, as the case may be, a valid and legally binding obligation of the JC, enforceable against the JC in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally. (d) The execution, delivery and performance by the JC of this Agreement do not violate, and the execution, delivery and performance of the JC Release by the JC will not violate, the provisions of the certificate of incorporation or articles of association, by-laws or comparable governing documents of the JC, the provisions of any material agreement to which the JC or a member of the JC Group is a party or by which it is bound, or any statute, law, regulation, or order of a Regulatory Authority, applicable to the JC. (e) Except as set forth on Schedule 5.4(e) hereto, no consent, approval, authorization, license or order of, or any declaration, filing or registration with, any Regulatory Authority is required to be made or obtained by the JC in connection with its execution, delivery and performance of this Agreement and the JC Release. -37- ARTICLE 6 CONDITIONS PRECEDENT TO CLOSING 6.1 CONDITIONS PRECEDENT TO ABB LTD'S OBLIGATIONS. The obligation of ABB Ltd and its Affiliates to consummate the transactions contemplated by this Agreement and the Ancillary Agreements is subject to the satisfaction, or waiver by ABB Ltd in its sole discretion, at or prior to the Settlement Closing of the following conditions: (a) The representations and warranties of ALSTOM and the JC made in this Agreement shall be true and correct in all material respects on and as of the Settlement Closing Date as if the same were made on the Settlement Closing Date (except that the representations and warranties made in Article 5.3(f) shall be true and correct in all material respects as of the date hereof). ALSTOM and its Affiliates shall have performed in all material respects the respective covenants of ALSTOM and its Affiliates set forth in this Agreement required to be performed by them on or prior to the Settlement Closing Date. ALSTOM shall have delivered to ABB Ltd a certificate dated the Settlement Closing Date executed by the authorized officer named in the ALSTOM Power of Attorney confirming each of the matters set forth in the foregoing two sentences. (b) All consents of (and all other Regulatory Approvals to be secured from) the relevant Regulatory Authorities of the European Union, Canada, Switzerland and South Africa having authority for review and approval of mergers and acquisitions and relating to the Settlement Closing Matters shall have been obtained and shall be in full force and effect. (c) All other Closing Regulatory Approvals shall have been made or obtained, as the case may be, and shall be in full force and effect. -38- (d) No injunction or order of any court or administrative agency of competent jurisdiction shall be in effect as of the Settlement Closing which restrains or prohibits the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. No action or proceeding before any governmental, regulatory or administrative agency, authority or commission or any court of competent jurisdiction shall have been instituted (and be pending) which seeks to prevent the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. (e) The execution and delivery of each of the ALSTOM Ancillary Agreements, and the Ancillary Agreements to which the JC is a party, by all parties thereto other than members of the ABB Ltd Group shall have occurred simultaneously with the Settlement Closing hereunder. (f) The Required Workers Consultations shall have been duly carried out. (g) The Powerformer License Agreement shall have been executed by ALSTOM. 6.2 CONDITIONS PRECEDENT TO ALSTOM'S OBLIGATIONS. The obligation of ALSTOM and its Affiliates to consummate the transactions contemplated by this Agreement and the ALSTOM Ancillary Agreements is subject to the satisfaction, or waiver by ALSTOM in its sole discretion, at or prior to the Settlement Closing of the following conditions: (a) The representations and warranties of ABB Ltd and the JC made in this Agreement shall be true and correct in all material respects on and as of the Settlement Closing Date as if the same were made on the Settlement Closing Date (except that the representations -39- and warranties made in Article 5.1(f) shall be true and correct in all material respects as of date hereof). ABB Ltd and its Affiliates shall have performed in all material respects the respective covenants of ABB Ltd and its Affiliates set forth in this Agreement required to be performed by them on or prior to the Settlement Closing Date. ABB Ltd shall have delivered to ALSTOM a certificate dated the Settlement Closing Date and executed by the authorized officer named in the ABB Powers of Attorney confirming each of the matters set forth in the foregoing two sentences. (b) All consents of (and all other Regulatory Approvals to be secured from) the relevant Regulatory Authorities of the European Union, Canada, Switzerland and South Africa having authority for review and approval of mergers and acquisitions and relating to the Settlement Closing Matters shall have been obtained and shall be in full force and effect. (c) All other Closing Regulatory Approvals shall have been made or obtained, as the case may be, and shall be in full force and effect. (d) No injunction or order of any court or administrative agency of competent jurisdiction shall be in effect as of the Settlement Closing which restrains or prohibits the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. No action or proceeding before any governmental, regulatory or administrative agency, authority or commission or any court of competent jurisdiction shall have been instituted (and be pending) which seeks to prevent the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. (e) The execution and delivery of each of the ABB Ltd Ancillary Agreements, and the Ancillary Agreements to which the JC is a party, by all parties thereto other than -40- members of the ALSTOM Group shall have occurred simultaneously with the Settlement Closing hereunder. (f) The Required Workers Consultations shall have been duly carried out. (g) The Powerformer License Agreement shall have been executed and delivered by ABB Ltd or its appropriate Affiliate. (h) The Windsor Site Lease shall have been executed and delivered by the contemplated parties thereto, the Connecticut Form III shall have been prepared, completed, executed and delivered as set forth in Article 4.3 hereof, the Connecticut ECA shall have been prepared, completed, certified and delivered as set forth in Article 4.3 hereof, and copies of all such items shall have been delivered to ALSTOM. 6.3 CONDITIONS PRECEDENT TO THE JC'S OBLIGATIONS. The obligation of the JC and its Affiliates to consummate the transactions contemplated by this Agreement and the Ancillary Agreements to which the JC and its Affiliates, as applicable, are a party is subject to the satisfaction, or waiver by the JC in its sole discretion, at or prior to the Settlement Closing of the following conditions: (a) All consents of (and all other Regulatory Approvals to be secured from) the relevant Regulatory Authorities of the European Union, Canada, Switzerland and South Africa having authority for review and approval of mergers and acquisitions and relating to the Settlement Closing Matters shall have been obtained and shall be in full force and effect. (b) All other Closing Regulatory Approvals shall have been made or obtained, as the case may be, and shall be in full force and effect. -41- (c) No injunction or order of any court or administrative agency of competent jurisdiction shall be in effect as of the Settlement Closing which restrains or prohibits the consummation of the transactions contemplated under this Agreement or the Ancillary Agreements. No action or proceeding before any governmental, regulatory or administrative agency, authority or commission or any court of competent jurisdiction shall have been instituted (and be pending) which seeks to prevent the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements. ARTICLE 7 CLOSING 7.1 TIME AND PLACE OF CLOSING. The closing of the transactions contemplated under Articles 2 and 3 of this Agreement (the "Settlement Closing") shall be held simultaneously at the offices of Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036 and at the offices of Stibbe Simon Monahan Duhot ("Stibbe"), Strawinskylaan 2001, 1070 AP Amsterdam, The Netherlands, at 9:00 a.m., New York time, on (a) May 10, 2000 or (b) if the conditions (other than those requiring delivery of a certificate or other document, or the taking of other action, at the Settlement Closing) required to be satisfied or waived pursuant to Article 6 hereof have not been satisfied or waived on such date, then on the first Business Day after the date of satisfaction or waiver of the last of the conditions required to be satisfied or waived pursuant to Article 6 hereof (other than those requiring delivery of a certificate or other document, or the taking of other action, at the Settlement Closing) or (c) such other date as the Parties may mutually agree or as may be required to comply with any applicable law. At the Settlement Closing, (i) first, the JC shall make the JC/CE Capital Contribution, (ii) second, the -42- closing of the transactions contemplated by the Combustion Engineering and Connecticut Valley Agreement (the "CE Closing") shall occur, and (iii) third, immediately thereafter, duly authorized representatives of the Parties shall appear before a notary of Stibbe at the offices of Stibbe, Strawinskylaan 2001, 1070 AP Amsterdam, The Netherlands, (x) to pass (and ABB Ltd shall cause the holders of record of the Transferred Shares to pass) a notarial deed, and such other instruments as ALSTOM reasonably may request, pursuant to which title to all of the Transferred Shares is conveyed to ALSTOM or its designated Affiliate(s) and (y) to execute and deliver (and ABB Ltd shall cause the holders of record of the Transferred Shares to execute and deliver) such further instruments, if any, as may be necessary to effect or record such sale and transfer of the Transferred Shares. The date on which the Settlement Closing shall occur is hereinafter referred to as the "Settlement Closing Date." 7.2 DELIVERIES BY ABB LTD. At the Settlement Closing, immediately after the CE Closing, ABB Ltd shall deliver (or cause to be delivered) to ALSTOM the following: (a) The certificate of ABB Ltd required to be delivered pursuant to Article 6.2(a). (b) The notarial deed(s), and other instruments, with respect to the Transferred Shares described in Article 7.1. (c) Executed counterparts of the ABB Ltd Ancillary Agreements, duly signed by ABB Ltd and/or its Subsidiaries, as applicable. (d) The executed ABB Ltd Release. -43- (e) Resignations, effective as of the Settlement Closing Date, of the Supervisory Directors B from the Supervisory Board of the JC. (f) Evidence of payment of (i) the ABB Ltd/JC Payment, in accordance with the ALSTOM Wire Transfer Instructions, (ii) the ABB Ltd/AAP Inc. Payment, to the account specified pursuant to Section 2.3(c) and (iii) the ABB Ltd/ALSTOM Adjustment Payment in accordance with Article 3.6. (g) Evidence of making of the ABB Ltd/CE Capital Contribution. 7.3 DELIVERIES BY ALSTOM. At the Settlement Closing, immediately after the CE Closing, ALSTOM shall deliver (or cause to be delivered) to ABB Ltd the following: (a) The certificate of ALSTOM required to be delivered pursuant to Article 6.1(a). (b) Executed counterparts of the Ancillary Agreements, duly signed by ALSTOM and/or its Subsidiaries, as applicable. (c) The executed ALSTOM Release. (d) Evidence of payment of the Purchase Price, in accordance with the ABB Ltd Wire Transfer Instructions. 7.4 DELIVERIES BY THE JC. At the Settlement Closing, immediately after the CE Closing, the JC shall deliver to each of ABB Ltd and ALSTOM the following: (a) Executed counterparts of the Ancillary Agreements to which the JC is a party, duly signed by the JC. -44- (b) The executed JC Release. (c) The original shareholders register of the JC, to be delivered to the notary of Stibbe before whom the deed of transfer of the Transferred Shares will be passed, for the purpose of entry of the transfer of the Transferred Shares into the register. (d) Evidence of the making of the JC/CE Capital Contribution. 7.5 DELAYED CLOSING. In the event the Settlement Closing is delayed or postponed to a date after May 10, 2000, as the result of the failure to have obtained the consents (including the expiry of any period following a notification such that consent is deemed to be given or no consent is required) of the competition and/or anti-trust authorities described in Article 4.2 hereof (ABB Ltd having performed all of its obligations hereunder in connection with seeking such consents) or otherwise through no fault on the part of ABB Ltd, then the Purchase Price (less the sum of the amount of the ABB Ltd/JC Payment and the ABB Ltd/ALSTOM Adjustment Payment) shall accrue interest at the rate of five percent (5%) per annum from and after May 11, 2000 to (but excluding) the Settlement Closing Date, which accrued interest shall be payable by ALSTOM to ABB Ltd at the Settlement Closing, together with the Purchase Price, to the account designated in the ABB Ltd Wire Transfer Instructions. ARTICLE 8 COVENANTS 8.1 COVENANTS PENDING SETTLEMENT CLOSING. From the date hereof until the Settlement Closing Date, the Parties covenant and agree as follows: -45- (a) ORDINARY COURSE. The JC shall conduct its business only in the ordinary course consistent with past business practices and procedures. Without limiting the foregoing, ABB Ltd and ALSTOM shall not cause or permit any dividends or other distributions to be made by the JC prior to the Settlement Closing. ABB Ltd shall not, and shall forthwith after the date hereof issue instructions to each member of its Group not to, enter into any new Contract with any member of the JC Group without the prior written consent of ALSTOM, other than Contracts in the ordinary course and having (i) a duration of less than three (3) months and (ii) a value over their term of less than Three Million Dollars ($3 million). Notwithstanding anything in this Agreement to the contrary, the provisions of the Joint Venture Agreement and the Shareholders Agreement shall continue to be fully applicable until such time as the Settlement Closing occurs; provided, however, that (i) the Parties agree that the JC Group shall not have any obligation to accept any Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets (and any associated Liabilities or employees) prior to the earlier of the Settlement Closing or the termination of this Agreement, (ii) the Parties agree that neither the JC Group nor the ALSTOM Group shall in any event be required to take any action pursuant to Article 5.9 of, or Annex K to, the Joint Venture Agreement that they would not be obligated to take under Article 11.3 of, or Annex F to, this Agreement, and (iii) ABB Ltd covenants that any transfer of ABB Ltd Post-Settlement Closing Transferred Assets after the date hereof and prior to the Settlement Closing shall (without limitation) be made in accordance with the provisions of Articles 10 and 11 hereof (including, without limitation, the requirement that such transfers be made with economic effect from January 1, 1999), as if such transfers were being made after the Settlement Closing Date. (b) REASONABLE EFFORTS. Subject to the terms and conditions of this Agreement, each of the Parties will take or cause to be taken all commercially reasonable steps -46- necessary or desirable, and will proceed diligently and in good faith, in each case at its own cost and expense, to satisfy each Settlement Closing condition contained in this Agreement and to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. (c) POWERFORMER LICENSE; WINDSOR SITE LEASE. ALSTOM and ABB Ltd shall negotiate the definitive forms of the Powerformer License Agreement and the Windsor Site Lease in good faith, provided that the definitive forms of the Powerformer License Agreement and the Windsor Site Lease shall be consistent in all respects with the term sheets therefor attached hereto as Exhibits I and K. (d) RELEASES. Subject to clauses (i) and (ii) to the proviso set forth in Section 8.1(a), each of ABB Ltd and ALSTOM shall not knowingly take or omit to take, and shall procure that no member of its Group knowingly takes or omits to take, any action, which action or omission would or is reasonably likely to constitute, or give rise to, a "Claim" or "Liability", as such terms are defined in the ALSTOM Release or the JC Release (in the case of ABB Ltd) or the ABB Ltd Release (in the case of ALSTOM). 8.2 COVENANTS POST SETTLEMENT CLOSING. From and after the Settlement Closing Date, the Parties covenant and agree as follows: (a) CO-OPERATION; FURTHER ASSURANCES. The Parties shall without further consideration reasonably cooperate with each other, and shall cause their respective Affiliates, officers, employees, agents, accountants and representatives to reasonably cooperate with each other, to ensure the orderly completion of the transactions contemplated hereby and by the Ancillary Agreements. Without limiting the foregoing, ABB Ltd shall, and shall cause its Affiliates to, provide all information reasonably necessary for members of the ALSTOM Group -47- or the JC Group to complete the Regulatory Approvals to be made or obtained by them after the Settlement Closing Date. (b) EXECUTION OF ADDITIONAL DOCUMENTS. Without further consideration, from time to time, as and when requested by any Party, the Parties shall execute and deliver, or cause to be executed and delivered, to the other Parties all such documents and instruments, and shall take, or cause to be taken, all such further or other actions, as the first Party may reasonably deem necessary or desirable to consummate, or evidence the consummation of the transactions contemplated by this Agreement or the Ancillary Agreements or under the Joint Venture Agreement (including, without limitation, by effecting transfers of title of record). (c) ACCESS AFTER CLOSING. Each of the Parties agrees to retain or cause to be retained all accounting, business, litigation, financial and tax records (including, without limitation, work papers) in its possession (i) relating to the JC, the ABB Ltd Business and the ALSTOM Business in existence on the Settlement Closing Date, or (ii) coming into existence after the Settlement Closing Date which relate to the JC, the ABB Ltd Business and the ALSTOM Business prior to the Settlement Closing Date (the "Business Documents"), in each case for a period of six (6) years from the Settlement Closing Date (or, for records relating to a Tax Return, the later of the expiration of the relevant statute of limitations or six (6) years from the date such Tax Return was filed). In addition, from and after the Settlement Closing Date, the Parties agree that, subject to receiving appropriate written assurances of confidentiality and restrictions on use, each will not unreasonably refuse to provide, after reasonable notice and during normal business hours, access to and copies of (prepared at such requesting Party's expense) such Business Documents as are necessary to properly prepare for, file, prove, answer, prosecute and/or defend any financial statements, any Tax Return, any other filing, audit, judicial -48- or administrative proceeding relating to Taxes, or any third party protest, claim, suit, inquiry or other proceeding by any third party against such Party or any of its Affiliates. The Party requesting assistance hereunder shall reimburse the other Parties for any reasonable out-of-pocket costs incurred by such Parties. (d) CHANGE OF CORPORATE NAME. Prior to the first anniversary of the Settlement Closing Date, ALSTOM shall (i) take all steps necessary to cause the ABB Ltd Marks to be deleted from the corporate names of all entities of the JC Group and (ii) shall cease using the name "ABB" or "Asea Brown Boveri" in connection with any product names, product marks, trade names, brochures, labels, logos, internet domain names, e-mail addresses or other documentation except as may be specifically provided in a separate trademark or trade name license agreement. Pending such first anniversary, the JC Group shall have the right to continue to use the ABB Ltd Marks subject to the terms of the Name License Agreement and the Trademarks License Agreement, each to be entered into as of the Settlement Closing Date between ABB Asea Brown Boveri and ALSTOM (together, the "ABB Ltd Marks License Agreements"). (e) TAX ADJUSTMENTS. ALSTOM agrees that in the event of any adjustment by any Taxing Authority to the earnings and profits of the JC for the taxable year ending December 31, 1999, ALSTOM shall consult in advance with ABB Ltd and shall afford ABB Ltd reasonable opportunity to participate in the process of resolving such proposed adjustments with such Taxing Authority. (f) JC FUNDS. Without limiting any other provision hereof, ABB Ltd covenants and agrees that any funds or other assets received by ABB Ltd or its Affiliates before -49- or after the Settlement Closing which constitute Assets of the JC or any member of the JC Group shall from and after the Settlement Closing be held on behalf of and for the benefit of the JC until remitted to the JC, and the same shall be promptly remitted to the JC (or as otherwise directed by the JC) free and clear of any Encumbrance. 8.3 FINANCIAL REPORTING COVENANT. ALSTOM, ABB and the JC shall use their best efforts to resolve all issues necessary for the preparation and finalization of the audited year end financial statements for the JC Group, for the period ending December 1999. ALSTOM and (through the Settlement Closing Date) ABB Ltd shall procure that the Management Board shall (i) provide ABB Ltd in a timely manner (assuming receipt of reasonable advance notice) with such audited and non-audited (or required) financial statements of the JC as may be necessary to permit ABB Ltd to prepare its audited or non-audited yearly, half-yearly or quarterly results or consolidated financial statements for the periods ending with the most recently concluded quarter prior to the Settlement Closing Date, and such statements shall be in a format reasonably requested by ABB Ltd to enable ABB Ltd to prepare such financial statements in accordance with IAS or US GAAP reporting requirements, and (ii) deliver to ABB Ltd prior to the Settlement Closing the audited year-end 1999 financial statements for the JC Group, prepared in accordance with US GAAP. In addition, ALSTOM shall use all reasonable endeavors to procure that, for a period of twelve (12) months following the Settlement Closing Date, the Management Board shall prepare and deliver to ABB Ltd upon request by ABB Ltd (and at ABB Ltd's cost), as soon as practicable following such request, additional information concerning the JC Group which information (1) (i) relates to the time during which any member of the ABB Ltd Group was a shareholder of the JC or (ii) is with respect to any continuing contractual obligations between members of the JC Group and members of the ABB Ltd Group, and (2) is required by -50- ABB Ltd under applicable law or stock exchange listing agreements or regulations in connection with any financial disclosure or any new stock exchange listing or offering of securities by ABB Ltd or any member of its Group. ARTICLE 9 NATURE OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION 9.1 NATURE OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants of the Parties in this Agreement (including, without limitation, the representations and warranties of ABB Ltd made in Annex K hereto), shall survive the Settlement Closing for a period of ten (10) years (or until such earlier date as may specifically be provided in Annex K in relation to specific Warranties), and shall not be affected in any respect by the Settlement Closing or any investigation conducted by either Party, or any of its Affiliates, prior to, on or after the date hereof, or any information which either Party, or any of its Affiliates, may have received or receive prior to, on or after the date hereof. 9.2 INDEMNITIES. Annex E sets forth the indemnity obligations of the Parties. ARTICLE 10 CONTRIBUTION OF ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS TO THE JC 10.1 CONTRIBUTION; ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of this Agreement (including without limitation Article 10.5 hereof), ABB Ltd shall procure that from and after the Settlement Closing Date, ABB Ltd and its Subsidiaries shall directly or indirectly contribute or transfer (or cause to be contributed or transferred), as the case may be, to -51- members of the JC Group designated by the JC all of the ABB Post-Settlement Closing Transferred Assets and the JC shall have the obligation to accept (or cause a member of the JC Group to accept) such ABB Ltd Post-Settlement Closing Transferred Assets and upon such transfer (of an Asset other than an undertaking) to assume (or cause a member of the JC Group to assume) all of the Liabilities of the ABB Ltd Business (other than ABB Ltd Excluded Liabilities) associated with (a) such ABB Ltd Post-Settlement Closing Transferred Assets, and (b) (subject to the provisions of Annex F hereto) all employees predominantly dedicated to the ABB Ltd Business and associated with such ABB Ltd Post-Settlement Closing Transferred Assets, all of the foregoing with economic effect from and including January 1, 1999. It is understood that Liabilities of ABB Ltd Post-Settlement Closing Transferred Assets that are undertakings as a matter of law remain Liabilities of such undertakings. 10.2 METHOD OF TRANSFER. From and after the Settlement Closing Date, the contributions of the ABB Ltd Post-Settlement Closing Transferred Assets, and the Liabilities of the ABB Ltd Business and employees associated therewith (as described in Article 10.1), to the JC shall (unless otherwise agreed by ALSTOM and ABB Ltd) be made as soon as practicable after the date hereof through the medium of transferring ownership of such ABB Ltd Post-Settlement Closing Transferred Assets (or of ABB Ltd Transferred Companies directly or indirectly owning such ABB Ltd Post-Settlement Closing Transferred Assets) to member companies of the JC Group nominated for such purpose by the JC. Anything in the preceding sentence to the contrary notwithstanding, ABB Ltd agrees that both before and after the Settlement Closing, to the extent that any ABB Ltd Post-Settlement Closing Assets in the countries listed in Part C of Annex B are to be contributed through an undertaking, such undertaking must be among those referenced by a code number in the Solver Consolidation -52- Report attached to Part C of Annex B. With respect to each transfer of ABB Ltd Post-Settlement Closing Transferred Assets, ABB Ltd shall procure the transfer to the JC of the ABB Post-Settlement Closing Transferred Assets pursuant to, and shall deliver to the JC, such duly executed instruments of transfer in favor of the JC or its designated Affiliate as the JC or ALSTOM reasonably shall direct together with the relevant share certificates (if any). 10.3 NO ENCUMBRANCES. ABB Ltd shall ensure that none of the ABB Ltd Post-Settlement Closing Transferred Assets are subject to any Encumbrance, other than Permitted Encumbrances. 10.4 IDENTITY OF ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS. As of the date hereof, each of ALSTOM and ABB Ltd acknowledges and agrees that it is not aware of any material ABB Ltd Post-Settlement Closing Transferred Assets, other than the ABB Ltd Business that is conducted or located in the countries identified in Part C of Annex B, or of any material undisclosed Liabilities associated with any of such Assets. 10.5 NON-LISTED ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS. (a) In the event of any ABB Ltd Post-Settlement Closing Transferred Assets which are not included within the ABB Ltd Business conducted or located in the countries identified in Part C of Annex B hereto (the "Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets"), ABB Ltd shall transfer title to such Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets to the JC and the JC shall accept such Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets and (in the case of Assets other than undertakings) assume all of the Liabilities of the ABB Ltd Business (other than ABB Ltd Excluded Liabilities) associated (i) with such Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets and (ii) (subject to the provisions of Annex F -53- hereto) all employees predominantly dedicated to the ABB Ltd Business and associated with such Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets, provided the net asset value of such Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets and associated Liabilities, calculated in accordance with US GAAP, is at least equal to zero. In determining the net asset value, full reserves shall be made for all contingent Liabilities associated with such Assets. In the event such net asset value (as so determined) of any such Non-Listed ABB Ltd Post-Settlement Closing Transferred Asset is less than zero and ALSTOM informs ABB Ltd that it has elected to reject such Non-Listed ABB Ltd Post-Settlement Closing Transferred Asset, then ABB Ltd shall be free to deal with or dispose of such Non-Listed ABB Ltd Post-Settlement Closing Transferred Asset as it deems appropriate. ALSTOM shall be deemed to have informed ABB Ltd of its election to reject a particular Non-Listed ABB Ltd Post-Settlement Closing Transferred Asset, as described above, if ALSTOM fails, within thirty (30) days of having been informed in writing (and in reasonable detail) by ABB Ltd of the existence of such Non-Listed ABB Ltd Post-Settlement Closing Transferred Asset, to inform ABB Ltd that it has elected to accept such Asset. Any notice by ABB Ltd or ALSTOM referred to in the preceding sentence shall be effective only if it expressly references this Article 10.5(a). (b) DISPOSAL OF CERTAIN ABB LTD ASSETS. The Parties acknowledge and agree that the ABB Ltd Business in the countries identified in Schedule 10.5(b) (the "Disposable Assets") has not and shall not be transferred to the JC Group. ABB Ltd shall dispose of such Disposable Assets (and Liabilities thereof) in its sole discretion, provided ABB Ltd shall account for all proceeds from the sale of such Disposable Assets and, after deduction of all reasonable costs incurred by ABB Ltd or its Affiliates in disposing of such Disposable Assets, thereafter pay to ALSTOM or its designated Affiliate seventy percent (70%) of the remaining proceeds and -54- ABB Ltd shall retain the balance thereof, which shall be taken into account in the determination of any amount due under Article 10.6; provided, however, that ABB Ltd shall be liable for any losses in the aggregate resulting from such disposals. All Liabilities associated with any Disposable Assets shall be deemed to constitute "Non-Business Liabilities" with respect to ABB Ltd for all purposes of this Agreement and an "ABB Ltd Excluded Liability" for all purposes of this Agreement. (c) Nothing in this Article 10 shall obligate the JC to accept the transfer, directly or indirectly, to a member of the JC Group of any shares or other equity interest in any undertaking other than an ABB Ltd Transferred Company referenced (by code number) in the Solver Consolidation Report attached to Part C of Annex B. If any ABB Ltd Post-Settlement Closing Transferred Asset (including without limitation any ABB Ltd Transferred Company) directly or indirectly includes such shares or other equity interest, the JC shall have the absolute right to transfer such shares or other equity interest back to ABB Ltd and all liabilities of such undertaking (other than those constituting Liabilities of the ABB Ltd Business) shall at all times be deemed to constitute Non-Business Liabilities with respect to ABB Ltd and an "ABB Ltd Excluded Liability" for all purposes of this Agreement. 10.6 RECONCILIATION FOR POST-SETTLEMENT CLOSING TRANSFERS. On or after March 31, 2001, ABB Ltd shall prepare and submit to the JV a reconciliation statement (the "Reconciliation Statement") setting forth all Post-Closing Transferred Assets (as defined in the Joint Venture Agreement) other than shares of ABB Ltd Transferred Companies, that have been directly or indirectly conveyed or transferred to the JC Group by the ABB Ltd Group since the Closing (the "Transferred Assets"), and the net equity value of each Transferred Asset as at the date of conveyance or transfer to the JC Group (the "Transfer Date Net Equity"), which net equity value -55- shall be calculated in accordance with the principles applied in the Joint Venture Agreement for valuing Post-Closing Transferred Assets. To the extent the Transfer Date Net Equity Values exceed the net equity values of such Transferred Assets as of December 31, 1998 set forth in Exhibit L hereto (the "1998 Net Equity Values"), ABB Ltd shall pay immediately to the JC such excess amount, in accordance with the payment instructions contained in the Reconciliation Statement. To the extent the Transfer Date Net Equity Values are less than the 1998 Net Equity Values for such Transferred Assets (it being understood and agreed that if any Transfer Date Net Equity Value otherwise would be negative, it shall nonetheless be deemed to equal zero for purposes of this Article 10.6), the JC shall pay immediately such difference to ABB Ltd. In preparing the Reconciliation Statement, ABB Ltd shall include the amounts previously paid to ALSTOM or the JC Group with respect to any Post-Settlement Closing Transferred Assets disposed of in accordance with Article 10.5(b) as part of the calculation of the Transfer Date Net Equity Values. 10.7 INFORMATION. To the extent any member of the ABB Ltd Group is engaged in the daily management of an ABB Ltd Post-Settlement Closing Asset, ABB Ltd shall provide ALSTOM or the JC, or its authorized representatives, after reasonable notice and during normal business hours, with access to such books, records and personnel of the ABB Ltd Group concerning such ABB Ltd Post-Settlement Closing Transferred Asset as ALSTOM or the JC, respectively, may reasonably request from time to time. -56- ARTICLE 11 PRINCIPLES APPLICABLE TO THE ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS 11.1 CONTRACTS AND CONSENTS. (a) Without limiting Article 10, subject to clauses (b) through (e) of this Article 11.1, ABB Ltd shall procure that (to the extent that this is not already the case) the appropriate companies within the ABB Ltd Transferred Companies or the JC Group, as the case may be, become entitled to the economic benefit (subject to the relative burdens) of the ABB Ltd Business Contracts that form part of the ABB Ltd Post-Settlement Closing Transferred Assets, and that in relation to the other contracting parties thereto such members of the ABB Ltd Transferred Companies or the JC Group, as the case may be, assume the obligations and become entitled to the rights thereunder, with economic effect from and including January 1, 1999. (b) ABB Ltd shall use all reasonable efforts to procure and deliver to the JC as soon as practicable (to the extent that they have not already been obtained) all assignments, novations, consents, approvals, waivers and the like necessary, in respect of all ABB Ltd Business Contracts comprising part of the ABB Ltd Post-Settlement Closing Transferred Assets, to ensure that all such ABB Ltd Business Contracts may be directly or indirectly, as the case may be, transferred to the JC Group as contemplated by this Agreement without resulting in any Default thereunder (collectively, the "ABB Ltd Business Contracts Transfer Consents"). The JC shall not be required to accept any transfer (direct or indirect) of any ABB Ltd Business Contracts comprising part of the ABB Ltd Post-Settlement Closing Transferred Assets unless and until all ABB Ltd Business Contracts Transfer Consents required in connection therewith have been obtained and provided to the JC. -57- (c) The provisions of clause (b) shall not apply in any case in which ALSTOM, following full consultation with ABB Ltd, considers that there is a serious risk that to apply them could result in the counterparty treating the ABB Ltd Business Contract as repudiated and so notifies ABB Ltd. (d) Subject to Article 10.5, with respect to any particular ABB Ltd Business Contract comprising part of the ABB Ltd Post-Settlement Closing Transferred Assets, (i) ABB Ltd shall procure that the member of the ABB Ltd Group (present or former) which is a party thereto (the "Transferor") shall receive the benefits of such ABB Ltd Business Contract as agent for the JC and shall accordingly pay the JC forthwith upon receipt any sums received by it under such ABB Ltd Business Contract, and (ii) the JC shall procure that a member of the JC Group shall, at its own cost and for its own benefit, perform the obligations and assume the reasonable costs of the Transferor under such Contract or any related Contract for the performance thereof. Subject to Article 10.5, if and when (in the case of any ABB Ltd Business Contract to be directly assigned to the JC) the ABB Ltd Business Contract Transfer Consents necessary for such ABB Ltd Business Contract to be assigned to the JC Group are obtained, such ABB Ltd Business Contract shall so be assigned to the member company of the JC Group as the JC shall designate, which shall assume the obligations of the Transferor thereunder. The provisions of this Article 11.1(d) (other than the immediately preceding sentence) shall not apply in any case in which ALSTOM, following full consultation with ABB Ltd, considers that there is a serious risk that to apply them would result in the counterparty treating the ABB Ltd Business Contract as repudiated and so notifies ABB Ltd. (e) Subject to Article 10.5, if any necessary ABB Ltd Business Contract Transfer Consent is refused and the procedure set out in Article 11.1(d) does not enable the full -58- benefit of the relevant ABB Ltd Business Contract to be enjoyed by the JC, ABB Ltd shall, to the extent reasonably practicable, seek an alternative solution pursuant to which a member of the JC Group designated by the JC shall both receive the full benefits thereof and assume the relative obligations thereunder. (f) So long as ABB Ltd is in compliance with its obligations under this Article 11 with respect to any ABB Ltd Business Contract in respect of which the necessary ABB Ltd Business Contract Transfer Consent has not been obtained, ABB Ltd shall not be in breach of its obligations under Article 10.1 with respect to such ABB Ltd Business Contract. 11.2 INTELLECTUAL PROPERTY. At and after the Settlement Closing, the provisions set out in Annex D shall apply and, with respect to the subject matter thereof, shall prevail over any conflicting provision of this Agreement and rights granted thereunder shall continue in full force and effect; provided, that (a) to the extent ABB Ltd has made or makes available to the JC prior to the Settlement Closing Date its laboratory units conducting research and development under a corporate pooled scheme for the ABB Ltd Business and other members of the ABB Ltd Group, then (i) either ABB Ltd or the JC may give eighteen (18) months' notice of termination of such arrangements, from and after the Settlement Closing, and (ii) ALSTOM shall be entitled to a license in respect of all Intellectual Property Rights developed by such laboratory units heretofore or hereafter up to the date that is eighteen (18) months after the termination date described above in this sentence, for use in the Field, and the terms of such license shall be the same as apply to licenses granted under Article 5.1 as set forth in Annex D; -59- (b) the use of the ABB Ltd Marks shall, unless otherwise agreed between ALSTOM and ABB Ltd, be subject to the terms and conditions of the ABB Ltd Marks License Agreements; and (c) for the avoidance of doubt, ABB Ltd, on behalf of itself and its present and (to the extent applicable) past Subsidiaries, hereby acknowledges, confirms and agrees that all Intellectual Property Rights and Know-How emanating or derived from research and development conducted pursuant to the terms of Article 8.2 of the Shareholders Agreement shall be owned exclusively by the JC upon consummation of the transfer of the Transferred Shares pursuant hereto, provided the JC shall grant licenses with respect thereto to ABB Ltd and/or its designated Subsidiaries in accordance with the terms of Annex D hereto. ABB Ltd agrees that, promptly upon request of ALSTOM after the Settlement Closing Date, it shall execute and deliver, and procure the execution and delivery by other past or present Affiliates of ABB Ltd, of an instrument, in form and substance reasonably satisfactory to ALSTOM, confirming ownership of such Intellectual Property Rights and Know-How by the JC, as set forth above in the preceding sentence. 11.3 EMPLOYEES; EMPLOYEE BENEFITS AND PENSIONS MATTERS. From and after the Settlement Closing, the provisions set out in Annex F shall apply to employee, employee benefits and pensions matters, and shall prevail over any conflicting provision of this Agreement. 11.4 CERTAIN REAL ESTATE. From and after the Settlement Closing, the provisions set out in Annex G shall apply to the real estate described therein and, with respect to the subject matter thereof, shall prevail over any conflicting provision of this Agreement except as otherwise specified in Annex E. -60- 11.5 EXISTING CONTRACTS BETWEEN ABB LTD GROUP AND THE JC GROUP. (a) The Parties acknowledge that members of the JC Group (or ABB Ltd Transferred Companies included in the ABB Ltd Post-Settlement Closing Transferred Assets) are parties to Contracts with various persons who, at the time such Contracts were entered into, were members of the ABB Ltd Group (any such Contract, a "JC/ABB Contract"). If any such JC/ABB Contract (i) is on a commercial arms-length basis and was entered into prior to the Closing (or, in the case of any JC/ABB Contract associated with any ABB Ltd Post-Closing Transferred Asset, the date of the direct or indirect transfer of such Transferred Asset to the JC Group) or (ii) was entered into after the Closing, (or, in the case of any JC/ABB Contract associated with any ABB Ltd Post-Closing Transferred Asset, the date of the direct or indirect transfer of such Transferred Asset to the JC Group) then in either case, ALSTOM shall not have any special right under this Article 11.5(a) to terminate such JC/ABB Contract. Subject to the preceding sentence, ABB Ltd agrees, on its behalf and on behalf of the other present or (to the extent applicable, past) members of the ABB Ltd Group, that ALSTOM shall have the right to terminate any such JC/ABB Contract upon not less than three (3) months prior written notice to ABB Ltd, and ABB Ltd shall, upon request of ALSTOM, procure that the relevant present or, to the extent feasible, past member of the ABB Ltd Group enter into an instrument acknowledging any such termination, provided that the JC thereupon shall be obligated to reimburse the relevant present or past member of the ABB Ltd Group for any reasonable expenses that it incurs as a direct result of such early termination and which would not have been incurred if such JC/ABB Contract had expired in accordance with its existing terms. (b) ABB Ltd, on its behalf and on behalf of the other present or (to the extent applicable, past) members of the ABB Ltd Group, hereby covenants to ALSTOM and the JC -61- that, any term of any JC/ABB Contract, or any ABB Ltd Business Guarantee in respect of any ABB Ltd Financial Institution Guarantee, to the contrary notwithstanding, the consummation of the transactions contemplated by this Agreement shall not result in any Default or ABB Ltd Financial Instrument Default, respectively, under any JC/ABB Contract, or any ABB Ltd Business Guarantee in respect of any ABB Ltd Financial Institution Guarantee, and (without limitation of the foregoing) hereby irrevocably waives any provision of any JC/ABB Contract, or any ABB Ltd Business Guarantee in respect of any ABB Ltd Financial Institution Guarantee, that otherwise would give rise to any such Default or ABB Ltd Financial Instrument Default, respectively. ABB Ltd shall, upon request of ALSTOM, procure that the relevant present or past member of the ABB Ltd Group enter into an instrument acknowledging the foregoing. (c) Subject to Article 11.5(a), on expiry or termination of any JC/ABB Contract, ABB Ltd shall, at the reasonable request of the JC, use its best endeavors to procure that such JC/ABB Contract is extended or renewed on a commercial arm's-length basis, provided the ABB Ltd Group is still in the business of supplying such service (or itself provides such service within the ABB Ltd Group) and maintains adequate personnel and resources to do so and provided further that such extension or renewal, unless otherwise agreed by the Parties, shall not exceed a period of two (2) years. (d) For the avoidance of doubt, as used in this Article, the term "JC/ABB Contract" shall include any arrangement in existence as of the date hereof pursuant to which a member of the ABB Ltd Group provides services to any member of the JC Group, even if such arrangement is an "at will" arrangement. To the extent a JC/ABB Contract provides for (i) legal services, tax advice or data processing services or (ii) internet-related services, in each case to be provided by the ABB Ltd Group (collectively, the "JC/ABB Service Contracts"), such JC/ABB -62- Service Contracts shall be continued on the then existing terms and conditions for a reasonable transition period following the Settlement Closing not to exceed six (6) months with respect to the services described in (i) and three (3) months with respect to the services described in (ii), unless otherwise terminated earlier by ALSTOM. In all events, from and after the Settlement Closing, ALSTOM and the JC Group shall not have access under any existing JC/ABB Contract or JC/ABB Service Contract to business secrets or information of the ABB Ltd Group not related to the ABB Ltd Business, including, without limitation, calculation models and source codes. (e) Nothing in this Article 11.5(c) or (d) shall obligate any member of the ABB Ltd Group to provide any service or maintain any operations that it has otherwise determined to exit or terminate, provided that nothing in this sentence limits or qualifies any obligation of the ABB Ltd Group under any existing JC/ABB Contract. 11.6 GUARANTEES. (a) At the request of ALSTOM in writing, ABB Ltd shall grant any guarantees or counter-indemnities to third parties as shall be reasonably necessary to secure the ABB Ltd Business Contracts Transfer Consents (the "ABB Ltd Business Contracts Guarantees"). ALSTOM and the JC shall indemnify ABB Ltd and any member of the ABB Ltd Group in accordance with the indemnity obligations set forth in Annex E with respect to such ABB Ltd Business Contracts Guarantees. (b) From and after the Settlement Closing, the JC shall promptly, in co-ordination with ABB Ltd, offer to substitute itself for members of the ABB Ltd Group under any ABB Ltd Business Guarantee and ABB Ltd Business Contracts Guarantee. If the beneficiary of any such ABB Ltd Business Guarantee or ABB Ltd Business Contract Guarantee, as the case may be, does not accept the JC in substitution, ALSTOM shall cause ALSTOM Holdings S.A. to -63- offer to substitute itself for the applicable member of the ABB Ltd Group under such ABB Ltd Business Guarantee or ABB Ltd Business Contract Guarantee, as the case may be; provided, however, that ABB Ltd shall procure that no member of the ABB Ltd Group shall disclose to such counterparty ALSTOM's commitment under this sentence without ALSTOM's prior written consent. Neither the JC nor ALSTOM shall be under any obligation to offer any consideration to any counterparty under any ABB Ltd Business Guarantee or ABB Ltd Business Contract Guarantee in order to induce it to agree to the substitution described above. A list of such ABB Ltd Business Guarantees (to ABB Ltd's knowledge) is set forth in Annex J. ALSTOM's and the JC's obligations under this Article 11.6 are irrespective of whether or not all ABB Ltd Business Guarantees are listed in Annex J, provided that the listing of an item in Annex J does not mean that the JC or ALSTOM acknowledges or agrees that such item in fact falls within the definition of "ABB Ltd Business Guarantee". Before being obligated to offer to substitute ALSTOM Holdings S.A. under any instrument as provided above in this Article 11.6, the JC or ALSTOM, as the case may be, shall be entitled to be provided with a reasonable prior opportunity to review the instrument and the documents setting forth, or otherwise relating to, the obligations guaranteed thereunder. In any event, if the Settlement Closing occurs, each of ALSTOM and the JC shall indemnify and hold harmless ABB Ltd and any member of the ABB Ltd Group in accordance with the indemnity obligations set forth in Annex E with respect to such ABB Ltd Business Guarantees. (c) Except as expressly set forth in Article 11.6(a), ABB Ltd shall not be obligated to grant any guarantees or counter-indemnities to third parties in connection with the transactions contemplated by this Agreement. -64- 11.7 INVESTMENT PROJECTS. From and after the Settlement Closing, the provisions set out in Annex H shall apply to investment projects and, with respect to the subject matter thereof, shall prevail over any conflicting provisions of this Agreement. 11.8 TRANSFER OF TITLE. Subject (to the extent applicable) to Article 10.5(b), as soon as practicable after the date hereof, ABB Ltd shall, at its cost, procure that legal title to all Assets beneficially owned by the JC Group but held of record by, or otherwise in the name of, a member of the ABB Ltd Group (other than, for the avoidance of doubt, any ABB Ltd Post-Settlement Closing Transferred Assets) shall be transferred into the name of a member of the JC Group, or other designee, specified by the JC, provided that with respect to patents, legal title shall be re-registered only to the extent requested by ALSTOM and any costs associated with such re-registration of title shall be shared one-third by ALSTOM and two-thirds by ABB Ltd. ARTICLE 12 PROVISIONS RELATING TO ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS 12.1 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Except for action taken in the ordinary and proper course of effecting or preparing for the transfer of the ABB Ltd Post-Settlement Closing Transferred Assets to the JC and except as may otherwise expressly be provided for herein, ABB Ltd undertakes that, to the extent that any member of the ABB Ltd Group exerts relevant management control over the Post-Settlement Closing Transferred Assets, from the date of this Agreement until the transfer of such ABB Ltd Post-Settlement Closing Transferred Assets to the JC pursuant hereto, (a) such Assets, and the business activities involved therewith shall be maintained and conducted in the ordinary and proper course of business on sound commercial principles consistent with those applied during the period of two (2) years -65- preceding the relevant transfer, and (b) (without limitation of the foregoing), without the prior consent of ALSTOM, no member of the ABB Ltd Group shall, with respect to any ABB Ltd Transferred Companies included in the ABB Ltd Post-Settlement Closing Transferred Assets: (i) decide or effect any share capital increase or decrease, issue or grant any share or other options or make any issue of debentures or other securities; (ii) declare or pay any dividends or other distributions; (iii) directly or indirectly make any material (in relation to such ABB Ltd Transferred Company) acquisitions or divestitures of shares or other Assets; (iv) enter into any Contracts (other than arm's-length Contracts in the ordinary course of business); (v) enter into, terminate or materially vary any employment or employment related agreement or arrangement (other than the renewal of any such existing agreements or arrangements, and normal promotions and increases in remuneration) with any directors or senior officers; or (vi) commit to do any of the matters described in clauses (i) - (v), inclusive. 12.2 NOTIFICATION TO REGULATORY AUTHORITIES. ABB Ltd agrees to use all reasonable efforts to obtain (and ALSTOM shall reasonably co-operate with ABB Ltd in obtaining), as soon as possible, all Regulatory Approvals, and shall consult with workers' representatives to the -66- extent required by applicable law, in connection with the consummation of the transfer of the ABB Ltd Post-Settlement Closing Transferred Assets to the JC Group. 12.3 REGULATORY ACTION. If, before or after any transfer of an ABB Ltd Post-Settlement Closing Transferred Asset, any material Regulatory Action is taken or threatened with respect to the relevant ABB Ltd Post-Settlement Closing Transferred Asset, the Parties shall promptly meet to discuss the situation and the action to be taken as a result, and (if such be the case) whether any modification to the terms of this Agreement (or any agreement entered into pursuant hereto) shall be made, in order that any requirements (whether as a condition of giving any Regulatory Approvals or otherwise) of the relevant Regulatory Authority may be reconciled with, and within the scope of, the business arrangements contemplated by this Agreement. The Parties shall thereafter co-operate in giving effect to any modifications agreed upon. 12.4 INSURANCE. Without prejudice to the generality of Article 12.1, unless otherwise agreed with ALSTOM or the JC, ABB Ltd shall, until six (6) months after transfer with respect to each ABB Ltd Post-Settlement Closing Transferred Asset, maintain all policies of insurance relating to such Assets and undertake that to the extent necessary with effect from the Settlement Closing Date with respect to such Assets, the interest of the JC and its Subsidiaries therein shall be noted on all such policies. Without limiting the generality of the preceding sentence, any payment or right to receive payments under any insurance policy in relation to any damage to or destruction of any Asset comprising (or formerly comprising) part of the ABB Ltd Business, or any proceeds thereof, shall be held on behalf of and for the benefit of, and forthwith paid over to, the JC. -67- ARTICLE 13 CONSEQUENCES OF NON-TRANSFERS OF ABB LTD POST-SETTLEMENT CLOSING ASSETS 13.1 CONTINUED TRANSFER EFFORTS. ABB Ltd undertakes that if a particular ABB Ltd Post-Settlement Closing Transferred Asset, without prejudice to Article 11.1 and the relevant provisions of Annex D, has not been directly or indirectly transferred to the JC by March 31, 2001 and if, in the case of any ABB Ltd Business Contract, the procedures set out in Article 11.1 do not enable the full benefit of such ABB Ltd Business Contract to be enjoyed by the JC Group, then: (a) if the failure of such transfer to occur was the result of the JC refusing or otherwise failing to accept for any reason (other than the exercise by ALSTOM of its rights under Article 10.5) any such ABB Ltd Post-Settlement Closing Transferred Asset by March 31, 2001, ABB Ltd shall no longer be obligated to effect such transfer and shall be free to deal with or dispose of such Asset as it deems appropriate, with the proceeds therefrom to go to, and the reasonable cost of such disposal to be paid by, the JC; and (b) if the failure of such transfer to occur is due to a Regulatory Action, then ABB Ltd and ALSTOM shall consult as to the appropriate course of action, provided that, (A) in no event shall ABB Ltd be required to make any further additional investment or expend any further monies in attempting to have such Regulatory Action stayed or lifted, and (B) if such transfer has not occurred by March 31, 2003 and ABB Ltd has complied with its obligations hereunder with respect to such Asset, then ABB Ltd shall no longer be obligated to effect such transfer and shall be free to deal with or dispose of -68- such Asset as it deems appropriate, with the proceeds therefrom to go to, and the reasonable cost of such disposal to be paid by, the JC. Upon compliance with this Article 13.1, ABB Ltd shall cease to be obligated to cause such Asset to be assigned to, or become part of, the JC Group. 13.2 TRANSFERS OF NON-ABB LTD BUSINESS. In the event and to the extent that ABB Ltd or any of its Affiliates conveyed or transferred to the JC or any member of the JC Group title to certain Assets as part of the ABB Ltd Business which Assets (i) did not comprise or constitute Assets of the ABB Ltd Business including, without limitation, any Intellectual Property Rights or Know-How not predominantly used in the ABB Ltd Business, and (ii) are not material to the business of the entire JC Group, then the JC and its Affiliates shall return such Asset or Assets to ABB Ltd promptly upon receipt of any request therefor from ABB Ltd (within eighteen (18) months of the Settlement Closing Date), and the Parties shall agree to an appropriate adjustment, if any, by following the principles set forth in the Joint Venture Agreement at formation of the JC with respect to valuation of the ABB Ltd Business contributed to the JC, which adjustment shall be paid by ABB Ltd to the JC at the same time as such transfer back to ABB Ltd is made. If any such returned Intellectual Property Rights or Know-How are then being used in the ABB Ltd Business, a license with respect thereto shall be granted to ALSTOM and/or its designated Subsidiaries in accordance with Annex D. -69- ARTICLE 14 TAX MATTERS WITH RESPECT TO THE JC 14.1 CLAIMS OR ELECTIONS. No claim or election for Taxes-related purposes shall be made by any member of the ABB Ltd Group without the consent of ALSTOM if it has or may have an adverse effect upon the JC or any of its subsidiaries or give rise to an increase in Taxes or costs or expenses of the JC or any of its Subsidiaries. ALSTOM and ABB Ltd agree to co-operate, in connection with the making of or (where appropriate) the giving of consent to any claims or elections for taxation purposes requested: (a) by ALSTOM in respect of the ALSTOM Reorganisation or by ABB Ltd in respect of the ABB Ltd Reorganisation; and/or (b) by ALSTOM in connection with the taxation affairs of any of the ALSTOM Transferred Companies or by ABB Ltd in connection with the taxation affairs of any of the ABB Ltd Transferred Companies, in either case in respect of any period ending before the Closing Date. 14.2 INFORMATION. ALSTOM and ABB Ltd agree to co-operate to ensure that the JC Group is provided with sufficient information to enable it to submit and to deal with any matters arising out of any returns, notices, claims for relief or allowances, or computations, to any relevant taxation or excise authorities in respect of any period. 14.3 TAX LOSSES. Nothing in this Article 14 shall prevent ALSTOM or ABB Ltd from retaining or taking the benefit of tax losses which may be available within the ALSTOM -70- Business or the ABB Ltd Business before the Closing Date instead of making any such losses available to the JC. 14.4 INVESTIGATIONS. Should there be any investigation by any tax authorities of the affairs of ABB Ltd in relation to the whole or any part of the ABB Ltd Business, and in respect of any period up to and including the Closing Date or, with respect to any particular ABB Ltd Post-Settlement Closing Transferred Asset, the date of any transfer relating to such ABB Ltd Post-Settlement Closing Transferred Asset, then the JC shall promptly make available to ABB Ltd such records and information as ABB Ltd shall reasonably request in connection with such investigation. 14.5 RECORDS. The JC shall keep all records pertaining to the ABB Ltd Transferred Companies' tax position for a period at least equal to the corresponding statutes of limitation, and, in the case of any such Taxes that are indemnified by ABB Ltd, shall, at ABB Ltd's request and expense, defend any action brought in that respect by the Taxing Authorities in accordance with the instructions of ABB Ltd. Absent such request, ABB Ltd shall defend and control such action brought by such Taxing Authorities all of the foregoing to apply mutatis mutandis with respect to social charges or contributions. 14.6 CERTAIN TAX MATTERS. The provisions of Schedule 14.6 apply. 14.7 COMBUSTION ENGINEERING. From and after the Settlement Closing Date, in the event that any Taxing Authority asserts that Combustion Engineering, Inc. (or any successor) is not entitled to a deduction in respect of payments made by it for Asbestos Liabilities and that the JC or any of its Subsidiaries (or any successor(s)) is so entitled, the JC or its applicable Subsidiary shall, to the extent it is lawfully able, claim such payments as deductions and pay to -71- ABB Ltd the Tax Benefit resulting therefrom as and when actually realized, provided that ABB Ltd shall reimburse the JC for its out-of-pocket costs in filing and prosecuting such claims and shall indemnify and hold harmless the JC from and against any Taxes imposed as a result of any subsequent disallowance of such Tax Benefit (including any interest, penalties, or additions to tax in connection therewith). As used herein, "Tax Benefit" shall mean the actual cash tax savings derived by the JC or its applicable Subsidiary (or any successor(s)) by reason of the deductions referred to above, net of any actual cash tax cost incurred by the JC (or its successor or applicable Subsidiary) as a result of payment for the Asbestos Liabilities (as defined in Annex E) being made by Combustion Engineering, Inc. (or any successor or affiliate); it being understood that, except as otherwise required by law, the Parties do not intend to treat any such payment as taxable to the JC (or its successor or applicable Subsidiary). 14.8 TAX LIABILITIES. In determining the indemnity obligations of ABB Ltd hereunder for income taxes incurred by the JC as a result of Tax adjustments for periods prior to January 1, 1999 with regard to balance sheet provisions for contracts, such obligations shall be reduced by the net present value of Tax Benefits received by the JV as a result of the reversal of such provisions within two (2) years from January 1, 1999. ARTICLE 15 NON-COMPETITION; NON-SOLICITATION 15.1 NON-COMPETITION. ABB Ltd undertakes to ALSTOM that from and after the Settlement Closing until the third anniversary of the Settlement Closing Date neither it nor any of its Affiliates shall (whether alone or jointly with others, whether as principal, agent, shareholder or otherwise and whether for its own benefit or that of others), anywhere in the -72- world, directly or indirectly engage in or carry on or be interested in any Prohibited Activities, as described in Schedule 15.1 hereto. 15.2 EXCEPTIONS. (a) The restriction contained in Article 15.1 shall not prohibit: (i) the acquisition or holding by any member of the ABB Ltd Group of shares amounting to less than five percent (5%) of the capital of an undertaking quoted on any stock exchange; or (ii) any bona fide combination or acquisition transaction by any member of the ABB Ltd Group, so long as the businesses that the ABB Ltd Group directly or indirectly acquires (or acquires an interest in) as a result of such transaction are not predominantly those that, but for this Article 15.2(a)(ii), would give rise to a violation of Article 15.1, and provided that if, during the calendar year prior to such combination or acquisition or any subsequent calendar year during which such activities continue to be conducted, the net sales attributable to such activities amount to more than two percent (2%) (in the case of any single such transaction) or seven percent (7%) in the aggregate (for all such transactions) of the net consolidated sales of the power generation sector of the ALSTOM Group (determined in accordance with ALSTOM's accounting principles) during the same period, then the ABB Ltd Group shall be required, within a period of six (6) months (of such transaction or determination of such subsequent net sales figures, as the case may be), to take such action as is necessary to come back into compliance with this Article 15 (without regard, with respect to such transaction, to the exception contained in this Article 15.2(a)(ii)). -73- (b) The restrictions contained in Article 15.1 shall not apply to existing minority shareholdings by the ABB Ltd Group (considered in the aggregate) in ventures that are listed in Schedule 15.2(b) hereto and are not engaged in any Prohibited Activities as of the date hereof but which in the future, during the three (3) year period described in Article 15.1 above, become engaged in one or more Prohibited Activities, provided that at the time that such venture so becomes engaged in Prohibited Activities, (A) such venture is not an Affiliate of ABB Ltd, (B) the ABB Ltd Group (considered in the aggregate) does not beneficially own fifty percent (50%) or more of the equity interests in such venture, (C) the consent of the ABB Ltd Group (considered in the aggregate) or its designees or nominees is not directly or indirectly required in order for the venture so to become engaged in Prohibited Activities and the ABB Ltd Group does not have the right or power (whether by contract or otherwise and whether directly or indirectly) to prevent such venture from so becoming engaged in Prohibited Activities and (D) the governing documents of such venture do not expressly require the venture to engage in Prohibited Activities, and provided further that the exception afforded by this Article 15.2(b) shall in any event apply only so long as the conditions set forth in the immediately preceding clauses (A), (B), (C) and (D) continue to be satisfied, failing which the ABB Ltd Group shall be required, within a period of six (6) months of the date of non-compliance with such clauses, to take such action as is necessary to come back into compliance with Article 15 (without regard, with respect to such venture, to the exception contained in this Article 15.2(b)). (c) ABB Ltd promptly shall inform ALSTOM when any transaction for which ABB Ltd is relying on the exception set forth in Article 15.2(a)(ii), or Article 15.2(b), occurs, and shall from time to time provide ALSTOM with such information as ALSTOM reasonably -74- may request in order to satisfy itself as to applicability (and continued applicability) to such transaction of the exceptions afforded by such Articles. 15.3 NON-SOLICITATION; NON-HIRING. (a) ABB Ltd undertakes to ALSTOM that, (i) commencing from the date hereof and continuing until eighteen (18) months following the Settlement Closing Date, ABB Ltd and its Affiliates shall not (directly or indirectly) solicit any individual that is, or within the last six (6) months has been, an employee of the JC Group or the ALSTOM Group (a "Restricted Employee") to join the employ of, perform services for or otherwise become associated with ABB Ltd or any of its Affiliates, and (ii) commencing from the date hereof and continuing until three (3) years after the Settlement Closing Date, ABB Ltd and its Affiliates shall not solicit any Restricted Employee who is not a former employee of the ABB Ltd Group, to join the employ of, perform services for or otherwise become associated with ABB Ltd or any of its Affiliates. (b) ABB Ltd undertakes to ALSTOM that, (i) commencing from the date hereof and continuing until eighteen (18) months following the Settlement Closing Date, ABB Ltd and its Affiliates shall not directly or indirectly hire or retain any Restricted Employee and (ii) commencing from the date hereof and continuing for a period until three (3) years after the Settlement Closing Date, ABB Ltd and its Affiliates shall not directly or indirectly hire or retain any Restricted Employee who is not a former employee of the ABB Ltd Group. (c) Notwithstanding the provisions of Article 15.3(a) and (b), any member of the ABB Ltd Group may hire a Restricted Employee who is a former employee of the ABB Ltd Group, PROVIDED (i) the Restricted Employee first approaches a member of the ABB Ltd Group for employment, (ii) such member of the ABB Ltd Group gives written notice to ALSTOM of its -75- intent to hire such Restricted Employee, and (iii) ALSTOM is given a period of thirty (30) days after receipt of such notice to convince such Restricted Employee to remain with the JC Group or the ALSTOM Group, as the case may be. If after such thirty (30) day period the Restricted Employee wishes to return to the ABB Ltd Group, then the ABB Ltd Group shall have the right to hire such Restricted Employee. (d) The foregoing provisions of this Article 15.3 shall not prohibit the ABB Ltd Group from hiring former employees of the JC Group or the ALSTOM Group who worked at the clerical or administrative levels at one of the members of the JC Group or the ALSTOM Group, it being understood that in no event shall engineers, technicians or any similar categories of employees be considered to be working at clerical or administrative levels. ARTICLE 16 CONFIDENTIALITY 16.1 CONFIDENTIALITY. Subject to Article 3.7, each of ALSTOM and each Extended Party undertakes that it shall keep confidential and (unless the prior written consent of the Other Party has been given) not disclose to any person (other than a member of its Group for any purposes reasonably incidental to the purposes of this Agreement) the contents of this Agreement and each of the other Settlement Documents. Each Extended Party other than ALSTOM and the JC covenants to ALSTOM that it shall keep confidential and (unless the prior written consent of ALSTOM has been given) not disclose to any person (other than a member of its Group for any purposes reasonably incidental to the purposes of this Agreement), or (except to the extent expressly authorized to do so in Annex D) use or exploit commercially for its own purposes (A) any Intellectual Property Rights or Know-How of any member of the ALSTOM Group or the JC -76- Group or (B) any other information relating to the business or affairs of the JC (or any of its Affiliates) or the business or affairs of the Other Party (or any of its Affiliates) (but excluding for these purposes Know-How which is not proprietary to the ALSTOM Group and is in the possession of any individual employed by any member of the Group of such Extended Party), in each case which such member (x) may have received at any time prior to the date hereof, or is in possession of at the date hereof, or (y) at any time after the date hereof may acquire either (it being understood that the following sub-clauses apply only in the context of this clause (y) and do not qualify clause (x)): (a) as a result of negotiating or entering into this Agreement or any of the Ancillary Agreements or of its operation; or (b) through the previous ownership by a current or former member of its Group or (prior to the Closing) the ABB Ltd Transferred Companies of assets of the ABB Ltd Business which shall have comprised assets of the ABB Ltd Transferred Companies as of the Closing Date (or otherwise thereafter shall have become assets of the JC Group) pursuant to the Joint Venture Agreement or this Agreement; or (c) otherwise directly or indirectly from any member of the JC Group or the ALSTOM Group. 16.2 EXTENDED PARTIES. In performing its obligations under this Article 16, each Extended Party shall apply such standards of confidentiality as it applies generally in relation to its own confidential information. Each Extended Party shall use all reasonable endeavors to ensure that its employees and agents observe the provisions of this Article 16. In particular but without prejudice to the generality of the foregoing: -77- (a) each Extended Party shall procure that current and former members of its Group observe the provisions of this Article 16 as fully as if they were parties hereto in lieu of such Party; and (b) each Extended Party shall use all reasonable endeavors to ensure that its current and former Affiliates which are not members of its Group observe such confidentiality. 16.3 EXCLUDED INFORMATION. Articles 16.1 and 16.2 shall not apply to information: (a) acquired after the date hereof from a third party with the right to divulge the same or (solely in the case of information received after the date hereof) which is independently developed by the recipient; (b) any Extended Party in good faith determines is required to be disclosed by operation of law (including, without limitation, disclosure requirements under applicable law or regulations in connection with any offering of securities by or of such Extended Party or any member of its Group) or any stock exchange listing agreement or regulations or any binding judgment or order or by any requirement of any Regulatory Authority, provided that ABB Ltd shall use reasonable efforts to consult with ALSTOM prior to any disclosure pursuant to this clause and to obtain confidential treatment of any information so disclosed pursuant to any binding judgment or order or by any requirement of any Regulatory Authority; (c) ALSTOM and ABB Ltd jointly decide to disclose, provided that ALSTOM and ABB Ltd shall use their best efforts to co-ordinate any such disclosure; -78- (d) reasonably required to be disclosed in confidence to the professional advisers of either ALSTOM or ABB Ltd for use in connection with the transactions and matters contemplated by this Agreement, or related thereto; (e) any Extended Party determines in good faith to disclose in connection with the timely performance of its obligations, or the enforcement of the rights of any member of its Group, under this Agreement, the Ancillary Agreements or any other Contract with any member of the JC Group; (f) any Extended Party determines in good faith to provide to any undertaking considering merging or consolidating with, or acquiring, such Extended Party, so long as: (i) prior to any disclosure described in this clause (f), the undertaking receiving such information executes a customary agreement protecting the confidentiality and use of such information; and (ii) the information so disclosed is limited to that which is relevant to be known to such undertaking in connection with its evaluation of the transaction being contemplated; or (g) which is or becomes within the public domain (otherwise than through the default of the recipient Extended Party or any of its Affiliates); or (h) in the case of ALSTOM, information in the possession of ALSTOM required by applicable law to be disclosed or disclosed in connection with a third party claim or proceeding, threatened or pending, or reasonably disclosed to protect its image or legitimate interests relating to the Asbestos Liabilities of the ABB Ltd Business. -79- ARTICLE 17 TERMINATION OF AGREEMENT 17.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any time prior to the Settlement Closing Date: (a) by the mutual written consent of the Parties; (b) by either ABB Ltd or ALSTOM: (i) if any court or governmental body or agency thereof of competent jurisdiction shall have enacted, promulgated or issued any statute, rule, regulation, ruling, writ or injunction, or taken any other action, permanently restraining, enjoining or otherwise prohibiting or making illegal the transactions contemplated hereby; (ii) if the Settlement Closing shall not have occurred on or before July 14, 2000; provided, however, that the right to terminate this Agreement pursuant to this Article 17.1(b)(ii) shall not be available to a Party whose failure to perform or comply with any covenant or obligation under this Agreement has been the cause of, or resulted in, the failure of the Settlement Closing to occur on or before such date; (iii) by ABB Ltd, if it becomes impossible to satisfy any of the conditions specified in Article 6.1 which have not yet been met or waived; or -80- (iv) by ALSTOM, if it becomes impossible to satisfy any of the conditions specified in Article 6.2 which have not yet been met or waived. 17.2 EFFECT OF TERMINATION. In the event of termination of this Agreement, this Agreement shall forthwith become null and void, the Joint Venture Agreement and the Shareholders Agreement shall remain in full force and effect as the same exist as of the date hereof without any modifications and there shall be no liability on the part of any of the Parties with respect to this Agreement, except that Article 9.2 shall remain in full force and effect and shall survive such termination, and nothing herein shall relieve any of the Parties from liability for any breach or inaccuracy of any representation, warranty or covenant set forth in this Agreement occurring prior to the termination hereof and the provisions of Article 9 and Annex E shall remain in effect with respect to any such breach or inaccuracy; provided, however, that ABB Ltd shall not assert any claim against ALSTOM or the JC in respect of a breach or inaccuracy of a representation, warranty or covenant made by the JC under this Agreement; 17.3 DUTCH CIVIL CODE. The Parties agree that they cannot cause this Agreement to be dissolved on the basis of Section 265 of Book 6 of the Dutch Civil Code. ARTICLE 18 MISCELLANEOUS 18.1 EXPENSES. (a) Except as otherwise specifically provided herein or in any Ancillary Agreement, ABB Ltd and ALSTOM shall pay their own expenses, and shall share equally the expenses of the JC, including, without limitation, accountants' and attorneys' fees, incurred in connection with the negotiation, execution and consummation of the transactions -81- contemplated by this Agreement and the Ancillary Agreements. Taxes payable with respect to transactions effected under the Ancillary Agreements shall be paid in accordance with the terms and conditions of such Ancillary Agreements, provided that nothing in this sentence limits or modifies any Party's express obligations in relation to Taxes under this Agreement (including without limitation Annex E hereto). (b) Except as otherwise provided herein, all costs, charges and expenses, incurred or payable by any person in connection with the transfer of the ABB Ltd Post-Settlement Closing Transferred Assets shall be borne by ABB Ltd. 18.2 NOTICES. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be considered to be given and received in all respects when hand delivered, when sent by prepaid express or courier delivery service, when sent by facsimile transmission actually received by the receiving equipment or seven (7) days after deposit in the regular mails, certified mail, postage prepaid, return receipt requested (or equivalents thereof), in each case addressed as follows, or to such other address as shall be designated by notice duly given: If to ABB Ltd: ABB Ltd Affolternstrasse 44 8050 Zurich, Switzerland Attention: General Counsel Facsimile: +41 1 317 7992 -82- If to ALSTOM: ALSTOM 25 Avenue Kleber 75795 Paris Cedex 16 France Attention: General Counsel Facsimile: +33 1 47 55 28 00 If to the JC: ABB ALSTOM Power NV 489 Avenue Louise B-1050 Brussels Belgium Attention: General Counsel Facsimile: +32 2 642 3621 18.3 ENTIRE AGREEMENT. This Agreement and the Annexes, Schedules and Exhibits attached hereto, and the Ancillary Agreements (and the other agreements, certificates and other documents contemplated hereby and thereby) and any other agreements or other documents being executed and delivered contemporaneously herewith constitute the entire agreement among the Parties relating to the subject matter hereof, and all prior agreements, correspondence, discussions and understandings of the Parties (whether oral or written) with respect to the subject matter hereof, and from and after the Settlement Closing (if it occurs), the Joint Venture Agreement and the Shareholders Agreement are merged into and superseded by this Agreement and the Ancillary Agreements, it being the intention of the Parties that this Agreement and the Ancillary Agreements (and the other agreements, certificates and other documents contemplated hereby and thereby) shall serve as the complete and exclusive statement of the terms of their agreement with respect to the subject matter hereof. No amendment, waiver or modification hereto or hereunder shall be valid unless in writing and signed by an authorized signatory of the -83- Party or Parties to be affected thereby. For the avoidance of doubt, nothing in this Article 18.3 shall affect the validity of the existing JC/ABB Contracts or the JC/ABB Service Contracts. 18.4 ASSIGNMENT. (a) This Agreement and the rights and obligations arising hereunder shall not be assignable or transferable by ABB Ltd without the prior written consent of ALSTOM or by ALSTOM without the prior written consent of ABB Ltd or by the JC without the prior written consent of ABB Ltd and (prior to the Settlement Closing) ALSTOM, except, in each case, to an Affiliate of ABB Ltd or ALSTOM pursuant to Article 18.4(b) below. Nothing herein contained shall limit the right of (i) any Party to assign this Agreement without the consent of the other Parties in connection with any Permitted Merger Transaction provided that the resulting, surviving or acquiring undertaking in any such transaction (if other than such Party) shall agree in writing to assume and be bound by all of the terms and conditions of this Agreement and the Ancillary Agreements and, provided further, that no such assignment shall relieve the assigning or transferring Party of its obligation to perform all of its duties and obligations hereunder or (ii) ALSTOM to assign this Agreement in connection with a sale of all of its ownership interests in the JC, provided that such purchasing party shall agree in writing to be bound by all of the terms and conditions of this Agreement and the Ancillary Agreements applicable to ALSTOM and, provided further, that it is agreed that no such sale shall relieve ALSTOM of any of its liabilities or obligations hereunder. For the avoidance of doubt, ABB Ltd shall procure that the resulting, surviving or acquiring undertaking, in any Permitted Merger Transaction involving the ABB Ltd Group (if other than ABB Ltd), agree in writing to be bound by all of the terms and conditions of this Agreement and the Ancillary Agreements applicable to ABB Ltd (regardless of whether ABB Ltd desires to assign its rights under this Agreement in -84- connection with such transaction), provided that ABB Ltd shall not thereby be released from its obligation to perform all of its duties and obligations hereunder. (b) Notwithstanding the provisions of Article 18.4(a), either ABB Ltd or ALSTOM may, without the prior written consent of the Other Party, assign any or all of its rights and obligations under this Agreement at any time after the Settlement Closing to one or more Affiliates of such Party, provided that such Affiliate shall agree in writing to assume and be bound by all of the terms and conditions of this Agreement and, provided further, that it is agreed that no such assignment shall relieve the assigning Party of liabilities or obligations hereunder and the Parties shall implement a transfer of contract in accordance with the laws of The Netherlands in order to give effect to such transfer. 18.5 BINDING EFFECT. This Agreement shall be binding upon the Parties and their respective successors and permitted assigns. 18.6 HEADINGS. The headings in this Agreement are for purposes of convenience and ease of reference only and shall not be construed to limit or otherwise affect the meaning of any part of this Agreement. 18.7 SEVERABILITY. If any provision of this Agreement is held to be invalid, unlawful or unenforceable, it shall be modified to the minimum extent necessary to make it valid, lawful and enforceable or, if such modification is not possible, such provision shall be stricken from this Agreement and the remaining provisions of this Agreement shall continue in full force and effect. -85- 18.8 APPLICABLE LAW. This Agreement and all questions arising in connection herewith shall be governed by and construed in accordance with the laws of The Netherlands. 18.9 ARBITRATION. All disputes arising out of or in connection with this Agreement shall be referred to and finally settled by arbitration under the Rules of Arbitration of the International Chamber of Commerce (the "Rules") by three arbitrators appointed in accordance with the Rules. The place of arbitration shall be Amsterdam, The Netherlands. The language of the arbitration proceedings shall be English. Any arbitral award hereunder may be entered in any court of competent jurisdiction. Notwithstanding the foregoing, with respect to Liabilities to which a Party is an Indemnified Party under Annex E hereto, such Indemnified Party may seek to enforce the indemnification obligations of any Indemnifying Party in a judicial or administrative action or proceeding to which such Indemnified Party has been named or joined by a third party or Regulatory Authority, but only for the limited and sole purpose of enforcing such indemnification obligations. 18.10 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered to be but one and the same agreement, and shall become effective when one or more such counterparts have been executed by each Party and delivered to the other Parties. 18.11 NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the Parties and their respective permitted successors and assigns only and is not for the benefit of, and shall not be enforceable by, any other person. Nothing in this Article 18.11 limits the obligations of the Parties under Annex E, and any Party hereto may enforce the provision of Annex E on behalf of its Indemnified Parties. -86- 18.12 CONTROLLING DOCUMENT. In the event of any conflict between the terms of this Agreement and any of the Ancillary Agreements, the terms of this Agreement shall govern. 18.13 STATUS OF AFFILIATES. ABB Asea, ABB AG and ABB AB (and their successors in interest) and ABB Handels- und Verwaltungs AG are acknowledging and consenting to this Agreement in their capacities as signatories to the Shareholders Agreement and the Joint Venture Agreement, respectively, and by their acknowledgement and consent they agree to be bound by the covenants and agreements set forth herein. 18.14 THE JC. ABB Ltd and ALSTOM covenant to each other, subject to the terms and conditions hereof, to take such action as shareholders of the JC as may be necessary or desirable to cause the JC to perform all of its obligations hereunder to be performed by it prior to or at the Settlement Closing. 18.15 PRESERVATION. Neither this Agreement nor any other Settlement Document has, or shall have, the effect of releasing any person from any Liability in respect of any failure to comply with Article 11 of the Shareholders Agreement, or Article 15.1 of the Joint Venture Agreement or Article 2.4 of the Closing Memorandum and Agreement at any time prior to the Settlement Closing. ABB Ltd shall be liable with respect to any such failure to comply by any member of the ABB Ltd Group which is a signatory to such agreements. -87- IN WITNESS WHEREOF, each of the Parties has caused its duly authorized representative to execute this Agreement as of the date first above written. ALSTOM Signature: /s/ Andrew P. Hibbert --------------------------------- Name: Andrew P. Hibbert Title: Senior Vice President and General Counsel ABB LTD Signature: /s/ Beat Hess --------------------------------- Name: Beat Hess Title: Senior Vice President and General Counsel ABB ALSTOM POWER NV Signature: /s/ Andrew P. Hibbert --------------------------------- Name: Claude Darmon Title: President and Chief Executive Officer By: Andrew P. Hibbert Attorney-in-Fact -88- The undersigned duly acknowledge and consent to this Agreement and agree to be bound by the covenants and agreements set forth herein: ABB ASEA BROWN BOVERI LTD. By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB AG By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB AB By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB HANDELS- UND VERWALTUNGS AG By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact -89- ABB POWER GENERATION INVESTMENTS BV By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB POWER GENERATION PARTICIPATIONS BV By: /s/ Beat Hess -------------------------------- Name: Beat Hess Title: Attorney-in-Fact -90- ANNEX A THE ALSTOM BUSINESS The ALSTOM Business comprises the businesses and activities (including Assets, liabilities, Contracts and employees) of the Energy Sector of ALSTOM, which principally consists of designing and manufacturing components, systems and turnkey solutions for thermal (such as coal and gas) and hydro power plants located all over the world, and the provision of a full range of related services including project financing and management, engineering, plant maintenance, rehabilitation and refurbishment. The ALSTOM Business shall include, inter alia, the following businesses and activities of ALSTOM's Energy Sector: (a) Industrial Gas Turbines; (b) Steam Turbines (including Industrial, Utility, Combined Cycle and for Nuclear Power Plants); (c) Boilers and Environmental Systems (Utility, Environmental and Industrial); (d) Generators (including Turbogenerators); (e) Hydraulic Turbines; (f) Hydraulic Generators; (g) Power Plants (including Turnkey); (h) EPC Business development/Structured Solutions; (i) Marketing and Sales resources predominantly related to the Energy Sector currently attached to the International Network; and (j) Businesses (including employees, Assets, liabilities and Contracts) predominantly dedicated to the business of ALSTOM's Energy Sector and located in multisector entities, whether or not reflected in the ALSTOM Business Historical Accounts (including in Australia and India); but shall exclude the following: (k) Heavy Duty Gas Turbines business; (l) Lincoln Turbochargers business; (m) Belfort Superconducting equipment business (wire and magnet); (n) Certain Electrical Machine Service activities (in the course of being transferred outside the Energy Sector); (o) Nuremberg Non-destructive Testing Business; and (p) Brazil AEB's Water Business in Taubate. 2 ANNEX B PART A: THE ABB LTD BUSINESS The ABB Ltd Business consists of the non-nuclear business of ABB Ltd's Power Generation Segment, including the following Business Areas and Business Units. BA PGC-GAS AND COMBI CYCLES Gas turbines, gas turbine power plants, combined cycle power plants. BU-CODE BU-DESCRIPTION - ------- -------------- 1110 NEW EQUIPMENT WITH GAS TURBINES > 50 MW Gas turbines Gas turbine power plants 1111 NEW EQUIPMENT COMBINED CYCLE PLANTS Combined-cycle-power plants for power and co-generation 1120 SERVICE FOR EQUIPMENT WITH GAS TURBINES > 50 MW Spare parts, service and maintenance of gas turbines and GT/combined-cycle plants Repowering of existing (ABB and non-ABB) steam turbine power plants with ABB gas turbines 1130 OPERATION AND MAINTENANCE OF ABB EQUIPPED COMBINED CYCLE AND GAS TURBINE PLANTS BA PSP-STEAM POWER PLANTS Large scale steam power plants, large steam turbines and turbo-generators. Development, design, engineering, manufacture and erection of fossil fired steam generators for utilities, independent power producers and industry. Aftermarket services for steam generators including parts, engineering studies, retrofits and training. BU-CODE BU-DESCRIPTION - ------- -------------- 1220 NEW EQUIPMENT Turbine Islands for Steam Power Plants for IPPs and public utilities > 100 MW per unit, Turbo-generators, heat exchangers 1230 NEW EQUIPMENT Fossil Fired Steam Power Plants > 100 MW per unit Turn-key fossil fired power plants Components for fossil fired steam power plants if more than only turbine islands Combined cycle power plants with gas turbines of relative inferior importance First spare parts equipment set for fossil fired power plants 1240 SERVICE Spare parts and retrofits Operation and Maintenance BU-CODE BU-DESCRIPTION 1959 UTILITY POWER BOILERS Oil, gas and coal Subcritical Supercritical 1962 INDUSTRIAL BOILERS, FIELD ERECTED Oil, gas, coal and other solid fuels Includes "VU-40", "VU-60" and other field erected types Waste-to-energy 1963 FLUID BED BOILERS BFB (bubbling fluid bed) CFB (circulating fluid bed) PFCB (pressurised fluidized bed combustion) 1966 STANDARD BOILERS Package industrial Boilers Shop Assembled Boilers Including "A" and "D" types Marine Boilers and Service (Parts and Maintenance) Other products Condensers Waste Heat Economizers Electric Boilers 1968 HEAT RECOVERY STEAM GENERATORS 1969 MANUFACTURING Manufacture to Customer's Design Shop Operations 2 1971 BOILER PRODUCTS - EQUIPMENT Air Heaters Ljungstrom air heaters Heat pipe air heaters APEX heat exchangers Tubular heat exchangers Thermal oxidizers Raymond Products Industrial pulverizers Classifying equipment Material handling equipment Kilns Sootblowers 1972 BOILER PRODUCTS - SERVICE Air Heaters Includes related parts and aftermarket service Raymond Products Includes related parts and aftermarket service 1975 BOILER SERVICE - NEW CONSTRUCTION, MAINTENANCE, TECHNICAL Erection services associated with new equipment projects. This is classified as service since it requires generally the same skill set as maintenance construction work and is generally performed by the same group of people. Includes planned and forced outage work, repairs, etc. performed on site. Engineering and consulting services Power plant operations and maintenance 1981 BOILER SERVICE - AFTERMARKET PROJECTS Material supply products/projects where value is added by the reporting BAU. Includes refurbished products/projects, retrofitted products/projects, rehabilitation activities or even products with engineered enhancements. 1982 BOILER SERVICE - SPARE PARTS Replacement parts and components where little, if any value is added by the reporting BAU. Spare parts are defined by ABB as "Standard Goods for Re-Sale" in the cost calculation model. BAA PPS-POWER PLANT SYSTEMS Medium and small scale steam turbine and combined cycle plants mainly for industrial applications, steam and gas turbines for power generation and mechanical drive applications, service for above equipment and plants. 3 Hydro and diesel power plants, control and electrical equipment hereto, separate generators. Design, production and marketing of equipment and systems for transmission and distribution of water for heating/cooling. BU-CODE BU-DESCRIPTION - ------- -------------- 1305 INDUSTRIAL STEAM POWER PLANTS Industrial steam turbines for generator, mechanical drive and combined cycle applications. 1310 INDUSTRIAL STEAM TURBINES Industrial steam turbines for generator, mechanical drive and combined cycle applications. 1315 SERVICE OF INDUSTRIAL STEAM TURBINES Industrial steam turbines and steam turbine plants 1320 INDUSTRIAL GAS TURBINES Gas turbines < 50 MW 1321 INDUSTRIAL GAS TURBINE PLANTS Industrial gas turbine plants excl. GTs 1325 SERVICE OF INDUSTRIAL GAS TURBINES Service of industrial gas turbines and combined cycle plants. Service of gas turbines in mechanical drive applications. 1330 MECHANICAL DRIVE GAS TURBINES Gas turbines in mechanical drive applications 1370 O & M Operation and Maintenance of GT/ST driven plants BU-CODE BU-DESCRIPTION - ------- -------------- 1505 NEW HYDRO POWER PLANTS Hydro power plants including generators, control systems and other equipment to new hydro power plants. Exception: Hydromechanical equipment shall be reported only under BU 1530. 1515 HYDRO POWER SERVICE Service and retrofit including generators, control systems and other equipment to existing hydro power plants. Exception: Hydromechanical equipment shall be reported only under BU 1530. 4 1516 HYDRO POWER OPERATIONS & MAINTENANCE CONTRACTS O & M contracts with a duration of at least one year. Services performed under this contract which do not alter the original condition of the equipment, e.g. related spare part sales and repairs. Exception: Replacement and/or upgrade of equipment shall still be reported under BU 1515. 1520 DIESEL POWER PLANTS All new equipment and service on diesel power plants. 1530 HYDROMECHANICAL EQUIPMENT All hydromechanical equipment and service sold to new or existing hydro power plants. BU-CODE BU-DESCRIPTION - ------- -------------- 8204 DISTRICT HEATING Low temperature (< 140DEG.C/250F) preinsulated pipe systems for district heating and cooling. - Pipes - Fittings - Other accessories - Alarm systems Other preinsulated pipe systems for oil, gas, etc. Low temperature (< 140DEG.C/250F) preinsulated pipe systems for district heating and household water applications. PU-foam insulated system and rockwool insulated pipe system. All including: - Pipes - Fittings - Other accessories - Alarm systems BA PES-ENVIRONMENTAL SYSTEMS Development, design, engineering, supply, construction and service of air pollution control and resource recovery and waste disposal plants BU-CODE BU-DESCRIPTION - ------- -------------- 5401 POWER AIR POLLUTION CONTROL INCL. ASH Particulate control systems excluding ash handling systems for all pollution control for power generation including electric utilities, heating plants and private generation. Gaseous control systems for air pollution control for power generation including electric utilities, heating plants and private generation. 5 Ash handling Systems - both bottom ash and fly ash - for Power generation including electric utilities, heating plants and private generation. Ash handling Systems for industrial applications. 5402 INDUSTRY AIR POLLUTION CONTROL Air pollution control systems for the aluminium industry including both gaseous and particulate control. Air pollution control systems for the pulp & paper industry including gaseous and particulate control. Resource recovery and waste disposal plants, general contracting and service for these plants. Air pollution control systems for the metallurgical industry including gaseous and particulate control. 5423 WASTE TO ENERGY PLANTS AND AIR POLLUTION CONTROL Resource recovery and waste disposal plants, general contracting and service for these plants. Particulate and gaseous control systems for air pollution control for incineration plants including municipal waste, industrial waste and hazardous waste. 5407 SERVICE - WASTE TO ENERGY 5408 SERVICE - INDUSTRY AIR POLLUTION CONTROL Aluminium service, pulp & paper service, metallurgy service 5460 SERVICE - POWER AIR POLLUTION CONTROL BA PSM-POWER SYSTEM MANUFACTURING Provide the P-Segment Business Areas with competitive manufacturing performance through flexible, cost effective, on time delivered, high quality Turbines, Generators, Components and Factory service. BU-CODE BU-DESCRIPTION - ------- -------------- 1910 POWER PLANT PRODUCTION Comprise the following companies only: BRABB Asea Brown Boveri Ltda. CHKRA ABB Kraftwerke AG CZPBS ABB Prvni Brnenska Strojirna Brno S.R.O. DEBER ABB Kraftwerke Berlin GmbH DEKWE ABB Kraftwerke AG DETUR ABB Turbinen Nurnberg GmbH ESGEN ABB Generacion S.A. GRPPL ABB Power Plant LTD HULAN ABB Power Generation Kft. IDESI PT ABB Energy Systems Indonesia 6 INABB Asea Brown Boveri LTD ITSAD ABB Sadelmi S.p.A NOPOW ABB Kraft AS PLDOL ABB Dolmel Ltd PLZAM ABB Zamech LTD PTSTB MSET Metalomecanica de Setubal SA ROENR ABB Energoreparatii Romania SRL RUNEV ABB Nevsky RUUNI ABB Uniturbo LTD SEGEN ABB Generation AB SESTA ABB Stal AB USPGE ABB Power Generation Inc. 7 ANNEX B PART B: PERMITTED ENCUMBRANCES NONE ANNEX B PART C: ABB LTD POST-SETTLEMENT CLOSING TRANSFERRED ASSETS The ABB Ltd Post-Settlement Closing Transferred Assets include the ABB Ltd Business conducted or located in the following countries: Brazil Bulgaria Colombia Croatia Ecuador Egypt Greece India Indonesia Ireland Israel Jordan Korea Lebanon Malaysia New Zealand Peru Philippines Poland Portugal Romania Russia Saudi Arabia Singapore Spain Sweden Taiwan Thailand Ukraine Uzbekistan Venezuela Vietnam ANNEX C DESCRIPTION OF THE FIELD The Field comprises all activities relating to Power Generation including without limitation: o Research and development, design, engineering, engineering procurement, manufacturing, erection, commissioning, contracting, marketing and sale of power generation equipment, components, services, systems and power plants. o Service supply relating to power generation. o Power generation equipment and power plant operation, maintenance and retrofit. o Electrical contracting for power generation. o Power plant and power generation equipment control and instrumentation. o Power generation project development and project equity investment. o Power generation project finance and structured finance. The following activities are excluded from the Field: o Design, manufacture, sale and service of nuclear reactors. o Design, manufacture and sale of nuclear fuel. o Design, manufacture and sale of fuel cells and fuel cells systems using the PEM (proton-exchange membrane) technology. For the avoidance of doubt, the design and manufacture of power Transmission & Distribution equipment is not included in the Field. ANNEX D INTELLECTUAL PROPERTY RIGHTS AND KNOW-HOW 1 INTERPRETATION 1.1 The definitions and rules of interpretation set out in Article 1 of this Agreement apply to this Annex supplemented by the following: "ABB LTD MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the initials ABB and/or the words Asea Brown Boveri, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "CE MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the initials CE and/or the words Combustion Engineering, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "FLAKT MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the word FLAKT, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "INTELLECTUAL PROPERTY RIGHTS" means copyrights, design rights, patents, mask rights, trademarks, trade names and similar property rights conferred by law in any part of the world and, where applicable, whether or not registered, in each case together with all rights appurtenant thereto (including but not limited to rights, where applicable, to apply for registration thereof). For purposes hereof, the ABB Ltd Marks, the CE Marks and the FLAKT Marks are not Intellectual Property Rights. "KNOW-HOW" means data, formulae, techniques, inventions, specifications, drawings, algorithms, prototypes, research materials, computer programs and documentation, databases, and other non-public know-how or trade secrets of any kind; "LICENSE" means, according to the context, a license or similar agreement in which rights to use Intellectual Property Rights are made or given, or a license or similar agreement in which rights to use Know-How are granted. 1.2 Where the context permits or requires, any reference in this Annex to a License includes a sublicense and a sub-sublicense or other derivative rights granted by a licensee or a sublicensee. 1.3 References in this Annex to "Articles" are, unless otherwise expressly provided, to Articles of this Annex D and references in this Annex to Schedules are to Schedules to this Annex. 2 PERFORMANCE OF OBLIGATIONS ABB Ltd shall be responsible for procuring that the relevant entity within its Group shall perform those obligations which are required in this Annex to be performed by it. 3 REORGANISATIONS It is agreed that, except for Article 4.4, Articles 4 and 5 shall apply only if and to the extent that rights equivalent to those which are contemplated to be assigned, licensed and/or communicated (as the case may be) to ALSTOM and/or its Subsidiaries thereunder are not currently owned by, or have not as of yet been licensed or communicated to, the ABB Ltd Transferred Companies, respectively, and have not been so assigned, licensed and/or communicated, respectively, by the Settlement Closing to one or more of the ABB Ltd Transferred Companies pursuant to the Reorganisations or otherwise. 4 ASSIGNMENT AND RELATED MATTERS 4.1 Subject to Articles 4.3 and 5.4, ABB Ltd and its Subsidiaries (except as set forth in Schedule 1) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from and including January 1, 1999, assign (or cause to be assigned) to ALSTOM and/or its designated Subsidiaries (beneficially and, subject to Article 11.8 of this Agreement, of record): (i) all Intellectual Property Rights and Know-How owned (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) by members of the ABB Ltd Group (listed in Schedule 2), and (x) at such time used or held for use or (y) at such time under development for use, in each case predominantly in the ABB Ltd Business; (ii) subject to Article 6, all right, title and interest under, subject to the burden of, all Licenses from third parties relating to Intellectual Property Rights or Know-How that (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) were (x) at such time used or held for use or (y) at such time under development for use, in each case predominantly in the ABB Ltd Business (listed in Schedule 3) under which members of the ABB Ltd Group (as constituted from time to time) appear as (or otherwise are) grantees; and (iii) all their rights to sue for damages and any other remedies in respect of any infringement, misuse or conversion of, or in relation to, the rights referred to in paragraphs (i) and (ii). 4.2 ABB Ltd and its Subsidiaries shall, as soon after the Settlement Closing as is practicable and in accordance with procedures to be established by ALSTOM, communicate or 2 otherwise make available to ALSTOM and/or its designated Subsidiaries all Know-How assigned to ALSTOM and/or its designated Subsidiaries pursuant to paragraph (i) of Article 4.1 or held by them under any License relating to Know-How assigned pursuant to paragraph (ii) of Article 4.1, in each case subject to the provisions of any Licenses which relate to such Know-How, and shall supply to ALSTOM and/or its designated Subsidiaries the originals or, at the discretion of ALSTOM, copies of documents or other materials in their possession in which any part of such Know-How is contained. ABB Ltd and its Subsidiaries, and ALSTOM and its designated Subsidiaries, shall each take all reasonable steps to maintain the confidentiality of the Know-How. 4.3 Any assignments to be made pursuant to Article 4.1 and any such assignments made prior to the Settlement Closing shall be: (i) subject to and with the benefit of any Licenses to third parties and any other third party rights and obligations, but free of Encumbrances; and (ii) subject to a reservation to the assignor of a worldwide, perpetual (or for such shorter period as such assigned rights may exist), irrevocable, royalty free, non-exclusive, non-assignable and non-sublicensable right to (A) use (and permit others within the ABB Ltd Group or third parties to use) the Intellectual Property Rights and Know-How assigned pursuant to paragraph (i) of Article 4.1, but only for activities outside of the Field, and (B) enjoy (and permit others within the ABB Ltd Group or third parties to enjoy) the rights conferred by the Licenses assigned pursuant to paragraph (ii) of Article 4.1, but only to the extent permitted under the terms of those Licenses, and only for activities outside of the Field; provided that if any reservation of rights pursuant to clause (ii) of this Article 4.3 is not desirable or permissible due to national laws or regulations or for any other reason, including but not limited to the terms of any License referred to therein or any other third party rights, the assignor shall discuss with ALSTOM with a view to reaching agreement on the best means to ensure that equivalent rights are granted or otherwise made available to it. 4.4 It is understood and agreed that, to the extent ABB Ltd Transferred Companies currently own, or as a result of a Reorganisations or otherwise at the Settlement Closing own, or at the Closing Date owned, Intellectual Property Rights and/or Know-How such that no assignment pursuant to this Article 4 is or was necessary in respect thereof, ALSTOM or the JC shall cause, at the request of ABB Ltd after the Settlement Closing, the relevant ABB Ltd Transferred Company to grant a License or sublicense, as the case may be, to the members of the ABB Ltd Group to effect the reservation of rights permitted under clause (ii) of Article 4.3. 5 GRANT OF LICENSES AND RELATED MATTERS 5.1 ABB Ltd and its Subsidiaries (except as set forth in Part B of Schedule 4) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from 1 January 1999, grant (or cause to be granted) to ALSTOM and/or its designated Subsidiaries worldwide, irrevocable, royalty free, non-exclusive, non-assignable and non-sublicensable (except as otherwise expressly provided in Articles 8 and 14) Licenses under all Intellectual Property Rights and Know-How owned (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the 3 Closing or as of immediately prior to the Settlement Closing) by members of the ABB Ltd Group (listed in Schedule 5) and (x) at such time used or held for use or (y) at such time under development for use, in each case in the ABB Ltd Business, but which are not required to be assigned pursuant to paragraph (i) of Article 4.1. Such Licenses shall be for a term of thirty (30) years from and after the Settlement Closing Date and shall cover the full territory of the rights and shall be for use in activities within the Field only. 5.2 ABB Ltd and its Subsidiaries (except as set forth in Schedule 6) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from January 1, 1999, grant (or cause to be granted) to ALSTOM and/or its designated Subsidiaries irrevocable, non-exclusive, non-assignable and non-sublicensable sublicenses under all Licenses from third parties relating to Intellectual Property or Know-How that (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) were (x) at such time used or held for use or (y) at such time under development for use, in each case in the ABB Ltd Business (listed in Schedule 7) but which are not required to be assigned pursuant to paragraph (ii) of Article 4.1. Such sublicenses shall be for use in activities within the Field only, shall cover the widest scope and territory possible under the terms of the Licenses under which they are granted and shall be on arms-length terms (including any royalty to be paid thereunder), provided such terms shall be no more onerous than the terms of such Licenses and for the duration thereof. 5.3 ABB Ltd and its Subsidiaries shall, as soon after the Settlement Closing as is practicable and in accordance with procedures to be established by ALSTOM, communicate or otherwise make available to ALSTOM and/or its designated Subsidiaries full details of the Know-How to which any License referred to in Article 5.1 or sublicense referred to in Article 5.2 relates and supply to them copies of documents or other materials in their possession in which any part of such Know-How is contained (subject to the provisions of such License or sublicense). 5.4 ABB Ltd or its appropriate Affiliate, and ALSTOM, or a member of the ALSTOM Group as of the date hereof, shall enter into the Powerformer License on the terms set forth in Schedule 9. 6 RESTRICTIONS ON ASSIGNMENTS OR GRANTS OF LICENSES If a License cannot be assigned as required by paragraph (ii) of Article 4.1 or if a sublicense required by Article 5.2 cannot be granted, ABB Ltd and its Subsidiaries shall use all reasonable efforts to persuade the relevant third party either to amend its License to permit the same or to grant to ALSTOM and/or its designated Subsidiaries directly a License conferring equivalent rights. Until the License is amended, or a License conferring equivalent rights is granted pursuant to this Article 6.1, ABB Ltd and its Subsidiaries shall, to the fullest extent permitted by law, hold the benefit of the relevant License (insofar as it relates to the ABB Ltd Business) for ALSTOM and/or its designated Subsidiaries; provided that ALSTOM shall be responsible for payment of royalties, fees, outgoings or other liabilities thereunder attributable to the ABB Ltd 4 Business for so long as it or another member of the ALSTOM Group receives the benefit thereof and ALSTOM shall indemnify ABB Ltd and its Subsidiaries against any liability (together with all reasonable costs) which they may incur by reason of any breach thereof attributable to any act or omission of any member of the ALSTOM Group or the JC Group. 7 FURTHER ASSURANCE AND PROTECTION OF RIGHTS 7.1 (a) It is acknowledged that the assignment, licensing or sublicensing of any Intellectual Property Right, or the communication or otherwise making available of any Know-How, to the ABB Ltd Transferred Companies contemplated by this Annex and the contribution to ALSTOM and/or its Subsidiaries of any Intellectual Property Rights or Know-How to be made pursuant to the terms hereof may require the consent of or notification to any third party or the cooperation of any undertaking of which ABB Ltd owns or controls, directly or indirectly, less than 100% of the issued shares. In such circumstances, ABB Ltd shall use reasonable efforts in good faith to obtain such consent, to give such notification and/or to obtain such cooperation and, provided that such reasonable efforts in good faith are used, ABB Ltd shall in such circumstances not be in breach of Articles 4 or 5 but without prejudice to any compensation which may become payable as described below. (b) In the event any assignment, contribution, licensing or sublicensing of any Intellectual Property Rights or Know-How, or any communication or otherwise making available of any Intellectual Property Rights or Know-How, to ALSTOM and/or its Subsidiaries does not occur by March 31, 2001 for the reasons set forth in Article 7.1(a), then ABB Ltd shall within fourteen (14) days (or such longer period as ALSTOM and ABB Ltd shall agree having regard to the complexity of the matter) pay ALSTOM an amount as compensation for such non-contribution which shall be such amount as shall be fair and reasonable having regard to the fair market value of such Intellectual Property Rights or Know-How and of the effect of its non-inclusion upon the JC Group, together with interest on such compensation amount from the, Closing Date to the date of payment of such compensated amount at an interest rate per annum equal to the Relevant Rate (as defined in the Joint Venture Agreement) for three month deposits in effect on the Closing Date (or, with respect to periods more than three months after the Closing Date, in effect on the most recent past date which is exactly three months (or a whole multiple of three months) after the Closing Date). Upon payment of such amount to ALSTOM in respect of any particular Asset in accordance with this Article 7.1(b), ABB Ltd shall cease to be obligated to cause such Asset to be assigned to, or become part of, the JC Group. 7.2 Pending the assignment of any rights or the granting of any License pursuant to this Annex, ABB Ltd and its Subsidiaries shall take all reasonable steps to maintain and protect the rights to be assigned or licensed by them. 7.3 ABB Ltd and its Subsidiaries shall, at the request of ALSTOM, and ALSTOM and its Subsidiaries shall, at the request of ABB Ltd, provide all reasonable assistance in 5 connection with (i) the defense and/or prosecution of any claim brought by or against any third party concerning Intellectual Property Rights or Know-How assigned or licensed by ABB Ltd and/or its Subsidiaries hereunder or pursuant to the terms of the Reorganisations, and (ii) the filing, prosecution and amendment or continuation of applications to register any Intellectual Property Rights assigned or licensed to ALSTOM and/or its Subsidiaries hereunder or pursuant to the terms of the Reorganisations. 7.4 ABB Ltd and its Subsidiaries shall not permit to lapse or become abandoned any Intellectual Property Rights which are registered, or which are the subject of an application to register, and which are or are to be licensed to ALSTOM or any member of the ALSTOM Group hereunder or pursuant to the Reorganisations (or otherwise as a result of the transactions contemplated by this Agreement or the Joint Venture Agreement) without first giving ALSTOM the opportunity to maintain the registration or prosecute the application to register at its own cost and for its own benefit. The foregoing shall apply mutatis mutandis to ALSTOM and its Subsidiaries with respect to any Intellectual Property Rights which are registered, or which are the subject of an application to register, and which are to be licensed or reserved to ABB Ltd and its Subsidiaries hereunder or pursuant to the Reorganisations (or otherwise as a result of the transactions contemplated by this Agreement or the Joint Venture Agreement). 8 DISSEMINATION OF RIGHTS WITHIN THE ALSTOM GROUP In respect of Intellectual Property Rights and Know-How assigned or licensed pursuant hereto (or contributed to the ALSTOM Group under the terms of the Reorganisations or otherwise owned or held by an undertaking which at the Closing or thereafter became a member of the ALSTOM Group pursuant to the Joint Venture Agreement or this Agreement ), each member of the ALSTOM Group may be granted such derivative rights on such terms and conditions and to such an extent as ALSTOM may from time to time determine and as may be granted without infringing the rights of third parties. All Licenses and sublicenses granted to any Subsidiaries of ALSTOM pursuant to Article 5 (and all derivative rights thereunder granted pursuant to this Article 8) shall terminate automatically if the member should cease to be a Subsidiary of ALSTOM. 9 TECHNICAL ASSISTANCE ABB Ltd and its Subsidiaries and ALSTOM and its Subsidiaries, as the case may be, shall provide, at no cost to the ALSTOM Group or the ABB Ltd Group, as the case may be, such technical assistance and consultation as may reasonably be required and which they are reasonably able to provide to make effective use of any Intellectual Property Rights and Know-How assigned or licensed or otherwise made available to the ALSTOM Group or to the ABB Ltd Group hereunder (or contributed to the ALSTOM Group under the terms of the Reorganisations or otherwise owned or held by an undertaking which on the Closing or thereafter became a member of the ALSTOM Group); provided that such technical assistance and consultation under this Article 9 shall continue only for a period of eighteen (18) months from the Settlement Closing Date, and such technical assistance and consultation shall not include any research or development. 6 10 NEW TECHNOLOGY ALSTOM shall grant, or procure that its Subsidiaries grant, to members of the ABB Ltd Group non-exclusive, non-assignable and non-sublicensable licenses under such of the Intellectual Property Rights and Know-How obtained as owner, developed or conceived by any member of the JC Group after the Closing Date and prior to the Settlement Closing, in each case for use in activities other than the Field. Such licenses shall be granted on arms-length terms (including any royalty to be paid thereunder). 11 HOUSE MARKS 11.1 ABB Ltd or its appropriate Affiliate shall grant ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the ABB Ltd Marks and, pursuant to such grant, shall enter into license agreements in respect of the ABB Ltd Marks substantially in the form of Schedule 8. It is understood and agreed that the right to use the ABB Ltd Marks shall expire twelve (12) months after the Settlement Closing. 11.2 Any license agreement in respect of the ABB Ltd Marks granted to any member of the ALSTOM Group pursuant to this Article 11 shall terminate automatically if the member should cease to be a Subsidiary of the ALSTOM Group. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any ABB Ltd Mark without a license agreement entered into pursuant to this Article 11. 12 CE MARKS 12.1 ABB Ltd or its appropriate Affiliate shall grant to ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the CE Marks and, pursuant to such grant, shall enter into a license agreement in respect of the CE Marks substantially in the form of Schedule 10. It is understood that the right to use the CE Marks shall be for a term of eighteen (18) months from the Settlement Closing Date subject to a right of renewal on terms and conditions satisfactory to ABB Ltd and ALSTOM. If the renewal terms are not agreed, then the license agreement shall terminate and ALSTOM shall cease using the CE Marks. 12.2 The license agreement in respect of the CE Marks granted to any member of the ALSTOM Group pursuant to this Article 12 shall terminate automatically if the member should cease to be a Subsidiary of the ALSTOM Group. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any CE Mark without a license agreement entered into pursuant to this Article 12. 13 FLAKT MARKS 13.1 ABB Ltd or its appropriate Affiliate shall grant ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the FLAKT Marks and, pursuant to such grant, shall enter into a license agreements in respect of the FLAKT Marks substantially in the form of Schedule 11. It is understood and agreed that the right to use the FLAKT Marks shall be for a term of thirty (30) years from the Settlement Closing. 7 13.2 Any license agreement in respect of the FLAKT Marks granted to any member of the ALSTOM Group pursuant to this Article 13 shall terminate automatically if the member should cease to be a Subsidiary of the ALSTOM Group. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any FLAKT Mark without a license agreement entered into pursuant to this Article 13. 14 CONSOLIDATIONS AND MERGERS 14.1 Anything in this Annex D to the contrary notwithstanding, ABB Ltd or ALSTOM may assign its rights under this Annex D (and any License or sublicense granted hereunder) to the extent permitted in, and subject to all of the terms and conditions set forth, in Article 18.4 of this Agreement. It is understood that the licensor or sub-licensor, as the case may be, may request written confirmation of such substitution. 14.2 The terms of Article 14.1 above shall not apply to the extent that the substitution described therein requires the consent of or notification to any third party, unless and until such consent or notification (as the case may be) has been obtained or made. In such circumstances the relevant Parties shall use reasonable efforts in good faith to obtain such consent or to give such notification. 15 CERTAIN COVENANTS Each of the Parties to this Agreement acknowledges and agrees that, to the best of its knowledge, all of the Intellectual Property Rights and Know-How which are predominantly used in and material in the aggregate to the conduct of the business of the JC is owned by the JC and not licensed from third parties. 16 SCHEDULES The listings of certain items in Schedules 2, 3, 5 and 7 are not necessarily complete. 8 ANNEX E INDEMNITIES 1 DEFINITIONS In this Annex E, the following terms shall, unless the context otherwise requires, have the following respective meanings: "ABB Ltd Business 1998 Accounts" the ABB Ltd Business 1998 Accounts in the form attached hereto; "ABB Ltd Excluded Liabilities" (i) the Asbestos Liabilities with respect to ABB Ltd, the Non-Business Liabilities with respect to ABB Ltd, the Reorganisation Liabilities with respect to ABB Ltd, the Indemnified Compliance Costs, the Windsor Site Liabilities, the Nuclear Liabilities, the CE Reorganization Liabilities and the Non-Transferred Assets Liabilities, (ii) any Liability for which (or to the extent to which) any member of the ABB Ltd Group is responsible under any provision of this Agreement or any other Settlement Document and (iii) any Liability, to the extent that the existence thereof constitutes a breach or inaccuracy of a representation, warranty or covenant of any member of the ABB Ltd Group hereunder or under the Joint Venture Agreement (whether or not released under the Releases); "ABB Ltd Indemnified Parties" the Indemnified Parties with respect to ABB Ltd; "ALSTOM Excluded Liabilities" the Asbestos Liabilities and the Non-Business Liabilities, each with respect to ALSTOM; "ALSTOM Indemnified Parties" the Indemnified Parties with respect to ALSTOM; "Asbestos Claims" any Liabilities based upon or arising out of the actual or asserted presence, use, storage, removal, disposal, exposure or alleged exposure to asbestos or asbestos-containing products, materials or substances; "Asbestos Liabilities" (a) with respect to ABB Ltd: ----------------------- (i) all Liabilities of the CE Companies as of the Closing Date for past, present or future Asbestos Claims, regardless of when such Liabilities may be discovered or asserted by claimants; (ii) without limitation of clause (i), all Liabilities of or against, or incurred by, either of the CE Companies (or any of their direct or indirect predecessors or any of their direct or indirect successors or assigns after the Settlement Closing Date) in connection with any past, present or future Asbestos Claims, except for such Asbestos Claims which arise solely out of or relate solely to the operations of the CE Companies between the Closing Date and the Settlement Closing Date ("INTERIM PERIOD ASBESTOS LIABILITIES"), regardless of when such claims may be discovered or asserted by claimants; (iii) all Liabilities of the ABB Ltd Transferred Companies other than the CE Companies, as of the date each such ABB Ltd Transferred Company became a member of the JC Group, for past, present or future Asbestos Claims, regardless of when such Liabilities may be discovered or asserted by claimants; (iv) all Liabilities of or against, or incurred by, any ABB Ltd Transferred Company other than the CE Companies in connection with any Asbestos Claims which arise out of or relate to the operations of such ABB Ltd Transferred Company (or any of its direct or indirect predecessors or Affiliates), or any other event, operation, act or failure to act occurring, or other condition or state of facts existing with respect to such ABB Ltd Transferred Companies, in each case prior to the date as of which such ABB Ltd Transferred Company became a member of the JC Group, regardless of when such Liabilities may be discovered or asserted by claimants; and 2 (v) all Liabilities of or against, or incurred by, any ALSTOM Indemnified Party or any JC Indemnified Party, to the extent directly or indirectly based upon or arising out of (A) any of the Liabilities described in the foregoing clauses (i)-(iv) of this definition (including, without limitation, by reason of any actual or asserted assumption of, or any form of joint and several or contributory liability for, any of the actual or asserted Liabilities described in any of such foregoing clauses), or (B) any of the actual or asserted events, conditions, occurrences, operations, acts or omissions forming the basis of the claims described in clause (A) above, regardless of when such Liabilities may be discovered or asserted by claimants, BUT EXCLUDING, HOWEVER, for all purposes of this clause (v), any Interim Period Asbestos Liabilities. (b) with respect to ALSTOM: ---------------------- (i) all "Post-Closing Asbestos Liabilities," as defined in the CE Asset Purchase Agreement; (ii) all Liabilities of the ALSTOM Transferred Companies, as of the date each such ALSTOM Transferred Company became a member of the JC Group, for past, present or future Asbestos Claims, regardless of when such claims may be discovered or asserted by claimants; (iii) all Liabilities of or against, or incurred by, any ALSTOM Transferred Company in connection with any Asbestos Claims which arise out of or relate to the operations of such ALSTOM Transferred Company (or any of its direct or indirect predecessors or Affiliates), or any other event, operation, act or failure to act occurring, or other condition or state of facts existing, in each case prior to the date as of which such ALSTOM Transferred Company became a member of the JC Group, regardless of when such Liabilities may be discovered or asserted by claimants; and 3 (iv) all Liabilities of or against, or incurred by, any ABB Ltd Indemnified Party, to the extent directly or indirectly based upon or arising out of (A) any of the Liabilities described in the foregoing clauses (i), (ii) and (iii) of this definition (including, without limitation, by reason of any actual or asserted assumption of, or any form of joint and several contributory liability for, any of the actual or asserted Liabilities described in either of such foregoing clauses), or (B) any of the actual or asserted events, conditions, occurrences, operations, acts or omissions forming the basis of the claims described in clause (A) above, regardless of when such Liabilities may be discovered or asserted by claimants; in the case of each of clauses (i), (ii), (iii) and (iv), other than any Asbestos Liabilities with respect to ABB Ltd; "CE Asset Purchase Agreement" the Asset Purchase Agreement dated as of December 29, 1999 between Combustion Engineering, Inc. and ABB ALSTOM Power Inc.; "CE Reorganization Liabilities" all Liabilities under any bankruptcy, insolvency, receivership, fraudulent conveyance, fraudulent transfer, bulk sales or transfer or other similar law with respect to the transactions effected under the CE Asset Purchase Agreement, except to the extent that such Liabilities constitute "Assumed Liabilities," as defined under the CE Asset Purchase Agreement or Taxes for which Asea Brown Boveri Inc. ("ABB Inc.") is indemnified under the Stock Purchase Agreement dated April 1, 2000 between ABB ALSTOM Power Inc. and ABB Inc., all of which shall be excluded from "CE Reorganization Liabilities" hereunder; "Claim" a claim or demand for indemnification pursuant to this Annex E; "Claim Notice" notice of a Claim given by an Indemnified Party under this Annex E; "Dispute Notice" notice by the Indemnifying Party timely disputing the recoverability of any damages with respect to a Claim; 4 "Dispute Period" the period within forty five (45) days following receipt of a Claim Notice; "Excluded Liabilities" in the case of ABB Ltd, the ABB Ltd Excluded Liabilities and in the case of ALSTOM, the ALSTOM Excluded Liabilities; "GE Liabilities" Liabilities of ABB Ltd or any of its Subsidiaries, and any demands, proceedings or judgements brought or established by GE or any of its Subsidiaries against ABB Ltd or any of its Subsidiaries arising out of or in connection with any breach or alleged breach of the Undertakings and Indemnity Agreement or of the Transaction Agreement, to the extent that such breach has not been caused by ABB Ltd or any of its Subsidiaries; "Guarantee Liabilities" Liabilities of the ABB Ltd Group arising out of or in connection with (i) any ABB Ltd Business Guarantees or (ii) any ABB Ltd Business Contracts Guarantee; "Indemnified Compliance Costs" ABB Ltd's share of Compliance Costs as provided in Annex G hereto; "Indemnified Party" in respect of a Party, that Party and each Affiliate of that Party, and the respective officers, directors, employees, stockholders, agents and representatives of that Party and each such Affiliate; "Indemnifying Party" the Party indemnifying an Indemnified Party under this Agreement; "JC Indemnified Parties" the Indemnified Parties with respect to the JC; "JC Post-Closing Liabilities" all Liabilities arising out of the ownership, management or operation of or conduct of the Businesses by the JC from and after the Settlement Closing Date; "Non-Business Liabilities" (a) with respect to ABB Ltd: ----------------------- (i) all Liabilities of the ABB Ltd Group to the extent they are not Liabilities of the ABB Ltd Business; 5 (ii) all Liabilities of the ABB Ltd Transferred Companies as of the respective dates such companies became or become (as the case may be) members of the JC Group to the extent they are not Liabilities of the ABB Ltd Business; (iii) the "Excluded Liabilities," as defined in the CE Asset Purchase Agreement (including, without limitation, the CE Specified Debt); (iv) all Liabilities, to the extent they are not Liabilities of the ABB Ltd Business, which arise out of or relate to any Asset (other than an ABB Ltd Transferred Company) formerly constituting an Asset of the ABB Ltd Group that directly or indirectly became or becomes an Asset of the JC Group pursuant to the Joint Venture Agreement or this Agreement (including, without limitation, any ABB Ltd Post-Settlement Transferred Asset that becomes an Asset of the JC Group pursuant to this Agreement), and which existed as of the date such Asset so directly or indirectly became or becomes an Asset of the JC Group pursuant to the Joint Venture Agreement or this Agreement; and (v) all Liabilities for Taxes imposed on any consolidated, combined or unitary group in which ABB Ltd or any of its Affiliates (including without limitation the ABB Ltd Transferred Companies and the CE Companies) is included (other than a group consisting solely of ABB Ltd Transferred Companies and/or the CE Companies), except for any such Taxes for periods after December 31, 1998 that are fairly attributable to the ABB Ltd Transferred Companies; (vi) all Liabilities of the ABB Ltd Transferred Companies and the CE Companies for Taxes as of the Closing Date, including any deferred or contingent Taxes, save to the extent reflected in the ABB Ltd Business 1998 Accounts and except for liability for Taxes incurred consistent with the Joint Venture Agreement with respect to the period after December 31, 1998; 6 (vii) all Liabilities for Taxes relating to Assets transferred back to the ABB Ltd Group in Section 13.2 of this Agreement, including, without limitation, any Taxes incurred in connection with the return of such Assets to ABB Ltd; and (b) with respect to ALSTOM: (i) all Liabilities of the ALSTOM Group to the extent they are not Liabilities of the ALSTOM Business; (ii) all Liabilities of the ALSTOM Transferred Companies as of the respective dates such companies became members of the JC Group to the extent they are not Liabilities of the ALSTOM Business; (iii) all Liabilities, to the extent they are not Liabilities of the ALSTOM Business, which arise out of or relate to any Asset (other than an ALSTOM Transferred Company) formerly constituting an Asset of the "ALSTOM Group" that directly or indirectly became an Asset of the JC Group pursuant to the Joint Venture Agreement, and which existed as of the date such Asset so directly or indirectly became an Asset of the JC Group pursuant to the Joint Venture Agreement; (iv) all Liabilities for Taxes imposed on any consolidated, combined or unitary group in which ALSTOM or any of its Affiliates (including without limitation the ALSTOM Transferred Companies) is included (other than a group consisting solely of ALSTOM Transferred Companies), except for any such Taxes for periods after December 31, 1998 that are fairly attributable to the ALSTOM Transferred Companies; (v) all Liabilities of the ALSTOM Transferred Companies for Taxes as of the Closing Date, including any deferred or contingent Taxes, save to the extent reflected in the ALSTOM Business 1998 Accounts (as defined in the Joint Venture Agreement) and except for liability for Taxes incurred consistent with the Joint Venture Agreement with respect 7 to the period after December 31, 1998; and "Non-Transferred Assets Liabilities" all Liabilities arising out of (i) any Non-Listed ABB Ltd Post-Settlement Closing Transferred Assets other than any such Transferred Assets that are in fact directly or indirectly transferred to the JC Group pursuant to Article 10 of this Agreement or (ii) any Disposable Assets; "Nuclear Liabilities" (i) without limitation of clause (ii) with respect to the CE Companies, all "Nuclear Liabilities," as that term is defined in the CE Purchase Agreement, and (iii) all Liabilities to any extent arising out of or relating to (1) the actual or asserted possession, use or disposal of, or contamination by, any Hazardous Substances of a nuclear, radioactive, or transuranic nature, including, without limitation, spent nuclear fuel, (A) at or on any of the ABB-Contributed Real Property or the Windsor Site as of the date such site was transferred to the JC, (B) by any ABB Ltd Transferred Company (or any of its predecessors or Affiliates) at any time prior to the date such ABB Ltd Transferred Company became a member of the JC Group, or (C) by any CE Company or any of its predecessors or Affiliates) at any time prior to the Closing Date, in each case to the extent that the same was owned, leased or operated by the ABB Ltd Group (or any of its predecessors) in connection with the nuclear energy/power generation business conducted or formerly conducted by the ABB Ltd Group (the "NUCLEAR POWER BUSINESS"); "Reorganisations Liabilities" costs or expenses or Liabilities with respect to Taxes, arising out of or in connection with (i) the carrying into effect of or consummating the Reorganisations or (ii) any direct or indirect transfer of Parties Transferred Companies, or other Assets of the ABB Ltd Business or the ALSTOM Business, as the case may be, to the JC Group pursuant to the Joint Venture Agreement or this Agreement; "Resolution Period" the thirty (30) day period following receipt by an Indemnified Party of a Dispute Notice; 8 "Third Party Claim" any Claim in respect of any claim or demand against an Indemnified Party by any third party; "Transaction Agreement" the agreement entered into between ALSTOM S.A. and GE pursuant to which ALSTOM S.A. agreed to sell and GE agreed to buy, ALSTOM S.A.'s heavy duty gas turbine business; "Warranties Breach" as defined in Section 4 of this Annex E; "Windsor Site" as defined in the CE Asset Purchase Agreement"; "Windsor Site Liabilities" as defined in the CE Asset Purchase Agreement.
2 JC POST-CLOSING LIABILITIES 2.1 ALSTOM and the JC shall jointly and severally indemnify and hold harmless the ABB Ltd Indemnified Parties, from and against any JC Post-Closing Liabilities. 2.2 Section 2.1 shall become effective automatically upon consummation of the Settlement Closing. 3 EXCLUDED LIABILITIES 3.1 ABB Ltd shall indemnify and hold harmless the ALSTOM Indemnified Parties and the JC Indemnified Parties from and against any ABB Ltd Excluded Liabilities. 3.2 ALSTOM shall indemnify and hold harmless the ABB Ltd Indemnified Parties from and against any ALSTOM Excluded Liabilities. 3.3 Sections 3.1 and 3.2 shall become effective automatically upon consummation of the Settlement Closing. 4 GENERAL INDEMNIFICATION OBLIGATIONS (a) Subject to the limitations of liability in respect of the Warranties set forth in Part B of Annex K, ABB Ltd shall indemnify and hold harmless the ALSTOM Indemnified Parties and the JC Indemnified Parties from and against any Liabilities, to the extent arising out of, resulting from, based upon or in connection with (i) any breach or inaccuracy of the representations or warranties of ABB Ltd, or of any of ABB Ltd's Affiliates as of the date hereof or as of the Settlement Closing Date, set forth in this Agreement (including without limitation in Annex K hereto) or in any Settlement Document (as if such representations and warranties were made and given, exactly as written in this Agreement (including without limitation Annex K hereto) or such other Settlement Document as the case may be, on the date hereof, on the Settlement Closing Date and (in the case of the representations and warranties set forth in Annex K hereto and solely with respect to the specific ABB Ltd Post-Settlement Closing Transferred Asset then 9 the subject of a transfer) as of immediately prior to each transfer of an ABB Ltd Post-Closing Transferred Asset pursuant to this Agreement) (any of the foregoing, an "ABB Ltd Warranties Breach"), (ii) any breach, by ABB Ltd, or by any of ABB Ltd's Affiliates as of the date hereof or as of the Settlement Closing Date, of any of the covenants made by ABB Ltd or any such Affiliate in this Agreement (including, without limitation, Article 12.1 of this Agreement in respect of ABB Ltd Post-Settlement Closing Transferred Assets) or any other Settlement Document or (iii) any act or omission of any member of the ABB Ltd Group on or after January 1, 1999 which, if Article 8.1(a) of this Agreement had then been in effect, would have violated said Article 8.1(a). (b) Subject to the limitations of liability in respect of the Warranties set forth in Part B of Annex K, ALSTOM shall indemnify and hold harmless the ABB Ltd Indemnified Parties from and against any Liabilities to the extent arising out of, resulting from, based upon or in connection with (i) any breach or inaccuracy of the representations or warranties of ALSTOM, or of any of ALSTOM's Affiliates as of the date hereof or as of the Settlement Closing Date, set forth in this Agreement or in any Settlement Document (as if such representations and warranties were made and given, exactly as written in this Agreement, or such other Settlement Document as the case may be, on the date hereof and on the Settlement Closing Date) (any of the foregoing, an "ALSTOM Warranties Breach"; any ABB Ltd Warranties Breach or any ALSTOM Warranties Breach, a "Warranties Breach"), (ii) any breach, by ALSTOM or any of ALSTOM's Affiliates as of the date hereof or as of the Settlement Closing Date, of any of the covenants made by ALSTOM or any such Affiliate in this Agreement or any other Settlement Document, (iii) any breach or inaccuracy of any of the representations and warranties made by the JC in this Agreement with respect to the JC Release and (iv) any breach by the JC of any of its covenants in this Agreement to be performed after the Settlement Closing Date. (c) For purposes of this Section 4, the CE Companies shall be deemed to be "Affiliates" of ABB Ltd, and not to be "Affiliates" of ALSTOM, as of the date hereof and on the Settlement Closing Date. 5 REORGANISATIONS LIABILITIES Each of ALSTOM and ABB Ltd shall indemnify and hold harmless the other and each member of the other's Group and the JC Group from and against any Reorganisations Liabilities of the Parties Transferred Companies of such Party. 6 GE LIABILITIES 6.1 ALSTOM shall indemnify and hold harmless each ABB Ltd Indemnified Party from and against any GE Liabilities. 6.2 Section 6.1 shall become effective automatically upon consummation of the Settlement Closing. 10 7 GUARANTEE LIABILITIES 7.1 The JC and ALSTOM shall jointly and severally indemnify and hold harmless the ABB Ltd Indemnified Parties from and against any Guarantee Liabilities. 7.2 Section 7.1 shall become effective automatically upon consummation of the Settlement Closing. 8 INCONSISTENCY To the extent of any inconsistency between either of Sections 2 and 3 of this Annex E and the other Sections of this Annex E, the other Sections prevail. To the extent of any inconsistency between Section 3.1 of this Annex E, and Annex G, Section 3.1 shall prevail. 9 CLAIMS 9.1 Subject to Sections 10.1 and 11 below, an Indemnified Party making a Claim shall: (a) provide the Indemnifying Party with a Claim Notice; and (a) make available to the Indemnifying Party all relevant information which is material to the Claim, which is in the possession of the Indemnified Party, and which may be specifically requested by the Indemnified Party from time to time. 9.2 If a Claim is a Third Party Claim, the Indemnified Party shall deliver the relevant Claim Notice with reasonable promptness to the Indemnifying Party, provided that any failure of an Indemnified Party to do so shall not release the Indemnifying Party from its obligations under this Annex E except with respect to such Third Party Claim and then only to the extent it actually is prejudiced by such failure. The Indemnifying Party will notify the Indemnified Party in writing as soon as practicable, but in any event during the Dispute Period, whether the Indemnifying Party disputes the claim of the Indemnified Party in whole or in part and whether the Indemnifying Party desires, without cost or expense to the Indemnified Party, to assume the defense of such Third Party Claim. 10 PROCEEDINGS 10.1 Except as provided in this Section 11, if the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to assume the defense of a Third Party Claim, the Indemnifying Party shall have the right and obligation to defend such Third Party Claim by all appropriate proceedings. 10.2 Proceedings shall be diligently prosecuted by the Indemnifying Party to a final conclusion or shall be settled at the discretion of the Indemnifying Party, but only with the consent of the Indemnified Party in the case of any settlement: (a) that provides for any relief other than the payment of monetary damages; or 11 (b) that may materially adversely affect the Indemnified Party, which consent shall not be unreasonably withheld or delayed. Except as provided above, the Indemnifying Party shall have full control of such defense and proceedings, including any settlement. 10.3 If requested by the Indemnifying Party, the Indemnified Party shall, at no cost to the Indemnified Party, cooperate with the Indemnifying Party and its counsel: (b) in contesting any Third Party Claim the defense of which the Indemnifying Party has assumed in accordance with this Section 11; or (c) if appropriate and related to the Third Party Claim in question, in making any counterclaim against the person asserting the Third Party Claim or any cross-complaint against any person (other than the Indemnified Party or any of its Affiliates) with respect to the subject matter of the Third Party Claim in question. 10.4 The Indemnifying Party shall in any event keep the Indemnified Party reasonably informed as to the nature and conduct of any Third Party Claim with respect to which it controls the defense and the Indemnified Party shall be afforded an opportunity to monitor developments in connection with such Claim at its sole cost and expense. 10.5 The Indemnified Party may: (d) at its sole cost and expense, retain or take over the control of the defense or settlement of any Third Party Claim the defense of which the Indemnifying Party has elected to control, if the Indemnified Party irrevocably waives in writing its right to recover any damages under this Agreement with respect to such Third Party Claim; (e) at the cost and expense of the Indemnifying Party, retain separate counsel to represent it in, but not control, any defense or settlement undertaken by the Indemnifying Party pursuant to this Section 11 if outside counsel to the Indemnified Party reasonably advises the Indemnified Party and the Indemnifying Party in a written opinion that joint representation of such parties by a single counsel raises a potential conflict of interest; (f) if the proceeding involves a matter solely of concern to the Indemnified Party which is in addition to the claim for which indemnification under this Section 11 is being sought, have the right to control the defense and settlement of such additional claim at its own cost and expense and with its own counsel; and (g) settle and compromise any Claim only with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. 12 11 NET OBLIGATIONS The indemnity obligations of the Parties under this Annex E shall be net of any accruals or reserves reflected in the ABB Ltd Business 1998 Accounts and the ALSTOM Business 1998 Accounts. Further , any indemnification payments made hereunder shall be reduced to take into account any Tax Benefits currently realized by the Indemnified Party arising in respect of the Liabilities covered by such indemnification, net of any additional Taxes required to be paid by the Indemnified Party as a result of receipt or accrual of the indemnity payment, it being understood and agreed that, except as otherwise required by law, the parties intend to treat any indemnification payment as a contribution to capital or adjustment to purchase price. 12 INSURANCE The obligations of any Indemnifying Party under this Agreement (including without limitation this Annex E) shall be determined without regard to any insurance held by, or otherwise for the benefit of, any Indemnified Party. 13 COMPLIANCE COSTS For the avoidance of doubt, Section 10 above shall not apply to any Compliance Order (as defined in Annex G.) 13 ANNEX F EMPLOYEES, EMPLOYEE BENEFITS AND PENSION PROVISIONS PART A: PROVISIONS RELATING TO FUTURE TRANSFER OF EMPLOYEES The following provisions shall apply with respect to the employees associated with any ABB Ltd Post-Settlement Closing Transferred Assets ("employees"): 1. Only employees of the ABB Ltd Business and employees predominantly dedicated to the ABB Ltd Business shall be transferred to the JC Group (except as otherwise agreed between ALSTOM and ABB Ltd ), and then only after ABB Ltd shall have agreed with the JC all material matters relating to the post-transfer benefits to which such proposed transferred employees would be entitled after directly or indirectly becoming a member of the JC Group. Such transferred employees shall receive those pension benefits to which they are entitled under local pension rules or regulations or similar statutory provisions applicable to the place of employment of such employees. 2. Where, pursuant to paragraph 1, the employment of any of the employees is to be transferred from any member of the ABB Ltd Group to the ABB Ltd Transferred Companies as members of the JC Group: (i) if such transfers take place in jurisdictions where the EU Acquired Rights Directive or similar legislation has effect, the Parties accept that the transfers will be governed by such legislation and the members of the ABB Ltd Group and the ABB Ltd Transferred Companies will give effect to it; (ii) if such transfers take place in other jurisdictions the transfers will be made on the basis that the ABB Ltd Transferred Companies will offer employment and provide benefits as from the date of transfer substantially equivalent to those on which the relevant employees are currently employed. PART B: PROVISIONS RELATING TO EMPLOYEE BENEFITS AND PENSIONS 3. Forthwith after the signing of the Agreement, ALSTOM and ABB Ltd will establish a joint team comprising representatives of each of ALSTOM and ABB Ltd and appropriate professional advisers of each of them to perform the following tasks: (i) to review all plans and arrangements currently providing any retirement benefits and/or benefits on termination of employment and/or medical and death benefits and/or stock options or similar benefits for or in respect of employees and former employees of the ABB Ltd Business ("benefit plans"); and (ii) to advise ALSTOM and ABB Ltd as to the basis on which benefits should be provided to the employees of the ABB Ltd Business following the Settlement Closing. 4. In carrying out its functions the joint team shall have regard to the following considerations: (i) that it will be desirable that employees will enjoy substantially equivalent benefits after the Settlement Closing as before, but that it will also be desirable to integrate the nature and level of the benefits to all employees of the JC Group located within the same jurisdiction as soon as practicable after the Settlement Closing; (ii) that, consistent with the following provisions, it will be desirable that the JC Group provides its own benefit plans independent of ABB Ltd as soon as practicable after the Settlement Closing; (iii) accordingly, that: (a) each existing ABB Ltd benefit plan which relates solely to the employees and former employees of the ABB Ltd Business which may be freely assigned to the JC should be so assigned as soon as practicable; (b) where such a plan is not assignable the JC should as soon as practicable establish its own plan providing substantially equivalent benefits; (c) where an existing ABB Ltd benefit plan does not relate solely to the employees or former employees of the ABB Ltd Business, arrangements should be made where possible to permit such employee after the Settlement Closing to continue participation in that plan until such time as it is practicable and appropriate for that JC to establish its own plan; and (d) in relation to any plan which is a funded plan which cannot be assigned to the JC, appropriate arrangements should be made where possible to divide and transfer plan assets; (iv) that the cost of providing benefits to employees of the JC Group after the Settlement Closing shall be borne by the JC which shall refund to ABB Ltd the cost of the continued participation in any benefit plans of ABB Ltd. PART C: UNITED STATES EMPLOYEES 5. ABB Ltd shall, after the Settlement Closing Date, continue to provide benefits coverage and administrative services under all benefit plans which currently cover employees or former employees of the ABB Ltd Business in the United States until (i) December 31, 2000, or (ii) any earlier date specified in writing by ALSTOM on at least thirty (30) days prior notice to ABB Ltd. 6 Nothing in this Annex F or the Agreement shall limit ALSTOM's right to terminate the employment of any ALSTOM employee or its benefit plans. 2 ANNEX G REAL ESTATE PROVISIONS 1.1 DEFINED TERMS. As used in this Annex G, the following terms shall have the following meanings: "ABB LTD-CONTRIBUTED REAL PROPERTY" means any real property which (or a leasehold interest in which) prior to the Closing Date was owned by any member of the ABB Ltd Group and heretofore was or hereafter is transferred to a member of the JC Group, whether directly or as part of any ABB Ltd Transferred Company (or a CE Company), including any ABB Ltd Post-Settlement Closing Transferred Assets. "ALSTOM-CONTRIBUTED REAL PROPERTY" means any real property which prior to the Closing Date was owned by any member of the ALSTOM Group and heretofore or hereafter transferred to a member of the JC Group, whether directly or as part of any ALSTOM-Transferred Company. "COMPLIANCE COSTS" shall mean the costs and expenses (including fines and penalties) incurred by a party or any of its Affiliates pursuant to a Compliance Order, as applicable. "COMPLIANCE ORDER" means an order, directive or similar action issued or taken by a Regulatory Authority having competent jurisdiction over any Real Property (or the ordinary course operations conducted thereat as of the date of such property's transfer to the JC Group) (i) to remove, remediate or cleanup any Environmental Condition, (ii) to bring such ABB Ltd-Contributed Real Property (or the ordinary course operations conducted thereat as of the date of its transfer to the JC Group) into compliance with Environmental Laws applicable to such property, or (iii) to pay fines or penalties as a consequence of such non-compliance. "ENVIRONMENTAL CONDITION" shall mean any Hazardous Substance condition existing on, at, under or over any ABB Ltd-Contributed Real Property as of the date of its transfer to the JC Group. "ENVIRONMENTAL LAW" means the local, county, state, provincial and/or federal laws (including common law), regulations or other legally binding requirements of any jurisdiction in which the Alstom-Contributed Real Properties or the ABB Ltd-Contributed Real Properties are located and which govern the existence of or provide a remedy for release or emissions of Hazardous Substances, or which relate to the protection of persons, natural resources or the environment, the management of Hazardous Substances, or other activities involving Hazardous Substances, as such laws have been amended or supplemented, in each case as in effect on or prior to the Closing Date, except that, with respect to the obligations of the JC pursuant to Paragraph 1.4, "Environmental Law" shall mean and include all of the foregoing as in effect from time to time. "HAZARDOUS SUBSTANCE" means any substance, material or waste that is regulated under any Environmental Law or is deemed by any Environmental Law to be "hazardous, "toxic," a "contaminant," "waste" or a "pollutant" (or words with similar meaning) and shall include, without limitation, petroleum or petroleum products, PCB's, PCB wastes, asbestos, asbestos containing products and radioactive substances. "JC REAL PROPERTIES" means the Real Properties and any other real property owned or held by the JC Group as of, or prior to, the Settlement Closing Date. "REAL PROPERTIES" means, collectively, the ALSTOM-Contributed Real Properties, the ABB Ltd-Contributed Real Properties and the JC Real Properties. "REMEDIAL ACTION" shall mean any action required to be taken pursuant to a Compliance Order. 1.2 ABB LTD SHARE OF COMPLIANCE COSTS. (a) ABB Ltd and ALSTOM shall each share, in the manner specified in Paragraph 1.2(b) below, in the Compliance Costs incurred by the ALSTOM Group in connection with any Remedial Actions undertaken at any ABB Ltd-Contributed Real Property. (b) With regard to Compliance Costs incurred by the ALSTOM Group which are to be shared pursuant to Paragraph 1.2(a) above, ABB Ltd shall pay (or reimburse the relevant member of the ALSTOM Group for) 50% of such Compliance Costs up to the initial aggregate amount of Ten Million Dollars ($10,000,000). To the extent that such Compliance Costs exceed Ten Million Dollars ($10,000,000) in the aggregate, ABB Ltd shall pay (or reimburse the relevant member of the ALSTOM Group for) 100% of the Compliance Costs in excess of Ten Million Dollars ($10,000,000) up to the maximum aggregate amount of Fifty Million Dollars ($50,000,000), including, for purposes of determining such maximum aggregate amount, ABB Ltd's 50% share (but excluding, for purposes of determining such maximum aggregate amount, ALSTOM's 50% share) of the initial Ten Million Dollars ($10,000,000) of Compliance Costs incurred by the parties pursuant to this Paragraph 1.2(b). For the avoidance of doubt, in no event shall the maximum aggregate liability of ABB Ltd to pay or reimburse the JC for Compliance Costs incurred by it under this Annex G exceed the amount of Fifty Million Dollars ($50,000,000). (c) Notwithstanding anything to the contrary in this Annex G, ABB Ltd shall not be obligated to pay or reimburse any member of the JC Group for Compliance Costs under this Annex G to the extent that such Compliance Costs were accrued or reflected in the ABB Ltd Business 1998 Accounts attached to Annex E. For the avoidance of doubt, ABB Ltd's obligations under this Paragraph 1.2 shall exclude all Compliance Costs to the extent arising out of or relating to periods from and after the Closing Date or, if applicable, any later date of transfer. ABB Ltd shall indemnify and hold harmless each member of the ALSTOM Group from and against any Liabilities arising out of any breach of its obligations under this Annex G in accordance with Annex E. (d) In connection with Compliance Costs incurred by the ALSTOM Group any portion of which ABB Ltd is obligated to pay or reimburse to ALSTOM hereunder, the ALSTOM Group shall act in good faith and use reasonably prudent business practices consistent 2 with achieving compliance with Environmental Law in the place where the ABB Ltd-Contributed Real Property at which such actions are being carried out is located. 1.3 JC REMEDIAL ACTIONS. The JC shall be responsible for bringing all Real Properties into compliance with Environmental Laws (and maintaining such compliance), and remediating all Environmental Conditions, from and after the Closing Date (or, if applicable, such later date of transfer to the JC Group). For the avoidance of doubt, the JC's obligations under this Paragraph 1.3 shall include, without limitation, all Liabilities arising out of or relating to periods from and after (but not prior to) the Closing Date (or, if applicable, such later date of transfer to the JC Group) for non-compliance matters which existed at any of the ALSTOM-Contributed Real Properties or the ABB Ltd-Contributed Real Properties as of the Closing Date (or, if applicable, such later date of transfer to the JC Group) or arose after the Closing Date (or, if applicable, such later date of transfer to the JC Group). The JC shall discharge or pay all Liabilities incurred in connection with the performance of its obligations under the preceding sentence. ALSTOM shall indemnify and hold harmless (on an after-tax basis, if applicable) each member of the ABB Ltd Group from and against any Liabilities arising out of any breach of its obligations under this Annex G. Nothing in this Paragraph 1.3 shall limit or affect ABB Ltd's obligations under Paragraphs 1.2 (a) and (b), even if such obligations require ABB Ltd to make reimbursement payments in respect of actions taken by the ALSTOM Group pursuant to this Paragraph 1.3. 1.4 CERTAIN LIMITATIONS. The obligations of ABB Ltd under this Annex G shall be subject to the following restrictions and limitations: (a) ABB Ltd shall only be liable for Compliance Costs under this Annex G to the extent (i) mandated by a Compliance Order and (ii) received by the ALSTOM Group prior to the second anniversary of the Settlement Closing Date. ABB Ltd shall not be liable for any incremental Compliance Costs under this Annex G to the extent that the same are attributable to any changes in Environmental Laws occurring from and after the Closing Date. (b) ABB Ltd shall be obligated to pay or reimburse the ALSTOM Group for only the least expensive approaches and measures for correcting or abating any specific instance of non-compliance with Environmental Laws or Environmental Conditions, as applicable, that substantially comply with the relevant Compliance Order and are reasonably available in respect of each matter for which ABB Ltd is obligated to pay Compliance Costs hereunder. If ALSTOM or its Affiliates undertakes any approaches or measures that are more expensive than such least expensive approach, then ABB Ltd shall be liable only for the amounts that it would have been responsible for had such least expensive approaches and measures been employed. (c) ALSTOM shall permit (and shall cause the JC and any other Affiliates to permit) ABB Ltd and its representatives, agents and contractors reasonable access to the ABB Ltd-Contributed Real Properties to permit ABB Ltd to assess and monitor its obligations and the activities of the JC hereunder. Prior to starting any work for which it wishes to seek repayment of Compliance Costs from ABB Ltd hereunder, ALSTOM shall provide ABB Ltd and/or its representatives with a plan of such activities and an estimate of the costs thereof, and thereafter shall keep ABB Ltd reasonably informed as to the progress of such remediation. 3 1.5 ENVIRONMENTAL TESTING. (a) Except as provided in Paragraph 1.6(b) below, the JC and ALSTOM agree that, subsequent to the execution of this Agreement, neither the JC, ALSTOM nor their respective Affiliates or representatives (including, without limitation, any member of the JC Group) shall conduct any environmental testing, assessments, audits, inspections, soil, water, or air sampling, or any other form of evaluation of the ABB Ltd-Contributed Real Properties in respect of such properties' compliance with Environmental Laws or the existence of Environmental Conditions on, under, around or above such sites ("Environmental Testing"). The restriction set forth in the preceding sentence shall remain in force so long as ABB Ltd is obligated to pay Compliance Costs under this Annex G. (b) Notwithstanding Paragraph 1.6(a), the JC shall be entitled, upon prior written notice to ABB Ltd (to the extent that such prior written notice is reasonably practicable under the circumstances), to conduct Environmental Testing at the ABB Ltd-Contributed Real Properties if, and to the extent, that such Environmental Testing is (or in the good faith judgment of ALSTOM or any applicable Affiliate is): (i) required by an Environmental Law applicable to such a site; (ii) reasonably necessary to ensure compliance with an Environmental Law applicable to such site, but only if the JC has received written information from a Regulatory Authority indicating that such site may not be in compliance with an Environmental Law applicable to such site, or as reasonably necessary (in the good faith judgment of ALSTOM and its Affiliates) to address any risk of harm to human health or safety or of harm to property; (iii) mandated by a Regulatory Authority having competent jurisdiction over such site or over an Environmental Law applicable to such site; (iv) reasonably requested by an unaffiliated third party seeking to assume or purchase an interest in such site in a bona fide transaction; (v) reasonably requested by an unaffiliated bank or similar institutional lender in connection with a bona fide proposed financing or borrowing transaction of the JC; or (vi) reasonably necessary in connection with attempting to settle any bonafide third-party claim or legal proceeding made or instituted by a third party, if and to the extent that such Environmental Testing is directly relevant to the subject matter of such claim or legal proceeding. (c) ABB Ltd shall not be responsible for any Compliance Costs which arise from or relate to a Compliance Order resulting from, directly or indirectly, any Environmental Testing undertaken in breach of this Paragraph 1.5. 1.6 RESTRICTIONS ON REMEDIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS ANNEX G, IN NO EVENT SHALL ANY INDEMNIFYING PARTY BE LIABLE TO ANY INDEMNIFIED PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY MATTER FOR WHICH THE INDEMNIFYING PARTY IS OBLIGATED TO INDEMNIFY UNDER THIS ANNEX G. 1.7 ENTIRE OBLIGATION. This Annex G sets forth the entire obligation of ABB Ltd to ALSTOM or its Affiliates with respect to Compliance Orders and Compliance Costs; provided however, that nothing in this Annex G shall limit any liability or obligation that any member of the ALSTOM Group, the ABB Ltd Group or the JC Group may have to each other pursuant to the obligations set forth in Annex E or under the CE Asset Purchase Agreement. 1.8 ABB LTD EXCLUDED LIABILITIES. This Annex G shall not apply with respect to Environmental Conditions, Compliance Orders and Compliance Costs at the "Windsor Site" or 4 in respect of any "Windsor Site Liabilities" (as defined in the CE Asset Purchase Agreement), any Nuclear Liabilities or any other ABB Ltd Excluded Liabilities (other than Indemnified Compliance Costs), all of which shall be indemnified by ABB in accordance with the provisions of Annex E. None of such other ABB Ltd Excluded Liabilities shall be counted against the dollar amounts set forth in Paragraph 1.2(b) above. 1.9 EFFECTIVENESS. This Annex G shall be effective automatically upon the occurrence of the Settlement Closing. 5 ANNEX H WORKING PRINCIPLES BETWEEN ALSTOM, ABB LTD AND THE JC IN THE FIELD OF POWER GENERATION PROJECT DEVELOPMENT, PROJECT FINANCE/STRUCTURED FINANCE, PROJECT INVESTMENT 1 PRINCIPLE OF FREEDOM OF ACTION All Parties are free to engage in the above activities for their own account and/or in conjunction with any third party, subject to the following restrictions, provided that it is understood and agreed that this paragraph 1 is an exception only to paragraph 3 of, and not to any other paragraph of, Schedule 15.1 to this Agreement (Prohibited Activities). 1.1 PRINCIPLE OF PREFERENCE TO THE JC Whenever a member of the ALSTOM Group or the ABB Ltd Group lead develops (or contributes to lead develop) a turnkey power plant project (a "Project"), the JC is given an option of first refusal for all EPC contracts and related EPC service contracts in relation to the Project, provided that such contracts have not been awarded prior to such involvement by a member of the ALSTOM Group or the ABB Ltd Group. 1.2 PRINCIPLE OF CONSULTATION PREFERENCE TO PARENTS Whenever the JC acts as lead developer and/or lead finance arranger for a Project above $100 million, both ALSTOM's and ABB Ltd's financial services units will be consulted by the JC, so as to allow them to offer to provide the JC project finance services on an arm's length basis. ANNEX K WARRANTIES PART A: WARRANTIES ABB Ltd hereby represents and warrants severally to each of (i) the JC and (ii) ALSTOM as set forth in the numbered paragraphs below (collectively, the "Warranties"). ABB Ltd shall be deemed to have remade the Warranties set forth in Sections 1(b), (c) and (d), 2 and 3 of this Part A of Annex K severally to each of the JC and ALSTOM prior to each transfer in respect of ABB Ltd Post-Settlement Closing Transferred Assets, subject to any act done or omitted to be done after the date of this Agreement with the specific written approval of ALSTOM and except as may otherwise be agreed by ALSTOM and ABB Ltd in writing ("Permitted Exceptions"). 1. TITLE (a) A member or members of the ABB Ltd Group have directly or indirectly conveyed to the JC Group good title to all of the shares of the ABB Ltd Transferred Companies, and all other Assets, heretofore conveyed, or intended or required to have been conveyed, directly to the JC by such Group pursuant to the Joint Venture Agreement (the "Directly Conveyed Assets"), free from any Encumbrance (other than a Permitted Encumbrance). One or more of the ABB Ltd Transferred Companies (or one of the CE Companies), heretofore directly or indirectly conveyed to the JC had, as of the Closing Date (or such other date on which any particular such ABB Ltd Transferred Company (or CE Company) was directly or indirectly conveyed to the JC Group), good title to all of the shares of ABB Ltd Transferred Companies, and all other Assets, heretofore conveyed, or intended or required to have been conveyed, directly or indirectly to the JC pursuant to the Joint Venture Agreement (other than the Directly Conveyed Assets), including without limitation all Assets (other than the ABB Ltd Post-Settlement Closing Assets) reflected in the ABB Ltd Business 1998 Accounts (and not disposed of by the ABB Ltd Group prior to the Closing Date in accordance with the Joint Venture Agreement), free from any Encumbrance (other than a Permitted Encumbrance). At the time of the sale of the B/A Shares (as defined in the Joint Venture Agreement) to ALSTOM or members of the ALSTOM Group pursuant to Article 3.3 of the Joint Venture Agreement, the B/A Shareholders (as defined in the Joint Venture Agreement) had, and did convey to the designated members of the ALSTOM Group, good title to the B/A Shares (as defined in the Joint Venture Agreement) subject to no Encumbrances. (b) A member or members of the ABB Ltd Group have, and, at the respective dates on which they are intended or required to be conveyed to a member of the JC Group, will convey to the JC, good title to all of the shares of the ABB Ltd Transferred Companies, and all other Assets intended or required to be conveyed directly to a member of the JC Group by the ABB Ltd Group pursuant to Article 10 of this Agreement (the "Future Directly Conveyed Assets"), free from any Encumbrance (other than a Permitted Encumbrance). (c) One or more of the ABB Ltd Transferred Companies hereafter directly or indirectly conveyed or intended or required to be conveyed to the JC will have, as of the date on which any particular such ABB Ltd Transferred Company is directly or indirectly conveyed or intended or required to be conveyed to the JC Group, good title to all of the shares of ABB Ltd Transferred Companies, and all other Assets, hereafter conveyed or intended or required to be conveyed directly or indirectly to the JC pursuant to this Agreement (other than the Future Directly Conveyed Assets), free from any Encumbrance (other than a Permitted Encumbrance). (d) As of the relevant dates of direct or indirect conveyance or intended or required direct or indirect conveyance specified in the preceding paragraphs, no third party had or will have, as the case may be, (i) any option or other right to acquire any equity interest in the ABB Ltd Transferred Companies conveyed (or intended or required to have been conveyed) to the JC (directly or indirectly) by the ABB Ltd Group, or (ii) any option or other right to acquire any of the Assets (other than ABB Ltd Transferred Companies) conveyed (or intended or required to have been conveyed) to the JC directly or indirectly through the ABB Ltd Transferred Companies by the ABB Ltd Group and material to the ABB Ltd Business, except (in the case of this clause (ii)) pursuant to a Permitted Encumbrance. 2. CORPORATE AUTHORITY, ETC (a) At the time of execution of the Joint Venture Agreement and the Shareholders Agreement, respectively, each of the parties thereto (other than ALSTOM and the JC) had the requisite corporate power and corporate authority to execute and deliver the Joint Venture Agreement and the Shareholders Agreement, respectively, to perform its obligations thereunder and to consummate the transactions provided for thereby. At the time of execution of the Joint Venture Agreement and the Shareholders Agreement, respectively, the execution, delivery and performance of the Joint Venture Agreement and the Shareholders Agreement, respectively, had been duly authorized by all necessary corporate action of each of the parties thereto (other than ALSTOM and the JC) (including without limitation any necessary shareholder action). At the time of execution of the Joint Venture Agreement and the Shareholders Agreement, respectively, the Joint Venture Agreement and the Shareholders Agreement, respectively, constituted the valid and binding obligation of each of the parties thereto (other than ALSTOM and the JC). (b) ABB Ltd has the requisite corporate power and corporate authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions provided for hereby. The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action of 2 ABB Ltd (including without limitation any necessary shareholder action). This Agreement constitutes the valid and binding obligation of ABB Ltd. 3. TAX As of the Closing, (i) all of the Tax Returns and reports of the ABB Ltd Transferred Companies required by law to have been filed had been filed and all Taxes shown as payable thereunder had been paid or accrued; and (y) no deficiency assessment or proposed adjustment of the ABB Ltd Transferred Companies' Taxes was pending. The foregoing provisions apply mutatis mutandis with respect to social charges or contributions. 4. NO CONFLICTS The execution and delivery, and performance to date, of the Joint Venture Agreement and the Shareholders Agreement by members of the ABB Ltd Group, and the consummation to date by such members of the ABB Ltd Group of the transactions contemplated thereby (including without limitation the pre-Closing consummation by such members of the ABB Ltd Group of the ABB Ltd Reorganisation), has not conflicted with, or resulted in a material breach or default, a right of any third party to terminate or any similar result under, any Contract binding on any member of the ABB Ltd Group (including without limitation the ABB Ltd Transferred Companies). 3 ANNEX K PART B: NATURE OF WARRANTIES 1. NEGOTIATIONS No Warrantor shall be under any liability for any statements or representations made during negotiations leading to the execution of this Agreement, except to the extent that such statements or representations are set forth in this Agreement or any Ancillary Agreements, provided that this sentence does not limit or modify the express obligations of any person under any Settlement Document. To the extent permitted by applicable law, no claim under this Agreement (including without limitation Annex E) shall be prejudiced or reduced in consequence of any information relating to either of the Businesses (other than information expressly set out in this Agreement) which may have or may come to the knowledge of any member of the JC Group or of the Party asserting the claim (or any member of its Group) prior to or after the execution of this Agreement. 2. CONTINGENT LIABILITIES If any claim under the Warranties is based upon a liability which is contingent only, the relative Warrantor shall not be liable to make any payment unless and until such contingent liability becomes an actual liability. 3. LIMITS OF LIABILITY No Warrantor shall be liable in respect of any Warranties Breach: (a) unless the amount for which ALSTOM on the one hand, or ABB Ltd on the other hand, is liable (after giving effect to the other provisions of this Annex K), exceeds Euros Ten Millions (EURO 10,000,000) in the aggregate for all claims and then only to the extent of any such excess and, provided, however, that the aggregate liability (after giving effect to the other provisions of this Annex K) of each of ALSTOM on the one hand, and ABB Ltd on the other hand in respect of all Warranties Breaches shall not exceed an amount equal to Euros Three Hundred Million (EURO 300,000,000), provided that the foregoing provisions of this clause (a) shall not apply to any inaccuracy or breach of the Warranties in Section 1 and Section 2 of Part A of this Annex K or any inaccuracy or breach of the representations and warranties set forth in Articles 5.1(a), 5.1(b), 5.1(c) (except as to enforceability of the Settlement Documents in accordance with their respective terms), 5.1(g), 5.3(a), 5.3(b), 5.3(c) (except as to enforceability of the Settlement Documents in accordance with their respective terms), 5.4(a), 5.4(b) or 5.4(c) (except as to enforceability of the Settlement Documents in accordance with their respective terms) of this Agreement, and any liability of ALSTOM on the one hand, or ABB Ltd on the other hand, as the case may be, in respect of any inaccuracy or breach described in this proviso should be disregarded for purposes of computations under the foregoing provisions of this clause (a); (b) in respect of any Warranties Breach under the Warranties in Section 3 of Part A of this Annex K, after the expiration of all relevant statutes of limitation (after taking into account all extensions and waivers thereof), but in no event after the tenth anniversary of the date which is 60 days after the Closing Date or the date of the relevant transfer of the ABB Ltd Post-Settlement Closing Transferred Assets, as the case may be, provided that the foregoing ten (10) year limitation period shall not apply in respect of any matter where an audit or examination, or notice of audit or examination, by any Taxing Authority shall have commenced or been given, as the case may be, prior to the expiration of such period. (c) after eighteen (18) months of the date hereof in respect of any Warranties Breach under Section 4 of Part A of this Annex K; and (d) for any claim arising, or for any increase in liabilities, as a result of any change in the law which occurred or occurs after December 31, 1998, even if such change has retroactive effect. A Warrantor shall remain liable after the relevant date referred to in clause (b) or (c) above, to the extent that notice in reasonable detail of any Warranties Breach shall have been given to ABB Ltd prior to such relevant date (but only with respect to the specific claims so described in reasonable detail in such notice), provided that within six (6) months of such notice arbitration proceedings shall have commenced in accordance with Article 18.9 in respect of such claims. 4. CO-OPERATION OF THE PARTIES Each Party shall use all reasonable efforts to co-operate with the relevant Warrantor hereunder as and to the extent reasonably requested from time to time by (and at the expense of) such Warrantor, so as to mitigate any loss giving rise to a claim for a Warranties Breach. 5. REMEDIATION To the extent that any Warranties Breach is capable of remedy, the relevant Warrantor shall be afforded a reasonable opportunity to remedy the matter complained of. 6. KNOWLEDGE OF WARRANTIES BREACH A Warrantor shall not be liable for any claim or any increase in a claim for a Warranties Breach to the extent that such claim or increased claim is attributable to any act or omission of the JC (after the relevant date of transfer of Assets to the JC Group) or (before or after the relevant date of transfer) of the other Warrantor or a member of such Warrantor's Group with actual knowledge (i) of such Warranties Breach and (ii) that such act or omission could reasonably be or have been expected to give rise to or increase such claim and a reasonable alternative course of action was available to the JC Group or the other Warrantor, as the case may be, which could be expected not to have given rise to such claim or to a claim of such amount. 2 7. INFORMATION A Warrantor shall be entitled to inspect and obtain copies of all the records and papers of the JC Group and to obtain such information as it may in each case reasonably require upon reasonable notice to verify: (a) the amount of any claim for breach of any of the Warranties or any other provision of this Agreement; and (b) the measures taken (or which ought to have been taken) in mitigation by the JC pursuant hereto. 8. NO LIMITATION OF RIGHTS Nothing in this Annex K limits the rights of the Parties with respect to any matter other than a Warranties Breach. 3 SCHEDULE 15.1 PROHIBITED ACTIVITIES 1. Design, engineering, manufacturing, marketing and sale of: (i) turnkey power plants of 50MW or greater (other than nuclear power plants); or (ii) combined cycle (ie combined gas turbine and steam turbine) power plants. In addition, for turnkey power plants under 50 MW, the JC Group shall have an option of "first refusal/last call" for all major components comprised within the activities of the JC Group. 2. Operation & maintenance services for power plants over 20MW. 3. Power generation project development or project finance other than in accordance with Annex H to the Agreement. 4. Comprehensive renovation, revamping or repowering of a power plant. 5. Design, engineering, manufacturing or sale of the following components: (i) gas turbines of 250 KW and above and non-conventional/high speed gas turbines, so-called microturbines, only 5 MW and above; (ii) steam turbines; (iii) hydro turbines; (iv) boilers; (v) power generation heat exchangers; or (vi) 2 pole generators above 20 MW. 4 pole and higher pole generators above 280/p MW (p = number of poles) Notwithstanding the above, the sale of such components shall not be prohibited if the JC Group does not exercise its option under the "first refusal/last call" referred to in 1 above. 6. Service of or the supply of spare parts for: (i) gas turbines; (ii) steam turbines; (iii) hydro turbines; (iv) boilers; (v) power generation heat exchangers; or (vi) 2 pole generators above 20 MW. 4 pole and higher pole generators above 280/p MW (p = number of poles) unless such service or the supply of spare parts is provided as part of an operation & maintenance contract for power plants up to 20 MW. 7. District Heating. 8. Design, engineering, manufacture and sale of distributed power systems equipment including power generation equipment using alternative or renewable energy sources (including but not limited to fuel cells, wind and solar power) with individual power output of over 10 MW. This prohibition does not apply to PEM (proton-exchange membrane) technology. AMENDMENT TO SHARE PURCHASE AND SETTLEMENT AGREEMENT This Amendment to Share Purchase and Settlement Agreement (this "AMENDMENT AGREEMENT") dated as of May 11, 2000 is made by and among ABB Ltd, a corporation organized and existing under the laws of Switzerland ("ABB LTD"), ALSTOM, a corporation organized and existing under the laws of France ("ALSTOM"), and ABB ALSTOM Power NV, a corporation organized and existing under the laws of The Netherlands (the "JC"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, ABB Ltd, ALSTOM and the JC are parties to a Share Purchase and Settlement Agreement dated as of March 31, 2000 (the "SETTLEMENT AGREEMENT"); WHEREAS, ABB Ltd, ALSTOM and the JC wish to amend the Settlement Agreement as set forth herein; NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the parties hereby agree as follows: 1. DEFINITIONS. ----------- Capitalized terms used herein without definition shall have the meanings ascribed to them in the Settlement Agreement. 2. AMENDMENT TO DEFINITIONS. ------------------------ (a) The definition of "Agreement" in Article 1.1 of the Settlement Agreement is amended by inserting ", as amended" at the end. (b) The definition of "CE Asset Purchase Agreement" in Article 1.1 of the Settlement Agreement is amended by inserting ", as amended" at the end. (c) The definition of "CE Companies" in Article 1.1 of the Settlement Agreement is amended by deleting the word "and" after the word "Inc." and replacing it with a comma (,) and adding "and CE LLC" at the end. (d) The definition of "CE LLC" is added to Article 1.1 of the Settlement Agreement after the definition of "CE Companies" as follows: " "CE LLC" C-E Windsor Real Estate, LLC, a Connecticut limited liability company of which Combustion Engineering, Inc. is the sole member;" (e) The definition of "Windsor Site Lease" in Article 1.1 of the Settlement Agreement is amended by deleting the name "Combustion Engineering, Inc." and inserting "CE LLC" in its place. 3. ADDITIONS TO SETTLEMENT DOCUMENTS. --------------------------------- The Parties confirm and, in any event, agree that the following agreements and documents shall be deemed "Settlement Documents" for purposes of the Settlement Agreement: (a) the Windsor Site Lease; and (b) the Services Agreement dated as of May 1, 2000 between CE LLC and ABB ALSTOM Power, Inc. relating to management services conducted at the Windsor Site. 4. AMENDMENT TO ARTICLE 2.3. ------------------------ Article 2.3(c)(3) of the Settlement Agreement is amended to add the punctuation and words ", CE LLC" after the words "Boveri Inc.". 5. AMENDMENT TO ARTICLE 3.3. ------------------------ Article 3.3 of the Settlement Agreement is amended by deleting the words "Prior to" at the beginning thereof and inserting "Within ten (10) Business Days after", and by deleting the word "on" in the last sentence and inserting "within (10) Business Days after". 6. AMENDMENT TO ARTICLE 14.7. ------------------------- Article 14.7 of the Settlement Agreement is amended by inserting the name "ABB Ltd" at the end of the last line on page 71 of the Settlement Agreement. 7. AMENDMENT TO ARTICLE 15.2. ------------------------- Article 15.2(a)(ii) of the Settlement Agreement is amended by deleting the word "the" and the word "Group" before and after, respectively, the name "ALSTOM" on the tenth line thereof and inserting "and its Subsidiaries" after the name "ALSTOM". 8. AMENDMENT TO ARTICLE 16.1. ------------------------- Article 16.1 of the Settlement Agreement is amended by deleting the word "the" and the word "Group" before and after, respectively, the name "ALSTOM" on the third line of page 77 of the Settlement Agreement and inserting "or any of its Subsidiaries" after the name "ALSTOM". 9. AMENDMENT TO ARTICLE 9. ---------------------- Article 9.1 of the Settlement Agreement is amended by deleting the text thereof and inserting the following: "9.1 NATURE OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties of the Parties in this Agreement (including, without limitation, the representations and warranties of ABB Ltd made in Annex K hereto), shall survive the Settlement Closing for a period of ten (10) years (or until such earlier date as may specifically be provided in Annex K in relation to specific Warranties), and the covenants of the Parties in this Agreement shall survive the Settlement Closing indefinitely (or for such shorter period as may specifically be provided in relation to specific covenants), and in each case shall not be affected in any respect by the Settlement Closing or any investigation conducted by either Party, or any of its Affiliates, prior to, on or after the date hereof, or any information which either Party, or any of its Affiliates, may have received or receive prior to, on or after the date hereof." 10. AMENDMENT AND RESTATEMENT OF EXHIBIT A (ALSTOM RELEASE), EXHIBIT F (JC ---------------------------------------------------------------------- RELEASE) AND EXHIBIT G (ABB LTD RELEASE). ----------------------------------------- (a) Exhibit A of the Settlement Agreement (ALSTOM Release) is amended and restated in its entirety in the form set forth in Exhibit A hereto. (b) Exhibit F of the Settlement Agreement (JC Release) is amended and restated in its entirety in the form set forth in Exhibit B hereto. (c) Exhibit G of the Settlement Agreement (ABB Ltd Release) is amended and restated in its entirety in the form set forth in Exhibit C hereto. 11. AMENDMENT TO EXHIBIT H (COMBUSTION ENGINEERING AND CONNECTICUT VALLEY --------------------------------------------------------------------- AGREEMENT). ----------- (a) In the third recital to the Combustion Engineering and Connecticut Valley Agreement, the words ", as amended" are inserted immediately before "(the "Settlement Agreement");". (b) Immediately after Section 6.01(c) of the Combustion Engineering and Connecticut Valley Agreement, a new Section 6.01(d) is inserted as follows: "(d) Without limitation of the Company's obligations under the CE Asset Purchase Agreement, if, as of the Closing, the Company owns any Assets other than "Excluded Assets" as defined in the CE Asset Purchase Agreement and other than CE LLC (such Assets other than such Excluded Assets and other than CE LLC, together with any proceeds thereof whenever received, the "Reclaimable Assets"), then Buyer shall cause the Company promptly to convey to Seller or its designee (beneficially and, to the extent applicable, as of record) such Reclaimable Assets as Seller may specify from time to time after the Closing. The parties agree to cooperate and use their best efforts, and Buyer agrees that it will cause the Company to cooperate and use its best efforts, to obtain or make any governmental or third party consents, permits, approvals and filings, and to satisfy any other technical requirements, that may be required to be obtained, made or satisfied in connection with any such transfer of any such Reclaimable Assets. The costs of all of the foregoing shall be shared equally between the Company and Seller. To the extent that such Reclaimable Assets consist of Contracts that are not assignable without the consent of a party thereto other than the Company, Buyer shall cause the Company to cooperate with Seller in reasonable arrangements designed to provide Seller with the economic benefits thereunder." (c) In Section 6.03(a) of the Combustion Engineering and Connecticut Valley Agreement, "Chief Financial Officer" is inserted next to the word "Attention:". 12. AMENDMENT AND RESTATEMENT OF ANNEX D. ------------------------------------ Annex D (other than the Schedules thereto) is amended and restated in its entirety in the form set forth in Exhibit D hereto. 13. AMENDMENT TO ANNEX E. -------------------- (a) The definition of "Non-Business Liabilities" in Section 1 of Annex E is amended by inserting in subparagraph (a)(vii): (i) at the commencement thereof, the following: "without limitation of the foregoing clauses (i) through (vi), or any other ABB Ltd Excluded Liability," (ii) immediately after the word "Agreement", the following: "or relating to Assets retained by the ABB Ltd Group as provided by the CE Asset Purchase Amendment Agreement dated May 11, 2000 by and between the parties to the CE Asset Purchase Agreement". (b) Section 11 of Annex E is amended by inserting at the end of the first sentence the following: ", with respect to any matter for which indemnification is being sought hereunder". 14. AMENDMENT AND RESTATEMENT OF ANNEX G. ------------------------------------ Annex G is amended and restated in its entirety in the form set forth in Exhibit E hereto. 15. AMENDMENT AND RESTATEMENT OF ANNEX H. ------------------------------------ Annex H is amended and restated in its entirety in the form set forth in Exhibit F hereto. 16. EFFECTIVE TIME. -------------- This Amendment Agreement shall be effective automatically upon the occurrence of the Settlement Closing. 17. NO OTHER AMENDMENT. ------------------ The parties confirm that in all other respects the Settlement Agreement remains in full force and effect. IN WITNESS WHEREOF, each of the parties has caused its duly authorized representative to execute this Amendment Agreement as of the date first above written. ALSTOM Signature: /s/ ANDREW HIBBERT ------------------------------------------ Name: Andrew P. Hibbert Title: Senior Vice President and General Counsel ABB LTD Signature: /s/ BEAT HESS ------------------------------------------ Name: Beat Hess Title: Senior Vice President and General Counsel ABB ALSTOM POWER NV Signature: /s/ ANDREW P. HIBBERT ---------------------------------------- Name: Claude Darmon Title: President and Chief Executive Officer By: Andrew P. Hibbert Attorney-in-Fact The undersigned duly acknowledge and consent to this Amendment Agreement and agree to be bound by the covenants and agreements set forth herein: ABB ASEA BROWN BOVERI LTD. Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB AG Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB AB Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB HANDELS- UND VERWALTUNGS AG Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB POWER GENERATION INVESTMENTS BV Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ABB POWER GENERATION PARTICIPATIONS BV Signature: /s/ BEAT HESS --------------------------------- Name: Beat Hess Title: Attorney-in-Fact ANNEX D INTELLECTUAL PROPERTY RIGHTS AND KNOW-HOW 1 INTERPRETATION 1.1 The definitions and rules of interpretation set out in Article 1 of this Agreement apply to this Annex supplemented by the following: "ABB LTD MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the initials ABB and/or the words Asea Brown Boveri, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "CE MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the initials CE and/or the words Combustion Engineering, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "FLAKT MARKS" means the names, trade names, trademarks, service marks, product marks and logos comprised of the word FLAKT, in various forms, with or without additional matter and whether or not registered and whether or not the subject of an application to register; "INTELLECTUAL PROPERTY RIGHTS" means copyrights, design rights, patents, mask rights, trademarks, trade names and similar property rights conferred by law in any part of the world and, where applicable, whether or not registered, in each case together with all rights appurtenant thereto (including but not limited to rights, where applicable, to apply for registration thereof). For purposes hereof, the ABB Ltd Marks, the CE Marks and the FLAKT Marks are not Intellectual Property Rights. "KNOW-HOW" means data, formulae, techniques, inventions, specifications, drawings, algorithms, prototypes, research materials, computer programs and documentation, databases, and other non-public know-how or trade secrets of any kind; "LICENSE" means, according to the context, a license or similar agreement in which rights to use Intellectual Property Rights are made or given, or a license or similar agreement in which rights to use Know-How are granted. 1.2 Where the context permits or requires, any reference in this Annex to a License includes a sublicense and a sub-sublicense or other derivative rights granted by a licensee or a sublicensee. 1.3 References in this Annex to "Articles" are, unless otherwise expressly provided, to Articles of this Annex D and references in this Annex to Schedules are to Schedules to this Annex. 2 PERFORMANCE OF OBLIGATIONS ABB Ltd shall be responsible for procuring that the relevant entity within its Group shall perform those obligations which are required in this Annex to be performed by it. 3 REORGANISATIONS It is agreed that, except for Article 4.4, Articles 4 and 5 shall apply only if and to the extent that rights equivalent to those which are contemplated to be assigned, licensed and/or communicated (as the case may be) to ALSTOM and/or its Subsidiaries thereunder are not currently owned by, or have not as of yet been licensed or communicated to, the ABB Ltd Transferred Companies, respectively, and have not been so assigned, licensed and/or communicated, respectively, by the Settlement Closing to one or more of the ABB Ltd Transferred Companies pursuant to the Reorganisations or otherwise. 4 ASSIGNMENT AND RELATED MATTERS 4.1 Subject to Articles 4.3 and 5.4, ABB Ltd and its Subsidiaries (except as set forth in Schedule 1) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from and including January 1, 1999, assign (or cause to be assigned) to ALSTOM and/or its designated Subsidiaries (beneficially and, subject to Article 11.8 of this Agreement, of record): (i) all Intellectual Property Rights and Know-How owned (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) by members of the ABB Ltd Group (listed in Schedule 2), and (x) at such time used or held for use or (y) at such time under development for use, in each case predominantly in the ABB Ltd Business; (ii) subject to Article 6, all right, title and interest under, subject to the burden of, all Licenses from third parties relating to Intellectual Property Rights or Know-How that (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) were (x) at such time used or held for use or (y) at such time under development for use, in each case predominantly in the ABB Ltd Business (listed in Schedule 3) under which members of the ABB Ltd Group (as constituted from time to time) appear as (or otherwise are) grantees; and (iii) all their rights to sue for damages and any other remedies in respect of any infringement, misuse or conversion of, or in relation to, the rights referred to in paragraphs (i) and (ii). 4.2 ABB Ltd and its Subsidiaries shall, as soon after the Settlement Closing as is practicable and in accordance with procedures to be established by ALSTOM, communicate or 2 otherwise make available to ALSTOM and/or its designated Subsidiaries all Know-How assigned to ALSTOM and/or its designated Subsidiaries pursuant to paragraph (i) of Article 4.1 or held by them under any License relating to Know-How assigned pursuant to paragraph (ii) of Article 4.1, in each case subject to the provisions of any Licenses which relate to such Know-How, and shall supply to ALSTOM and/or its designated Subsidiaries the originals or, at the discretion of ALSTOM, copies of documents or other materials in their possession in which any part of such Know-How is contained. ABB Ltd and its Subsidiaries, and ALSTOM and its designated Subsidiaries, shall each take all reasonable steps to maintain the confidentiality of the Know-How. 4.3 Any assignments to be made pursuant to Article 4.1 and any such assignments made prior to the Settlement Closing shall be: (i) subject to and with the benefit of any Licenses to third parties and any other third party rights and obligations, but free of Encumbrances; and (ii) subject to a reservation to the assignor of a worldwide, perpetual (or for such shorter period as such assigned rights may exist), irrevocable, royalty free, non-exclusive, non-assignable and non-sublicensable right to (A) use (and permit others within the ABB Ltd Group to use) the Intellectual Property Rights and Know-How assigned pursuant to paragraph (i) of Article 4.1, but only for activities outside of the Field, and (B) enjoy (and permit others within the ABB Ltd Group to enjoy) the rights conferred by the Licenses assigned pursuant to paragraph (ii) of Article 4.1, but only to the extent permitted under the terms of those Licenses, and only for activities outside of the Field; provided that if any reservation of rights pursuant to clause (ii) of this Article 4.3 is not desirable or permissible due to national laws or regulations or for any other reason, including but not limited to the terms of any License referred to therein or any other third party rights, the assignor shall discuss with ALSTOM with a view to reaching agreement on the best means to ensure that equivalent rights are granted or otherwise made available to it. 4.4 It is understood and agreed that, to the extent ABB Ltd Transferred Companies currently own, or as a result of a Reorganisations or otherwise at the Settlement Closing own, or at the Closing Date owned, Intellectual Property Rights and/or Know-How such that no assignment pursuant to this Article 4 is or was necessary in respect thereof, ALSTOM or the JC shall cause, at the request of ABB Ltd after the Settlement Closing, the relevant ABB Ltd Transferred Company to grant a License or sublicense, as the case may be, to the members of the ABB Ltd Group to effect the reservation of rights permitted under clause (ii) of Article 4.3. 5 GRANT OF LICENSES AND RELATED MATTERS 5.1 ABB Ltd and its Subsidiaries (except as set forth in Part B of Schedule 4) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from 1 January 1999, grant (or cause to be granted) to ALSTOM and/or its designated Subsidiaries worldwide, irrevocable, royalty free, non-exclusive, non-assignable and non-sublicensable (except as otherwise expressly provided in Articles 8 and 14) Licenses under all Intellectual Property Rights and Know-How owned (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) by members of the ABB 3 Ltd Group (listed in Schedule 5) and (x) at such time used or held for use or (y) at such time under development for use, in each case in the ABB Ltd Business, but which are not required to be assigned pursuant to paragraph (i) of Article 4.1. Such Licenses shall be for a term of thirty (30) years from and after the Settlement Closing Date and shall cover the full territory of the rights and shall be for use in activities within the Field only. 5.2 ABB Ltd and its Subsidiaries (except as set forth in Schedule 6) shall, at the Settlement Closing or as soon thereafter as is practicable, in either case with economic effect from January 1, 1999, grant (or cause to be granted) to ALSTOM and/or its designated Subsidiaries irrevocable, non-exclusive, non-assignable and non-sublicensable sublicenses under all Licenses from third parties relating to Intellectual Property or Know-How that (as of March 23, 1999 (except as may be affected by events in the ordinary course of the conduct of the ABB Ltd Business prior to the Closing), as of immediately prior to the Closing or as of immediately prior to the Settlement Closing) were (x) at such time used or held for use or (y) at such time under development for use, in each case in the ABB Ltd Business (listed in Schedule 7) but which are not required to be assigned pursuant to paragraph (ii) of Article 4.1. Such sublicenses shall be for use in activities within the Field only, shall cover the widest scope and territory possible under the terms of the Licenses under which they are granted and shall be on arms-length terms (including any royalty to be paid thereunder), provided such terms shall be no more onerous than the terms of such Licenses and for the duration thereof. 5.3 ABB Ltd and its Subsidiaries shall, as soon after the Settlement Closing as is practicable and in accordance with procedures to be established by ALSTOM, communicate or otherwise make available to ALSTOM and/or its designated Subsidiaries full details of the Know-How to which any License referred to in Article 5.1 or sublicense referred to in Article 5.2 relates and supply to them copies of documents or other materials in their possession in which any part of such Know-How is contained (subject to the provisions of such License or sublicense). 5.4 ABB Ltd or its appropriate Affiliate, and ALSTOM, or a member of the ALSTOM Group or the JC Group as of the date hereof, shall enter into the Powerformer License on the terms set forth in Schedule 9. 6 RESTRICTIONS ON ASSIGNMENTS OR GRANTS OF LICENSES If a License cannot be assigned as required by paragraph (ii) of Article 4.1 or if a sublicense required by Article 5.2 cannot be granted, ABB Ltd and its Subsidiaries shall use all reasonable efforts to persuade the relevant third party either to amend its License to permit the same or to grant to ALSTOM and/or its designated Subsidiaries directly a License conferring equivalent rights. Until the License is amended, or a License conferring equivalent rights is granted pursuant to this Article 6.1, ABB Ltd and its Subsidiaries shall, to the fullest extent permitted by law, hold the benefit of the relevant License (insofar as it relates to the ABB Ltd Business) for ALSTOM and/or its designated Subsidiaries; provided that ALSTOM shall be responsible for payment of royalties, fees, outgoings or other liabilities thereunder attributable to the ABB Ltd Business for so long as it or another member of the ALSTOM Group or the JC Group 4 receives the benefit thereof and ALSTOM shall indemnify ABB Ltd and its Subsidiaries against any liability (together with all reasonable costs) which they may incur by reason of any breach thereof attributable to any act or omission of any member of the ALSTOM Group or the JC Group. 7 FURTHER ASSURANCE AND PROTECTION OF RIGHTS 7.1 (a) It is acknowledged that the assignment, licensing or sublicensing of any Intellectual Property Right, or the communication or otherwise making available of any Know-How, to the ABB Ltd Transferred Companies contemplated by this Annex and the contribution to ALSTOM and/or its Subsidiaries of any Intellectual Property Rights or Know-How to be made pursuant to the terms hereof may require the consent of or notification to any third party or the cooperation of any undertaking of which ABB Ltd owns or controls, directly or indirectly, less than 100% of the issued shares. In such circumstances, ABB Ltd shall use reasonable efforts in good faith to obtain such consent, to give such notification and/or to obtain such cooperation and, provided that such reasonable efforts in good faith are used, ABB Ltd shall in such circumstances not be in breach of Articles 4 or 5 but without prejudice to any compensation which may become payable as described below. (b) In the event any assignment, contribution, licensing or sublicensing of any Intellectual Property Rights or Know-How, or any communication or otherwise making available of any Intellectual Property Rights or Know-How, to ALSTOM and/or its Subsidiaries does not occur by March 31, 2001 for the reasons set forth in Article 7.1(a), then ABB Ltd shall within fourteen (14) days (or such longer period as ALSTOM and ABB Ltd shall agree having regard to the complexity of the matter) pay ALSTOM an amount as compensation for such non-contribution which shall be such amount as shall be fair and reasonable having regard to the fair market value of such Intellectual Property Rights or Know-How and of the effect of its non-inclusion upon the JC Group, together with interest on such compensation amount from the, Closing Date to the date of payment of such compensated amount at an interest rate per annum equal to the Relevant Rate (as defined in the Joint Venture Agreement) for three month deposits in effect on the Closing Date (or, with respect to periods more than three months after the Closing Date, in effect on the most recent past date which is exactly three months (or a whole multiple of three months) after the Closing Date). Upon payment of such amount to ALSTOM in respect of any particular Asset in accordance with this Article 7.1(b), ABB Ltd shall cease to be obligated to cause such Asset to be assigned to, or become part of, the JC Group. 7.2 Pending the assignment of any rights or the granting of any License pursuant to this Annex, ABB Ltd and its Subsidiaries shall take all reasonable steps to maintain and protect the rights to be assigned or licensed by them. 7.3 ABB Ltd and its Subsidiaries shall, at the request of ALSTOM, and ALSTOM and its Subsidiaries shall, at the request of ABB Ltd, provide all reasonable assistance in connection with (i) the defense and/or prosecution of any claim brought by or against any 5 third party concerning Intellectual Property Rights or Know-How assigned or licensed by ABB Ltd and/or its Subsidiaries hereunder or pursuant to the terms of the Reorganisations, and (ii) the filing, prosecution and amendment or continuation of applications to register any Intellectual Property Rights assigned or licensed to ALSTOM and/or its Subsidiaries hereunder or pursuant to the terms of the Reorganisations. 7.4 ABB Ltd and its Subsidiaries shall not permit to lapse or become abandoned any Intellectual Property Rights which are registered, or which are the subject of an application to register, and which are or are to be licensed to ALSTOM or any member of the ALSTOM Group or the JC Group hereunder or pursuant to the Reorganisations (or otherwise as a result of the transactions contemplated by this Agreement or the Joint Venture Agreement) without first giving ALSTOM the opportunity to maintain the registration or prosecute the application to register at its own cost and for its own benefit. The foregoing shall apply mutatis mutandis to ALSTOM and its Subsidiaries with respect to any Intellectual Property Rights which are registered, or which are the subject of an application to register, and which are to be licensed or reserved to ABB Ltd and its Subsidiaries hereunder or pursuant to the Reorganisations (or otherwise as a result of the transactions contemplated by this Agreement or the Joint Venture Agreement). 8 DISSEMINATION OF RIGHTS WITHIN THE ALSTOM GROUP In respect of Intellectual Property Rights and Know-How assigned or licensed pursuant hereto (or contributed to the ALSTOM Group or the JC Group under the terms of the Reorganisations or otherwise owned or held by an undertaking which at the Closing or thereafter became a member of the ALSTOM Group or the JC Group pursuant to the Joint Venture Agreement or this Agreement), each member of the ALSTOM Group or the JC Group may be granted such derivative rights on such terms and conditions and to such an extent as ALSTOM may from time to time determine and as may be granted without infringing the rights of third parties. All Licenses and sublicenses granted to any Subsidiaries of ALSTOM pursuant to Article 5 (and all derivative rights thereunder granted pursuant to this Article 8) shall terminate automatically if the member should cease to be a Subsidiary of ALSTOM. 9 TECHNICAL ASSISTANCE ABB Ltd and its Subsidiaries and ALSTOM and its Subsidiaries, as the case may be, shall provide, at no cost to the ALSTOM Group or the JC Group, or the ABB Ltd Group, as the case may be, such technical assistance and consultation as may reasonably be required and which they are reasonably able to provide to make effective use of any Intellectual Property Rights and Know-How assigned or licensed or otherwise made available to the ALSTOM Group, the JC Group or the ABB Ltd Group hereunder (or contributed to the ALSTOM Group or the JC Group under the terms of the Reorganisations or otherwise owned or held by an undertaking which on the Closing or thereafter became a member of the ALSTOM Group or the JC Group); provided that such technical assistance and consultation under this Article 9 shall continue only for a period of eighteen (18) months from the Settlement Closing Date, and such technical assistance and consultation shall not include any research or development. 6 10 NEW TECHNOLOGY ALSTOM shall grant, or procure that its Subsidiaries grant, to members of the ABB Ltd Group non-exclusive, non-assignable and non-sublicensable licenses under such of the Intellectual Property Rights and Know-How obtained as owner, developed or conceived by any member of the JC Group after the Closing Date and prior to the Settlement Closing, in each case for use in activities other than the Field. Such licenses shall be granted on arms-length terms (including any royalty to be paid thereunder). 11 HOUSE MARKS 11.1 ABB Ltd or its appropriate Affiliate shall grant ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the ABB Ltd Marks and, pursuant to such grant, shall enter into license agreements in respect of the ABB Ltd Marks substantially in the form of Schedule 8. It is understood and agreed that the right to use the ABB Ltd Marks shall expire twelve (12) months after the Settlement Closing. 11.2 Any license agreement in respect of the ABB Ltd Marks granted to ALSTOM or any of its Subsidiaries pursuant to this Article 11 shall terminate automatically if the member should cease to be a Subsidiary of ALSTOM. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any ABB Ltd Mark without a license agreement entered into pursuant to this Article 11. 12 CE MARKS 12.1 ABB Ltd or its appropriate Affiliate shall grant to ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the CE Marks and, pursuant to such grant, shall enter into a license agreement in respect of the CE Marks substantially in the form of Schedule 10. It is understood that the right to use the CE Marks shall be for a term of eighteen (18) months from the Settlement Closing Date subject to a right of renewal on terms and conditions satisfactory to ABB Ltd and ALSTOM. If the renewal terms are not agreed, then the license agreement shall terminate and ALSTOM shall cease using the CE Marks. 12.2 The license agreement in respect of the CE Marks granted to ALSTOM or any of its Subsidiaries pursuant to this Article 12 shall terminate automatically if the member should cease to be a Subsidiary of ALSTOM. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any CE Mark without a license agreement entered into pursuant to this Article 12. 13 FLAKT MARKS 13.1 ABB Ltd or its appropriate Affiliate shall grant ALSTOM (and, at the request of ALSTOM, any Subsidiary of ALSTOM) the right to use the FLAKT Marks and, pursuant to such grant, shall enter into a license agreements in respect of the FLAKT Marks substantially in the form of Schedule 11. It is understood and agreed that the right to use the FLAKT Marks shall be for a term of thirty (30) years from the Settlement Closing. 7 13.2 Any license agreement in respect of the FLAKT Marks granted to ALSTOM or any of its Subsidiaries pursuant to this Article 13 shall terminate automatically if the member should cease to be a Subsidiary of ALSTOM. ALSTOM shall procure that no Subsidiary of ALSTOM shall use any FLAKT Mark without a license agreement entered into pursuant to this Article 13. 14 CONSOLIDATIONS AND MERGERS 14.1 Anything in this Annex D to the contrary notwithstanding, ABB Ltd or ALSTOM may assign its rights under this Annex D (and any License or sublicense granted hereunder) to the extent permitted in, and subject to all of the terms and conditions set forth, in Article 18.4 of this Agreement. It is understood that the licensor or sub-licensor, as the case may be, may request written confirmation of such substitution. 14.2 The terms of Article 14.1 above shall not apply to the extent that the substitution described therein requires the consent of or notification to any third party, unless and until such consent or notification (as the case may be) has been obtained or made. In such circumstances the relevant Parties shall use reasonable efforts in good faith to obtain such consent or to give such notification. 15 CERTAIN COVENANTS Each of the Parties to this Agreement acknowledges and agrees that, to the best of its knowledge, all of the Intellectual Property Rights and Know-How which are predominantly used in and material in the aggregate to the conduct of the business of the JC is owned by the JC and not licensed from third parties. 16 SCHEDULES The listings of certain items in Schedules 2, 3, 5 and 7 are not necessarily complete. 8 ANNEX G REAL ESTATE PROVISIONS 1.1 DEFINED TERMS. As used in this Annex G, the following terms shall have the following meanings: "ABB LTD-CONTRIBUTED REAL PROPERTY" means any real property which (or a leasehold interest in which) prior to the Closing Date was owned by any member of the ABB Ltd Group and heretofore was or hereafter is transferred to a member of the JC Group, whether directly or as part of any ABB Ltd Transferred Company (or a CE Company), including any ABB Ltd Post-Settlement Closing Transferred Assets. "ALSTOM-CONTRIBUTED REAL PROPERTY" means any real property which prior to the Closing Date was owned by any member of the ALSTOM Group and heretofore or hereafter transferred to a member of the JC Group, whether directly or as part of any ALSTOM-Transferred Company. "EXCLUDED REAL PROPERTY" means the real property in which leasehold interests are held pursuant to the Excluded Leases (as such term is defined in the CE Asset Purchase Agreement). "COMPLIANCE COSTS" shall mean the costs and expenses (including fines and penalties) incurred by a party or any of its Affiliates pursuant to a Compliance Order, as applicable. "COMPLIANCE ORDER" means an order, directive or similar action issued or taken by a Regulatory Authority having competent jurisdiction over any Real Property (or the ordinary course operations conducted thereat as of the date of such property's transfer to the JC Group) (i) to remove, remediate or cleanup any Environmental Condition, (ii) to bring such ABB Ltd-Contributed Real Property (or the ordinary course operations conducted thereat as of the date of its transfer to the JC Group) into compliance with Environmental Laws applicable to such property, or (iii) to pay fines or penalties as a consequence of such non-compliance. "ENVIRONMENTAL CONDITION" shall mean any Hazardous Substance condition existing on, at, under or over any ABB Ltd-Contributed Real Property as of the date of its transfer to the JC Group. "ENVIRONMENTAL LAW" means the local, county, state, provincial and/or federal laws (including common law), regulations or other legally binding requirements of any jurisdiction in which the Alstom-Contributed Real Properties or the ABB Ltd-Contributed Real Properties are located and which govern the existence of or provide a remedy for release or emissions of Hazardous Substances, or which relate to the protection of persons, natural resources or the environment, the management of Hazardous Substances, or other activities involving Hazardous Substances, as such laws have been amended or supplemented, in each case as in effect on or prior to the Closing Date, except that, with respect to the obligations of the JC pursuant to Paragraph 1.4, "Environmental Law" shall mean and include all of the foregoing as in effect from time to time. "HAZARDOUS SUBSTANCE" means any substance, material or waste that is regulated under any Environmental Law or is deemed by any Environmental Law to be "hazardous, "toxic," a "contaminant," "waste" or a "pollutant" (or words with similar meaning) and shall include, without limitation, petroleum or petroleum products, PCB's, PCB wastes, asbestos, asbestos containing products and radioactive substances. "JC/ABB LEASED REAL PROPERTY" means the real property located at Buildings 1, 2, 3, 4, 5, 6 and 7, 1201 Riverfront Parkway, Chattanooga, Tennessee, 37343 that is the subject of a letter agreement for a lease between ABB ALSTOM Power Inc. as landlord and Asea Brown Boveri Inc. as tenant, and the portion of any other Real Property that as of the Closing Date or the Settlement Closing Date was leased, used or otherwise occupied by a member of the ABB Ltd Group (or any assignee or sublessee thereof). "JC REAL PROPERTIES" means the Real Properties and any other real property owned or held by the JC Group as of, or prior to, the Settlement Closing Date. "REAL PROPERTIES" means, collectively, the ALSTOM-Contributed Real Properties, the ABB Ltd-Contributed Real Properties and the JC Real Properties. "REMEDIAL ACTION" shall mean any action required to be taken pursuant to a Compliance Order. 1.2 ABB LTD SHARE OF COMPLIANCE COSTS. (a) ABB Ltd and ALSTOM shall each share, in the manner specified in Paragraph 1.2(b) below, in the Compliance Costs incurred by ALSTOM or any of its Subsidiaries in connection with any Remedial Actions undertaken at any ABB Ltd-Contributed Real Property. (b) With regard to Compliance Costs incurred by ALSTOM or any of its Subsidiaries which are to be shared pursuant to Paragraph 1.2(a) above, ABB Ltd shall pay (or reimburse the relevant member of the ALSTOM Group or the JC Group for) 50% of such Compliance Costs up to the initial aggregate amount of Ten Million Dollars ($10,000,000). To the extent that such Compliance Costs exceed Ten Million Dollars ($10,000,000) in the aggregate, ABB Ltd shall pay (or reimburse the relevant member of the ALSTOM Group or the JC Group for) 100% of the Compliance Costs in excess of Ten Million Dollars ($10,000,000) up to the maximum aggregate amount of Fifty Million Dollars ($50,000,000), including, for purposes of determining such maximum aggregate amount, ABB Ltd's 50% share (but excluding, for purposes of determining such maximum aggregate amount, ALSTOM's 50% share) of the initial Ten Million Dollars ($10,000,000) of Compliance Costs incurred by the parties pursuant to this Paragraph 1.2(b). For the avoidance of doubt, in no event shall the maximum aggregate liability of ABB Ltd to pay or reimburse the JC for Compliance Costs incurred by it under this Annex G exceed the amount of Fifty Million Dollars ($50,000,000). (c) Notwithstanding anything to the contrary in this Annex G, ABB Ltd shall not be obligated to pay or reimburse any member of the JC Group for Compliance Costs under this Annex G to the extent that such Compliance Costs were accrued or reflected in the ABB Ltd Business 1998 Accounts attached to Annex E. For the avoidance of doubt, ABB Ltd's obligations under this Paragraph 1.2 shall exclude all Compliance Costs to the extent arising out 2 of or relating to periods from and after the Closing Date or, if applicable, any later date of transfer. ABB Ltd shall indemnify and hold harmless each member of the ALSTOM Group and the JC Group from and against any Liabilities arising out of any breach of its obligations under this Annex G in accordance with Annex E. (d) In connection with Compliance Costs incurred by ALSTOM or any of its Subsidiaries any portion of which ABB Ltd is obligated to pay or reimburse to ALSTOM hereunder, ALSTOM and its Subsidiaries shall act in good faith and use reasonably prudent business practices consistent with achieving compliance with Environmental Law in the place where the ABB Ltd-Contributed Real Property at which such actions are being carried out is located. 1.3 JC REMEDIAL ACTIONS. The JC shall be responsible for bringing all Real Properties (other than any Excluded Real Property or JC/ABB Leased Real Property) into compliance with Environmental Laws (and maintaining such compliance), and remediating all Environmental Conditions, from and after the Closing Date (or, if applicable, such later date of transfer to the JC Group). For the avoidance of doubt, the JC's obligations under this Paragraph 1.3 shall include, without limitation, all Liabilities arising out of or relating to periods from and after (but not prior to) the Closing Date (or, if applicable, such later date of transfer to the JC Group) for non-compliance matters which existed at any of the ALSTOM-Contributed Real Properties or the ABB Ltd-Contributed Real Properties (other than any Excluded Real Property or JC/ABB Leased Real Property) as of the Closing Date (or, if applicable, such later date of transfer to the JC Group) or arose after the Closing Date (or, if applicable, such later date of transfer to the JC Group). The JC shall discharge or pay all Liabilities incurred in connection with the performance of its obligations under the preceding sentence. ALSTOM shall indemnify and hold harmless (on an after-tax basis, if applicable) each member of the ABB Ltd Group from and against any Liabilities arising out of any breach of its obligations under this Annex G. Nothing in this Paragraph 1.3 shall limit or affect ABB Ltd's obligations under Paragraphs 1.2 (a) and (b), even if such obligations require ABB Ltd to make reimbursement payments in respect of actions taken by ALSTOM or any of its Subsidiaries pursuant to this Paragraph 1.3. 1.4 CERTAIN LIMITATIONS. The obligations of ABB Ltd under this Annex G shall be subject to the following restrictions and limitations: (a) ABB Ltd shall only be liable for Compliance Costs under this Annex G to the extent mandated by a Compliance Order that is received by ALSTOM or any of its Subsidiaries prior to the second anniversary of the Settlement Closing Date. ABB Ltd shall not be liable for any incremental Compliance Costs under this Annex G to the extent that the same are attributable to any changes in Environmental Laws occurring from and after the Closing Date. (b) ABB Ltd shall be obligated to pay or reimburse ALSTOM and its Subsidiaries for only the least expensive approaches and measures for correcting or abating any specific instance of non-compliance with Environmental Laws or Environmental Conditions, as applicable, that substantially comply with the relevant Compliance Order and are reasonably available in respect of each matter for which ABB Ltd is obligated to pay Compliance Costs hereunder. If ALSTOM or its Affiliates undertakes any approaches or measures that are more 3 expensive than such least expensive approach, then ABB Ltd shall be liable only for the amounts that it would have been responsible for had such least expensive approaches and measures been employed. (c) ALSTOM shall permit (and shall cause the JC and any other Affiliates to permit) ABB Ltd and its representatives, agents and contractors reasonable access to the ABB Ltd-Contributed Real Properties to permit ABB Ltd to assess and monitor its obligations and the activities of the JC hereunder. Prior to starting any work for which it wishes to seek repayment of Compliance Costs from ABB Ltd hereunder, ALSTOM shall provide ABB Ltd and/or its representatives with a plan of such activities and an estimate of the costs thereof, and thereafter shall keep ABB Ltd reasonably informed as to the progress of such remediation. 1.5 ENVIRONMENTAL TESTING. (a) Except as provided in Paragraph 1.6(b) below, the JC and ALSTOM agree that, subsequent to the execution of this Agreement, neither the JC, ALSTOM nor their respective Affiliates or representatives (including, without limitation, any member of the JC Group) shall conduct any environmental testing, assessments, audits, inspections, soil, water, or air sampling, or any other form of evaluation of the ABB Ltd-Contributed Real Properties in respect of such properties' compliance with Environmental Laws or the existence of Environmental Conditions on, under, around or above such sites ("Environmental Testing"). The restriction set forth in the preceding sentence shall remain in force so long as ABB Ltd is obligated to pay Compliance Costs under this Annex G. (b) Notwithstanding Paragraph 1.6(a), the JC shall be entitled, upon prior written notice to ABB Ltd (to the extent that such prior written notice is reasonably practicable under the circumstances), to conduct Environmental Testing at the ABB Ltd-Contributed Real Properties if, and to the extent, that such Environmental Testing is (or in the good faith judgment of ALSTOM or any applicable Affiliate is): (i) required by an Environmental Law applicable to such a site; (ii) reasonably necessary to ensure compliance with an Environmental Law applicable to such site, but only if the JC has received written information from a Regulatory Authority indicating that such site may not be in compliance with an Environmental Law applicable to such site, or as reasonably necessary (in the good faith judgment of ALSTOM and its Affiliates) to address any risk of harm to human health or safety or of harm to property; (iii) mandated by a Regulatory Authority having competent jurisdiction over such site or over an Environmental Law applicable to such site; (iv) reasonably requested by an unaffiliated third party seeking to assume or purchase an interest in such site in a bona fide transaction; (v) reasonably requested by an unaffiliated bank or similar institutional lender in connection with a bona fide proposed financing or borrowing transaction of the JC; or (vi) reasonably necessary in connection with attempting to settle any bonafide third-party claim or legal proceeding made or instituted by a third party, if and to the extent that such Environmental Testing is directly relevant to the subject matter of such claim or legal proceeding. (c) ABB Ltd shall not be responsible for any Compliance Costs which arise from or relate to a Compliance Order resulting from, directly or indirectly, any Environmental Testing undertaken in breach of this Paragraph 1.5. 1.6 RESTRICTIONS ON REMEDIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS ANNEX G, IN NO EVENT SHALL ANY INDEMNIFYING PARTY BE LIABLE TO ANY 4 INDEMNIFIED PARTY FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH ANY MATTER FOR WHICH THE INDEMNIFYING PARTY IS OBLIGATED TO INDEMNIFY UNDER THIS ANNEX G. 1.7 ENTIRE OBLIGATION. This Annex G sets forth the entire obligation of ABB Ltd to ALSTOM or its Affiliates with respect to Environmental Conditions, Compliance Orders and Compliance Costs; provided however, that nothing in this Annex G shall limit any liability or obligation that any member of the ALSTOM Group, the ABB Ltd Group or the JC Group may have to each other pursuant to the obligations set forth in Annex E or under the CE Asset Purchase Agreement, and nothing in this Annex G limits any liability or obligation that any member of the ABB Ltd Group may have under any Contract with respect to the JC/ABB Leased Real Property. No amounts paid or payable by members of the ABB Ltd Group in respect of the liabilities or obligations described in the proviso in the preceding sentence shall be counted against the dollar amounts set forth in Paragraph 1.2(b) above. 1.8 ABB LTD EXCLUDED LIABILITIES. This Annex G shall not apply with respect to any Excluded Real Property or to the "Windsor Site" (as such term is defined in the CE Asset Purchase Agreement) or in respect of any "Windsor Site Liabilities" (as defined in the CE Asset Purchase Agreement), any Nuclear Liabilities or any other ABB Ltd Excluded Liabilities (other than Indemnified Compliance Costs), all of which shall be indemnified by ABB in accordance with the provisions of Annex E. 1.9 EFFECTIVENESS. This Annex G shall be effective automatically upon the occurrence of the Settlement Closing. 5 ANNEX H WORKING PRINCIPLES BETWEEN ALSTOM, ABB LTD AND THE JC IN THE FIELD OF POWER GENERATION PROJECT DEVELOPMENT, PROJECT FINANCE/STRUCTURED FINANCE, PROJECT INVESTMENT 1 Principle of Freedom of Action All Parties are free to engage in the above activities for their own account and/or in conjunction with any third party, subject to the following restrictions, provided that it is understood and agreed that this paragraph 1 is an exception only to paragraph 3 of, and not to any other paragraph of, Schedule 15.1 to this Agreement (Prohibited Activities). 1.1 PRINCIPLE OF PREFERENCE TO THE JC Whenever a member of the ABB Ltd Group lead develops (or contributes to lead develop) a turnkey power plant project (a "Project"), the JC is given an option of first refusal for all EPC contracts and related service contracts in relation to the Project, provided that such contracts have not been awarded prior to such involvement by a member of the ABB Ltd Group. 1.2 PRINCIPLE OF CONSULTATION PREFERENCE TO PARENTS Whenever the JC acts as lead developer and/or lead finance arranger for a Project above $100 million, both ALSTOM's and ABB Ltd's financial services units will be consulted by the JC, so as to allow them to offer to provide the JC project finance services on an arm's length basis. 2 TERM OF WORKING PRINCIPLES These Working Principles shall remain in effect for a period of three (3) years following the Settlement Closing, provided the Parties shall continue to act in accordance with these Working Principles with respect to all Projects initiated within the above-mentioned three (3) year period. EX-4.2 9 a2072395zex-4_2.txt EXHIBIT 4.2 EXHIBIT 4.2 EXECUTION COPY ================================================================================ PURCHASE AGREEMENT Between ABB HANDELS- UND VERWALTUNGS AG, as Seller and BRITISH NUCLEAR FUELS plc, as Purchaser Dated as of December 21, 1999 ================================================================================ PURCHASE AGREEMENT This Purchase Agreement is entered into as of this 21st day of December 1999 by and between the following parties: ABB HANDELS- UND VERWALTUNGS AG, a company organized and existing under the laws of Switzerland with its principal office at CH-8050 Zurich ("ABB"); and BRITISH NUCLEAR FUELS plc, a company organized and existing under the laws of England with its principal office at Risley, Warrington, Cheshire WA3 6AS, England ("PURCHASER"). WITNESSETH: WHEREAS, ABB is engaged, through its Affiliates, in nuclear plant and nuclear fuel supply, nuclear plant and nuclear fuel service and maintenance, and nuclear instrumentation and control; and WHEREAS, ABB desires to sell, transfer and assign, or otherwise cause the sale, transfer and assignment, to Purchaser, and Purchaser desires to purchase from ABB and/or its Affiliates, (i) all of the issued and outstanding shares of the NB Group; and (ii) such other assets related to the activities to be divested by ABB pursuant hereto and not otherwise held by the NB Group; NOW, THEREFORE, in consideration of the mutual covenants, representations and warranties herein contained, and subject to and on the terms and conditions herein set forth, the parties hereto agree as follows: ARTICLE 1 INTERPRETATION AND RELATED MATTERS 1.1. DEFINITIONS Unless the context of this Agreement provides otherwise, the entities defined in the heading and preamble of this Agreement shall retain such definitions and the following additional terms shall have the meanings set out below: "ABB ACCOUNTING PRINCIPLES" means the accounting principles of the ABB Group. "ABB GROUP" means ABB Ltd., an Affiliate of ABB and a company organized and existing under the laws of Switzerland with its principal office at Affolternstrasse 44, PO Box 8131, CH-8050 Zurich, Switzerland, and each of its Affiliates. "ABB RETIREMENT PLANS" shall have the meaning set out in Section 7.6(d). "ABB SAVINGS PLANS" shall have the meaning set out in Section 7.6(m). "ACTUAL DEFICIENCY AMOUNT" means the greater of (i) the amount, if any, by which Actual Equity is less than the Guaranteed Equity and (ii) the amount, if any, by which Actual Working Capital is less than Guaranteed Working Capital, in each case as determined on the basis of the Final Audit Report. "ACTUAL EQUITY" means the amount of Equity as of the Closing Date. "ACTUAL EXCESS AMOUNT" means the lesser of (i) the amount, if any, by which Actual Equity exceeds the Guaranteed Equity, and (ii) the amount, if any, by which Actual Working Capital exceeds Guaranteed Working Capital, in each case as determined on the basis of the Final Audit Report. "ACTUAL OKG LOSS" means the excess, if any, of the full costs actually incurred by the NB Group in the performance of the OKG Contract (including but not limited to liquidated and other damages payable to the customer in accordance with the terms thereof) over the revenues (including the net sales price actually received from the customer plus interest on customer advances), all calculated for the period after the Closing in accordance with the ABB Accounting Principles and, to the extent applicable, IAS, as in effect on the date hereof, and the principles set forth on SCHEDULE 1.1(1). "ACTUAL WORKING CAPITAL" means the amount of Working Capital as of the Closing Date. "ADDITIONAL BUSINESS ASSETS" means the properties, assets, goodwill and rights of ABB and/or its Affiliates in Belgium, France and, Korea which are set forth on SCHEDULE 1.1(2) hereto. "ADDITIONAL BUSINESS EMPLOYEES" means the employees of ABB and/or its Affiliates in Belgium, France, Italy, Korea and the People's Republic of China which are set forth on SCHEDULE 1.1(3) hereto. -2- "ADDITIONAL BUSINESS LIABILITIES" means those liabilities of ABB or any of its Affiliates arising out of the Additional Business Assets or relating to the Additional Business Employees. "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such Person (where "control", including with correlative meanings, the terms "controlled by" and "under common control with", means, as used with respect to any Person, the ownership of more than fifty percent (50%) of the voting rights attaching to shares or other equity interests issued by such Person, the power to appoint a majority of the members of such Person's management board or similar body, or the possession, directly or indirectly, by contract or otherwise, of the power to direct or cause the direction of the management and policies of such Person). "AGENCY ACTION" means any investigation, request for information, notice of violation, complaint, order, directive, court order, injunction, judgment or decree, consent order, consent agreement, administrative judgment, decree or injunction or other enforcement inquiry or action brought by a Governmental Authority having the requisite authority and jurisdiction to bring such action. "AGGREGATE LIABILITIES" shall have the meaning set out in Section 7.6(n). "AGREEMENT STATE" means each state of the United States which is authorized to regulate nuclear related materials based on authority delegated by the NRC pursuant to Section 274 of the Atomic Energy Act of 1954, 42 U.S.C. Section 2022, as amended. "ANCILLARY AGREEMENTS" shall mean the Non-Competition Agreement, the Transitional Services Agreement and the Supply and Licensing Agreement. "APPLICABLE LAW" means, as to any Person, any and all statutes, regulations, ordinances, judgments, orders, decrees and similar acts, including Environmental Law, of any governmental, judicial or similar body or authority in any jurisdiction applicable from time to time to such Person and to its businesses and assets. "BUSINESS" shall have the meaning set out in ANNEX 1 hereto. "BUSINESS AUDITORS" means Ernst & Young, Zurich office, auditors to the Business. -3- "BUSINESS EMPLOYEE" means each Closing Business Employee and each Former Business Employee. "BUSINESS-RELATED ENVIRONMENTAL LIABILITY" means any Environmental Liability, or any Liability under any Permit issued pursuant to any Environmental Law, in each case in connection with the Business, to the extent arising from (i) any condition at any site arising from its use prior to the Closing Date in the Business; or (ii) any act or omission of ABB or its Affiliates or of any Person for whom they are liable under Environmental Law in relation to the Business (including any prior owner, occupant or user of any site used in the Business), including any such Person engaged in the removal, transportation or disposition of Hazardous Substances that originated or at any time were located at any site used in the Business, at or prior to the Closing Date, but excluding in all cases any liability for a Remedial Action taken for the purpose of using any such site for a use other than its current use. "BUSINESS UNITS" means each of NBUS, NBFR, NBSE, the US I&C Unit, the German Units and the Swedish Unit and their respective Subsidiaries. "CASH BALANCE PLAN" shall have the meaning set out in Section 7.6(i). "CLOSING" means the consummation of the Transaction, which shall take place with effect as of the time and date set out in Section 4.1. "CLOSING AUDIT REPORT" means an audit report of the Business Auditors in accordance with Section 2.5(a), in which the Business Auditors certify the Actual Equity and the Actual Working Capital in accordance with this Agreement, which certificate shall (i) be substantially in the form of SCHEDULE 1.1(4)(b) hereto, (ii) be based on the Business Auditors' audit of the combined balance sheet of the Business as of the Closing Date, and (iii) include as an attachment the combined balance sheet of the Business (including related footnotes and disclosures) from which such Actual Equity and Actual Working Capital have been determined. "CLOSING BUSINESS EMPLOYEE" means, except as set forth on SCHEDULE 5.13, (i) in the case of an employee whose terms and conditions of employment with the Business are not subject to a collective bargaining agreement, each such employee who performs services primarily as an employee of the Business (a "NON-BARGAINED EMPLOYEE") on the Closing Date, (ii) in the case of any employee whose terms and conditions of employment with the Business are subject to a collective bargaining agreement, each such employee who performs services as an employee of the Business (a "BARGAINED -4- EMPLOYEE") on the Closing Date or, in the case of any such employees employed in Germany, who performs services primarily as an employee of the Business or (iii) a Non-Bargained Employee or Bargained Employee who is treated by the Business as an active employee of the Business for employee benefit purposes, including all such persons who are (A) absent by reason of vacation, salary continuation or short-term disability or (B) absent by reason of leave of absence or workers' compensation-related disability and are treated by the Business as an active employee. Each individual who is not treated as an active employee by the Business, was a Non-Bargained Employee or a Bargained Employee when he or she last performed services as an active employee of the Business, last performed such services within two years of the Closing Date and is on an approved leave of absence, workers' compensation-related disability or long-term disability shall be considered a Closing Business Employee as of the first date such individual becomes an active employee of the Purchaser or its Affiliates on or after the Closing Date. "CLOSING DATE" means the date on which the Closing occurs in accordance with this Agreement. "COBRA" shall have the meaning set out in Section 7.6(1). "CODE" means the Internal Revenue Code of 1986, as amended. "COMBINED FINANCIAL DATA" means key figures for the periods ended December 31, 1998 and September 30, 1999 and the unaudited combined balance sheet for the Business as of June 30, 1999, previously provided to Purchaser and attached hereto as SCHEDULE 1.1(5). "CONTRACTS" means all contracts, leases, indentures, and all joint venture, governmental funding or incentive program, guarantee, indemnity, license, development, settlement, teaming, divestiture and other agreements, commitments and all other legally binding arrangements, including all inter-divisional orders, in each case whether oral or written, relating primarily to the Business. "COST EFFECTIVE ALTERNATIVE" means the Remedial Action that (i) is necessary to achieve compliance with the Environmental Laws that are in effect either at the Closing Date or at the time of the Remedial Action, whichever is less expensive, and (ii) uses a cost-effective, commercially reasonable approach that complies with such Environmental Laws and assumes the continued use of the property and the assets as an industrial facility (where such facility is an industrial facility on the Closing Date) secured from general public access, except to the extent the applicable Nuclear Regulator requires -5- otherwise. In the event ABB and the Purchaser cannot agree as to what constitutes a Cost Effective Alternative in any given situation, the matter shall be resolved pursuant to Section 10.11. "DECONTAMINATION AND DECOMMISSIONING LIABILITIES" means all costs, Losses, and Liabilities arising from the process of the decommissioning or demolition of facilities or equipment at any site used in the Business required by any Nuclear Regulator in connection with the termination of service of all or any part of such facility, and arising under any Environmental Law, but excluding any such costs, Losses and Liabilities which are associated with the ongoing operations or with the interruption of the operations of the Business. "DEFERRED COMPENSATION PLAN" and "Deferred Compensation Plan Employees" shall have the meaning set out in Section 7.6(p). "DISPUTES AUDITORS" shall have the meaning set out in Section 2.5(c). "EMPLOYEE BENEFIT PLAN" means each material employee benefit plan (as defined in Section 3(3) of ERISA), without regard to whether such plan is not covered by ERISA by reason of Section 4(b)(4) of ERISA (relating to foreign benefit plans) and all other bonus, deferred compensation, incentive compensation, severance or termination pay, change in control compensation, and death benefit plans maintained or contributed to by ABB and/or its Affiliates and applicable to Business Employees. "ENCUMBRANCE" means a mortgage, lien, pledge, option, right of first refusal, right of preemption or other security interest or encumbrance of any kind. "ENVIRONMENTAL LAW" means any Applicable Law (including common law) or any other legally binding requirement that governs or purports to govern the existence of, relates to or provides a remedy for an actual or threatened Release of Hazardous Substances, pollution or the protection of persons, natural resources or the environment (including, without limitation, the protection of ambient air, surface water, groundwater, land surface or subsurface strata, endangered species or wetlands), occupational health and safety (excluding workers' compensation), the manufacture, processing, distribution, use, generation, handling, treatment, storage, disposal, transportation, Release or management of solid waste or Hazardous Substances, or other activities involving Hazardous Substances, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 ET SEQ., as amended by the Superfund Amendments and Reauthorization Act, the Hazardous -6- Materials Transportation Act, 49 U.S.C. Section 1801 ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the Clean Water Act, 33 U.S.C. Section 1251 ET SEQ., the Clean Air Act, 33 U.S.C. Section 2601 ET SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Section 136 ET SEQ., the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 ET SEQ., the Nuclear Waste Policy Act of 1982, 42 U.S.C. Section 10101 ET SEQ., Atomic Energy Act of 1954, 42 U.S.C. Section 2011 ET SEQ. and the Occupational Safety and Health Act, 29 U.S.C. Section 651 ET SEQ., as such laws have been amended or supplemented, and/or any other similar foreign, federal, state, local and/or county laws or regulations, in each case as in effect on the Closing Date or, with respect to representations and warranties made as of the date hereof, as of such date. "ENVIRONMENTAL LIABILITY" means any Liability arising under Environmental Law, including all direct costs and expenses associated with Remedial Action, natural resource damages and the costs assessed by any Governmental Authority, and the reasonable costs of environmental consultants, but excluding the costs of any Remedial Action that is not a Cost Effective Alternative, and excluding Decontamination and Decommissioning Liabilities. "EQUITY" means, at any time, the combined stockholders' equity of the Business, calculated in accordance with the ABB Accounting Principles and IAS applied on a basis consistent with that utilized in the preparation of the financial statements of the Business as of, and for the period ended on, December 31, 1998 (except for the effect of the adoption of IAS 19) forming part of the Financial Statements, except that the principles set forth on SCHEDULE 1.1(6) shall be applied when calculating Equity. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXECUTIVE LIFE INSURANCE PLAN" shall have the meaning set out in Section 7.6(o). "EXON-FLORIO AMENDMENT" means Section 721 of the Omnibus Trade and Competitiveness Act of 1988 (amending Title VII of the Defense Production Act, 50 U.S.C. App. Section 2170 (1997)). "FINAL AUDIT REPORT" shall have the meaning set out in Section 2.5(i). "FINANCIAL STATEMENTS" means, with respect to the Business, the unaudited balance sheets of each of NBUS, NBFR, the Swedish Unit and ABB Reaktor GmbH as of December 31, 1997 and 1998 and as of June 30, 1999, respectively, and the related -7- income statements and statements of cash flow for the periods then ended, copies of which are attached as SCHEDULE 1.1(7) hereto. "FOREIGN EMPLOYEE BENEFIT PLANS" means each Employee Benefit Plan which would qualify for an exemption from ERISA under Section 4(b)(4) thereof. "FORMER BUSINESS EMPLOYEE" means each individual who (i) is not a Closing Business Employee, (ii) is not currently employed by ABB or its Affiliates, and (iii) performed services as an employee of the Business when last employed by ABB or its Affiliates. "GERMAN UNITS" means, collectively, ABB Reaktor GmbH, a company organized under the laws of Germany; Hartmann & Braun GmbH & Co KG, a company organized under the laws of Germany; and ABB Utilities Automation GmbH, a company organized under the laws of Germany. "GOVERNMENTAL AUTHORITY" means any agency, board, body, bureau, court, commission, department, instrumentality, entity established or controlled by, or administration of any foreign government, the United States government, any state government or any local or other governmental body in a state, territory or possession of any country, or any political subdivision of any of the foregoing, including any legislative, judicial or administrative body. "GUARANTEED EQUITY" means Seventy-Six Million United States Dollars (US$76,000,000). "GUARANTEED WORKING CAPITAL" means Eighty-Nine Million Five Hundred Thousand United States Dollars (US$89,500,000). "HAZARDOUS SUBSTANCE" means (i) any petroleum or petroleum products (to the extent regulated under Environmental Law), flammable, explosive or radioactive material, asbestos or polychlorinated biphenyls (PCBs); and (ii) any substance, material or waste, the manufacture, use or disposal of which is regulated under any Environmental Law and is defined as, or included in the definition of, or deemed by any Environmental Law or Governmental Authority to be "hazardous," "toxic," a "contaminant," "waste," "pollutant," "hazardous substance," "hazardous waste," "restricted hazardous waste," "hazardous material," "extremely hazardous waste," "toxic substance," "toxic pollutant" or words with similar meaning. -8- "HEMATITE LEGACY LIABILITIES" means all Environmental Liabilities to the extent arising from or related to any condition which exists at the Hematite Site on the Closing Date that is not directly related to the Hematite Site's current nuclear fuel fabrication business, including, without limitation, all such Environmental Liabilities arising from or relating to (i) areas at the Hematite Site used for the disposal of materials or waste, some or all of which are referred to as the "burial pits"; (ii) groundwater contamination caused by the release of any Hazardous Substance prior to the Closing Date; (iii) areas at the Hematite Site previously used as "evaporation ponds"; (iv) all limestone and soil piles at the Hematite Site; and (v) the release, removal, transportation or disposition of Hazardous Substances prior to the Closing Date that originated, were used, generated or at any time were stored or otherwise held at the Hematite Site. "HEMATITE SITE" means the property, in its entirety, known as the ABB-Combustion Engineering Nuclear Power, Inc. Hematite facility, 3300 State Road P, Festus, Missouri. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "IAS" means International Accounting Standards. "INTELLECTUAL PROPERTY" means all domestic and foreign patents, registered utility models, trademarks, trademark registrations, service marks, service mark registrations, trade names, trade name registrations, trade dress, trade dress registrations, domain name registrations, slogans, registered copyrights and applications for registration of any of the foregoing, owned by ABB and/or its Affiliates and used or held for use in the Business, or which are licensed to ABB and/or its Affiliates for use in the Business, but excluding Intellectual Property which is subject to the Supply and Licensing Agreement, and the trademarks "CE", "C-E" and "Combustion Engineering", which are subject to Section 7.10(d). "INVENTORY" means all raw materials, work-in-process, finished goods, merchandise, office and other supplies, parts, packaging materials and other accessories related thereto which are held at, or are in transit from or to, any location at which the Business is conducted, or located at any suppliers' premises, in each case, which are used or held for use by ABB and/or its Affiliates in the conduct of the Business, including any of the foregoing which are purchased subject to any conditional sales or title retention agreement in favor of any other Person, together with all rights of ABB and/or its -9- Affiliates against any supplier of such inventories, all as determined in accordance with ABB Accounting Principles. "LIABILITIES" means, as to any Person, all debts, adverse claims, fines, liabilities and obligations of any kind, direct or indirect, absolute or contingent, known or unknown, of such Person, whether accrued, vested or otherwise, whether in contract, tort, strict liability or otherwise and whether or not actually reflected, or required by IAS to be reflected, in such Person's financial statements (including the notes thereto) or other books and records. "LOANS" means all loans extended by any member of the ABB Group to any member of the NB Group in accordance with Section 3.3. "LOCAL AGREEMENTS" means, collectively, each of the asset purchase agreements, each substantially in the form of ANNEX 3 hereto, pursuant to which Purchaser and/or its Affiliates shall acquire the Additional Business Assets from certain Affiliates of ABB and assume the Additional Business Liabilities from such Affiliates. "LOSSES" means any and all assessments, losses, damages, liabilities, obligations (including those arising out of any action, such as any settlement or compromise thereof or judgment or award therein) and any reasonable costs and expenses, including attorney's and other advisors' fees and disbursements. "MATERIAL ADVERSE EFFECT" means, in relation to any Person (or the Business, where applicable), any condition, change or effect that is materially adverse to the results of operations or financial condition of such Person and its Subsidiaries (or the Business where applicable) taken as a whole, but excluding conditions, changes or effects resulting from (i) changes in general economic conditions or, in the case of the NB Group, in conditions affecting the nuclear power industry generally; (ii) the announcement of this Agreement and the Transaction and compliance with the covenants set forth herein (including without limitation Section 7.4(d)); and (iii) with respect to the NB Group, Purchaser's consent or refusal to consent to the taking of actions set forth in Section 7.1. "NB GROUP" means NBUS, NBSE, NBDE, NBFR and, where applicable, each newly formed company referred to in Section 3.1(a)(ii), and their respective Subsidiaries. Each company in the NB Group shall be deemed an Affiliate of Purchaser after the Closing. -10- "NBDE" means a company organized under the laws of Germany to which all activities within the scope of the Business conducted by the German Units have been or will be transferred prior to the Closing in accordance with this Agreement. "NBFR" means ABB Barras Provence SA, a company organized under the laws of France. "NBSE" means ABB Cynthere 62 AB, a company organized under the laws of Sweden. "NBUS" means ABB C-E Nuclear Power Inc., a corporation organized under the laws of the State of Delaware, U.S.A. "NON-ABB EMPLOYEE BENEFIT PLANS" means each Employee Benefit Plan which is not sponsored by ABB or its Affiliates. "NON-BUSINESS LIABILITIES" means any (i) Liabilities which were transferred to NBDE or any of its Subsidiaries pursuant to the Pre-Closing Reorganization which do not primarily relate to or primarily arise out of the conduct of the Business; (ii) Liabilities which were transferred to the NB Group pursuant to the Local Agreements which do not primarily relate to or primarily arise out of the conduct of the Business; (iii) Liabilities which were transferred to NBUS or any of its Subsidiaries pursuant to the Pre-Closing Reorganization or pursuant to any other corporate reorganization consummated after December 31, 1998, in each case which do not primarily relate to or primarily arise out of the conduct of the Business; (iv) Liabilities which were transferred to any newly formed company referred to in Section 3.1(a)(ii) pursuant to the Pre-Closing Reorganization which do not primarily relate to or primarily arise out of the conduct of the Business; and (v) Liabilities referred to in clause (i) of SCHEDULE 3.1(b)(ii). "NON-COMPETITION AGREEMENT" means the Non-Competition Agreement between ABB Ltd and Purchaser substantially in the form of ANNEX 4 hereto. "NRC" means the United States Nuclear Regulatory Commission or any successor agency or other Governmental Authority to whom jurisdiction over radiological materials has been transferred or delegated and, for purposes of this Agreement, shall include any Agreement State. "NUCLEAR REGULATOR" means the NRC or any successor agency or other U.S. or foreign Governmental Authority to whom jurisdiction over radiological materials has -11- been transferred or delegated and, for purposes of this Agreement, shall include any Agreement State. "OKG CONTRACT" means the project contract dated April 17, 1997, between OKG Aktiebolag and ABB Atom AB, as amended by agreement between them on November 29 and 30, 1999, together with any other amendment thereto. "PARENT GUARANTEE" means the guarantee of ABB Ltd., to be given in favor of Purchaser in accordance with this Agreement and substantially in the form of ANNEX 5 hereto. "PERMITS" means all permits, licenses, registrations, filings, variances, certificates, exemptions, franchises and authorizations by or of any Governmental Authority, or other indicia of authority necessary for the conduct of the Business that are owned or held by or otherwise have been granted to or for the benefit of any Business Unit or the Additional Business Assets. "PERMITTED ENCUMBRANCES" means (i) Encumbrances disclosed in any Schedule to this Agreement; (ii) Encumbrances specifically described in the Financial Statements or that secure indebtedness of any entity in the NB Group; (iii) mechanics', carriers', workmen's, repairmen's and other like Encumbrances arising or incurred in the ordinary course of business that are not yet due and payable or that may thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings; (iv) Encumbrances for Taxes, assessments and other governmental charges not yet due and payable or that may thereafter be paid without penalty or that are being contested in good faith by appropriate proceedings; and (v) imperfections of title and other Encumbrances that do not materially affect the value of the encumbered asset or the continued use and operation of the encumbered asset in the Business for its intended purpose. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, other form of business or other entity of any kind (whether having separate legal personality) or Governmental Authority. "PRE-CLOSING REORGANIZATION" means any and all transactions to be carried out pursuant to Section 3.1. "PRELIMINARY REVIEW REPORT" means a report of the Business Auditors, in which the Business Auditors review the Equity and Working Capital as of the date of the balance sheets covered by such report in accordance with this Agreement, which -12- certificate shall (i) be substantially in the form of SCHEDULE 1.1(4)(a) hereto; (ii) be based on the Business Auditors' review of the combined balance sheet of the Business (including related footnotes and disclosures) as of the end of a calendar month no earlier than ninety (90) days before the Closing Date; and (iii) include as an attachment such combined balance sheet. "PURCHASE PRICE" shall have the meaning set forth in Section 2.2. "PURCHASER SAVINGS PLANS" shall have the meaning set out in Section 7.6(m) "RELEASE" means any releasing, spilling, leaking, discharging, disposing of, pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing to escape into the environment (air, surface water, groundwater, land surface, soil, substrata, sediment or rock) and includes any "release" as defined pursuant to the provisions of CERCLA. "REMEDIAL ACTION" means any action to investigate, clean up, monitor, abate, transport, remove, treat or in any way address any Hazardous Substance that is required by any Environmental Law, whether or not such action is taken pursuant or in response to any Agency Action or third party claim. "REPRESENTED ABB RETIREMENT PLANS" shall have the meaning set out in Section 7.6(n). "RESTORATION PLAN" shall have the meaning set out in Section 7.6(d). "RESTRUCTURING PLANS" means ABB's restructuring plans described in SCHEDULE 1.1(8) hereto. "SELLER" means each Affiliate of ABB which will convey any Shares, Loans or other assets to Purchaser or any member of the NB Group pursuant to this Agreement. "SHARES" means, collectively, all issued and outstanding shares of common stock of each of NBUS, NBSE, NBDE, NBFR and, where applicable, all issued and outstanding shares of each newly formed company referred to in Section 3.1(a)(ii) which are not owned by NBUS, NBSE, NBDE or NBFR or any of their respective Subsidiaries. "SUBSIDIARY" means, as to any Person, any other Person, directly or indirectly, through one or more intermediaries, controlled by such first Person (where "controlled by" means, as used with respect to any Person, the ownership of more than fifty percent (50%) of the voting rights attaching to shares or other equity interests issued by such Person, the power to appoint a majority of the members of such Person's management -13- board or similar body, or the possession, directly or indirectly, by contract or otherwise, of the power to direct or cause the direction of the management and policies of such Person). "SUPPLY AND LICENSING AGREEMENT" means the agreement substantially in the form of ANNEX 2 hereto. "SURPLUS ENTITLEMENT" shall have the meaning set out in Section 7.6(q). "SWEDISH UNIT" means ABB Atom AB, a company organized under the laws of Sweden. "TAX RETURN" means any return, report, form, declaration, claim for refund, information report or return, statement, supplementary or supporting schedules or other information filed with any taxing authority with respect to Taxes. "TAXES" means any and all United States federal, state, provincial, local, foreign and other taxes, levies, fees, import duties and similar government charges (including any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto) of any taxing authority, including, without limitation, taxes imposed on, or measured by, income, franchise, profits or gross receipts, AD VALOREM, value added, capital gains, sales, goods and services, use, real or personal property, capital stock, license, branch, payroll, estimated withholding, employment, social security (or similar), unemployment, compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes, and customs duties. "TECHNOLOGY" means all trade secrets, inventions, invention disclosures under evaluation, know-how, show-how, know-why, formulae, processes, procedures, research records, records of inventions, test information, market surveys and marketing know-how, unregistered copyrights and software, including source and object code, and related documentation, supporting database information and modifications and enhancements thereof, owned by ABB and/or its Affiliates and used or held for use in the Business, or which are licensed to ABB and/or its Affiliates for use in the Business, but excluding Technology which is subject to the Supply and Licensing Agreement. "TRANSACTION" means the Pre-Closing Reorganization, the sale and purchase of the Shares and the Loans, and the sale and purchase of the Additional Business Assets and the assumption of the Additional Business Liabilities, in each case in accordance with -14- this Agreement and the Local Agreements, and all other transactions contemplated hereby. "TRANSITIONAL SERVICES AGREEMENT" shall mean an agreement between ABB or its Affiliate and Purchaser, substantially in the form of ANNEX 6 hereto. "TREASURY REGULATIONS" means temporary or final regulations promulgated under the Code. "U.S. EMPLOYEE BENEFIT PLANS" means each Employee Benefit Plan other than a Foreign Employee Benefit Plan. "US I&C NEWCO" means any newly formed Subsidiary of ABB or any of its Affiliates into which certain assets of the US I&C Unit are transferred pursuant to Section 3.1(a). "US I&C UNIT" means ABB Automation Inc., a company organized under the laws of the State of Ohio, U.S.A. "WINDSOR SITE" means the property, in its entirety, known as the ABB-Combustion Engineering Windsor Site, 2000 Day Hill Road, Windsor, Connecticut. "WINDSOR SITE ENVIRONMENTAL LIABILITIES" means (i) all Environmental Liabilities, including but not limited to Business-Related Environmental Liabilities and any Liability under any Permit issued pursuant to any Environmental Law, to the extent arising from or related to any condition which exists at the Windsor Site; (ii) all Environmental Liabilities arising from or related to the Release, transportation or disposition, by any Person of Hazardous Substances that were used, generated or stored or otherwise held at the Windsor Site; and (iii) Decontamination and Decommissioning Liabilities related to the Windsor Site. "WORKING CAPITAL" means, at any time, the EXCESS of (i) the sum of (A) cash, (B) cash equivalents, (C) trade receivables (net of provisions for doubtful accounts) and financing receivables, and (D) Inventory OVER (ii) the sum of (A) trade payables and (B) customer advances, on a combined basis for the Business, all calculated in accordance with the ABB Accounting Principles and IAS applied on a basis consistent with that utilized in the preparation of the financial statements of the Business as of, and for the period ended on, December 31, 1998 (except for the effect of the adoption of IAS 19), forming part of the Financial Statements, except that the principles set forth on SCHEDULE 1.1(6) shall be applied when calculating Working Capital. -15- 1.2. OTHER TERMS Other terms may be defined elsewhere in this Agreement (including in any Annex or Schedule hereto) and, unless otherwise indicated, shall have the respective meanings there ascribed to such terms. 1.3. INTERPRETATION The following provisions shall apply in connection with the interpretation of this Agreement: (a) Any reference to the singular includes the plural and vice versa, any reference to natural persons includes legal persons and vice versa, and any reference to a gender includes the other genders. (b) Any reference to Articles, Sections, Paragraphs, Clauses, Annexes and Schedules are, unless otherwise stated, references to Articles, Sections, Paragraphs, Clauses, Annexes and Schedules of or to this Agreement. The headings in this Agreement have been inserted for convenience only and shall not be taken into account in its interpretation. (c) The words "hereof", "herein" and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (d) All Annexes and Schedules form an integral part of this Agreement and are equally binding therewith. Any reference to "this Agreement" shall include such Annexes and Schedules. (e) A document in the "agreed terms" or in the "agreed form" is a reference to a document in a form approved by or on behalf of each party hereto, as amended by agreement in writing between the parties from time to time. (f) Any reference to a statutory provision shall include a reference to the provision as modified or re-enacted, or both, from time to time and any subordinate legislation made under such statutory provision. (g) References to a party shall include any permitted assignee or successor to such party in accordance with this Agreement. -16- (h) If any period is referred to in this Agreement by way of reference to a number of days, the days shall be reckoned exclusively of the first and inclusively of the last day unless the last day falls on a Saturday, Sunday or public holiday in the location of performance, in which case the last day shall be the next succeeding day which is not a Saturday, Sunday or public holiday in such location. (i) The terms "dollars" or "$" shall mean United States dollars. (j) Whenever any reference is made in this Agreement to ABB's knowledge, information, belief or awareness, it shall be deemed to mean the actual (and not constructive or imputed) knowledge, information, belief or awareness of the individuals set out in Schedule 1.3(j) without being required to undertake any investigation concerning any matter in question. ARTICLE 2 ACQUISITION OF SHARES, LOANS, ADDITIONAL BUSINESS ASSETS AND ADDITIONAL BUSINESS LIABILITIES 2.1. SALE AND PURCHASE (a) Upon the terms and subject to the conditions contained herein, at the Closing ABB shall sell, assign, transfer and deliver (or cause to be sold, assigned, transferred and delivered) to Purchaser, and Purchaser agrees to purchase from ABB and/or its Affiliates, the Shares and the Loans, free and clear of all Encumbrances. (b) Upon the terms and subject to the conditions contained herein and the Local Agreements, at the Closing or as soon as reasonably practicable thereafter, ABB shall cause its relevant Affiliates to sell, transfer, convey, assign and deliver to Purchaser (or its designated Affiliates, such Affiliates to be reasonably satisfactory to ABB) good title to the Additional Business Assets free and clear of all Encumbrances other than Permitted Encumbrances (and, in the case of real property, other Encumbrances referred to in Section 5.9(b)) and Purchaser (or such designated Affiliates of Purchaser) shall accept the Additional Business Assets, assume, pay and thereafter duly perform and discharge the Additional Liabilities and offer employment to each Additional Business Employee on terms, including but not limited to position and level of compensation, no less favorable to each such Additional Business Employee than those applicable immediately prior to the Closing, all pursuant to the relevant Local Agreement. 2.2. PURCHASE PRICE; PRELIMINARY REVIEW REPORT -17- (a) The purchase price for the Shares, the Loans and the Additional Business Assets (the "PURCHASE PRICE") shall equal Four Hundred Eighty Five Million United States dollars (US$ 485,000,000). Subject to the terms and conditions of Sections 2.5 and 2.6, the Purchase Price shall be adjusted as provided therein. (b) ABB shall deliver the Preliminary Review Report to Purchaser no later than five (5) days prior to the Closing 2.3. ALLOCATION OF PURCHASE PRICE The Purchase Price shall be allocated firstly to payment for the Loans at their face value and the balance of the Purchase Price shall be allocated to payment for the Shares and the Additional Business Assets in accordance with SCHEDULE 2.3, which allocation shall be appropriately restated to account for any adjustment pursuant to Sections 2.5 and 2.6. The parties will, and will make all reasonable efforts to ensure that their respective Affiliates will, adopt and utilize the agreed allocation for all purposes (including for Tax purposes). Neither ABB nor Purchaser, nor any of their respective Affiliates, shall file any Tax Return or other document or otherwise take any position which is inconsistent with the allocation determined pursuant to this Section 2.3. 2.4. PAYMENT Purchaser shall, or shall cause, the Purchase Price to be paid in full at the Closing, by wire transfer in immediately available funds, without set-off or counterclaim and to the account or accounts designated by ABB. 2.5. CLOSING AUDIT REPORT; DISPUTES (a) As soon as reasonably practicable after the Closing, ABB shall cause the Business Auditors to prepare the combined balance sheet of the Business as of the Closing Date, together with the audit reports of the Business Auditors to the effect that such balance sheet has been prepared and audited in accordance with the requirements of this Section 2.5 and the definition of Closing Audit Report and setting forth the calculations of Actual Equity and Actual Working Capital in accordance with the terms of this Agreement. Such balance sheet shall be prepared in accordance with the ABB Accounting Principles applied on a basis consistent with that utilized in the preparation of the financial statements of the Business as of, and for the period ended on, December 31, 1998 (except for the effect of the adoption of IAS 19) forming a part of the Financial Statements, and in accordance with the principles set forth on SCHEDULE 1.1(6). Purchaser shall, and shall cause its Affiliates to, provide full access to the Business Auditors to the premises, properties, books, accounting records and other documents (including supporting -18- contractual documentation) and personnel of the Business reasonably requested by the Business Auditors. The Business Auditors shall deliver the Closing Audit Report to each of ABB and Purchaser no later than ninety (90) days after the Closing. (b) The Closing Audit Report shall be binding and conclusive upon Purchaser and ABB unless Purchaser or ABB shall have notified the other party in writing within sixty (60) days after the date of the Closing Audit Report (which Closing Audit Report shall be dated no earlier than five (5) days before it is dispatched) of any objections thereto (an "OBJECTION NOTICE"). A notice under this Section 2.5(b) shall specify in reasonable detail the items in the Closing Audit Report which are being disputed and a description in reasonable detail of the reasons for such dispute. (c) During the entire 60-day period following Purchaser's receipt of the Closing Audit Report, Purchaser and its independent auditors shall be permitted to review and make copies of the working papers of the Business and the Business Auditors relating to the Closing Audit Report (subject to such reasonable indemnities and other protection as may be required by the Business Auditors) and shall have reasonable access to representatives of the Business and to the Business Auditors. (d) At the request of either party, any dispute between the parties relating to objections made to the Closing Audit Report which cannot be resolved by them within sixty (60) days after the other party's receipt of an Objection Notice shall be referred to such international accounting firm agreed between the parties or, failing such agreement within seven (7) days of written notice by either party hereto to the other party requiring such agreement, nominated by the Chairman of the Board of the International Accounting Standards Committee (or his designee) on the application of either party (the "DISPUTES AUDITORS") for decision in accordance with this Section 2.5. (e) Before referring a matter to the Disputes Auditors, the parties shall agree on procedures to be followed by the Disputes Auditors (including procedures for presentation of evidence). If the parties are unable to agree upon procedures before the end of sixty (60) days after receipt of an Objection Notice, the Disputes Auditors shall establish the procedures giving due regard to the provisions of this Agreement and the intention of the parties to resolve disputes as quickly, efficiently and inexpensively as reasonably possible; PROVIDED that such procedures shall (i) give the parties a reasonable opportunity to submit written representations and make oral submissions; (ii) require that copies of all written submissions by either party are supplied to the other party; and (iii) permit each party to be present while any oral submissions are made by the other party. -19- (f) The parties shall, as promptly as practicable, submit evidence in accordance with the procedures agreed upon or established by the Disputes Auditors, and the Disputes Auditors shall decide the dispute in accordance therewith as promptly as practicable. At all times pending resolution of any matter submitted to the Disputes Auditors pursuant to this Section 2.5, Purchaser shall cause the employees of the Business to afford to ABB and its accountants, counsel, financial advisers and other representatives on-site access reasonably required at all reasonable times to all personnel, properties, books, contracts, records, schedules, analyses and working papers of the Business. (g) The Disputes Auditors shall review only the specific objections to the Closing Audit Report as to which the parties are in dispute and shall make its determination based upon the terms, conditions and principles set forth in this Agreement and within the range of outcomes proposed by the parties. The parties agree that they will require the Disputes Auditors to render its decision within thirty (30) days after referral of the dispute to the Disputes Auditors for decision pursuant hereto. In the absence of calculation and other similar manifest errors, the decision of the Disputes Auditors shall be final and binding on both parties. Judgment may be entered upon the determination of the Disputes Auditors in any court having jurisdiction over the party against which such determination is to be enforced. (h) All fees and expenses of the Disputes Auditors shall be borne by the parties equally, unless the dispute is expressly resolved by the Disputes Auditors in favor of one party exclusively (in which event such fees and expenses shall be borne entirely by the other party). (i) The Closing Audit Report shall become final and binding on both parties upon the earliest to occur of (i) if no Objection Notice has been given, the expiration of the period within which either party may notify the other party of any objections thereto pursuant to Section 2.5(b); (ii) the agreement by ABB and Purchaser that such Closing Audit Report, together with any modifications thereto agreed by them, shall be final and binding; and (iii) if a matter has been submitted to the Disputes Auditors in accordance with this Section 2.5, the date on which the Disputes Auditors shall issue its decision with respect thereto. The Closing Audit Report, as adjusted, where applicable, pursuant to any agreement between the parties or pursuant to the decision of the Disputes Auditors, when final and binding on both parties in accordance with the immediately preceding sentence, is herein referred to as the "FINAL AUDIT REPORT". 2.6. ADJUSTMENT (a) Within ten (10) business days after the Closing Audit Report has become final and binding on ABB and Purchaser pursuant to Section 2.5: -20- (i) If there is an Actual Excess Amount, Purchaser shall pay to ABB, by wire transfer in immediately available funds, without set-off or counterclaim and to the account designated by ABB in writing, an amount equal to the Actual Excess Amount; or (ii) If there is an Actual Deficiency Amount, ABB shall pay to Purchaser, by wire transfer in immediately available funds, without set-off or counterclaim and to the account designated by Purchaser in writing, an amount equal to the Actual Deficiency Amount. (b) Any amount payable by either party pursuant to Section 2.6(a) shall be paid with interest thereon at the three-month treasury bill rate (as reported by THE WALL STREET JOURNAL or, if not reported thereby, by another authoritative source) in effect on the Closing Date plus 1.0%, calculated on the basis of the actual number of days elapsed over 365, from the Closing Date to the date of actual payment, compounded annually. (c) Notwithstanding the foregoing provisions of this Section 2.6, if the Closing Audit Report delivered by the Business Auditors pursuant to Section 2.5(a) and any Objection Notice delivered by either Purchaser or ABB or both pursuant to Section 2.5(b) all reflect a calculation of Actual Equity and Actual Working Capital that, if correct, would require a payment by the same party, then within 10 days after delivery of the later of the two Objection Notices (or if only one Objection Notice is delivered, within 10 days after the expiration of the period within which the parties may deliver Objection Notices pursuant to Section 2.5(b)), that party shall make a payment to the other, in the manner and with interest as provided elsewhere in this Section 2.6, in an amount equal to the lesser of (i) the amount payable by that party pursuant to the calculation reflected in the Closing Audit Report, and (ii) the amount payable by that party pursuant to the calculation reflected in such party's Objection Notice (if any). Any amount paid pursuant to the preceding sentence shall be applied against, and correspondingly reduce, the amount otherwise payable under this Section 2.6. ARTICLE 3 CERTAIN PRE-CLOSING REORGANIZATION 3.1. CERTAIN TRANSFERS (a) ABB will take, or cause to be taken, such actions as may be necessary or appropriate to ensure that, subject to Section 4.4, at the Closing (i) all activities within the scope of Business conducted by the German Units have been transferred to NBDE; and (ii) all activities within the scope of Business conducted by the US I&C Unit have been transferred to one or more newly formed companies wholly-owned by ABB and/or its Affiliates or to other companies in the NB Group. -21- (b) For purposes of this Agreement, activities within the scope of the Business to be transferred pursuant to Paragraph (a) above shall be deemed to have been so transferred when (i) subject to Section 4.4, all properties, assets, goodwill and rights of whatever kind or nature (including but not limited to rights under Contracts and rights in respect of Intellectual Property and Technology), other than properties, assets, goodwill and rights described in SCHEDULE 3.1(b)(i) hereto, owned by any transferor set out in such Paragraph (a) and primarily used or held for use in, or primarily relating to or arising out of the conduct of, the Business shall have been sold, assigned, transferred and delivered to, and purchased by, the transferees set out in such Paragraph (a); (ii) all Liabilities, other than Liabilities described in SCHEDULE 3.1(b)(ii) hereto, owing by any transferor set out in such Paragraph (a) and primarily relating to or arising out of the conduct of the Business shall have been assumed by the transferees set out in such Paragraph (a); and (iii) each individual who, on the date on which the activities referred to in Paragraph (a) above are transferred, performs services primarily as an employee for such activities (including such persons who are on an approved leave of absence, vacation, salary continuation, short-term disability, long-term disability, workers' compensation-related disability or otherwise treated as an active employee of such activities) shall have been offered employment with the transferees on terms, including but not limited to position and level of compensation, no less favorable to such individual than those applicable immediately prior to such date, or otherwise shall have been transferred to the transferees in accordance with Applicable Law. (c) The sale and purchase of properties, assets, goodwill and rights, and the assumption of Liabilities, in each case pursuant to Paragraph (b) above, shall be effected pursuant to a purchase agreement between the relevant transferor and transferee, which agreement shall include a warranty by the transferor to the transferee that it has taken all corporate action required to authorize the transaction and that it is the owner of the properties, assets, goodwill and rights subject to such agreement, in each case free and clear of all Encumbrances other than Permitted Encumbrances (and, in the case of real property, other Encumbrances referred to in Section 5.9(b)). No other warranties shall be given by the transferor and it shall not, once the relevant properties, assets, goodwill and rights have been duly transferred as per the terms of such purchase agreement, create any obligation to indemnify the transferee or any other Person. Nothing in this Paragraph (c) shall operate to limit any liability that ABB may have in relation to the Business by virtue of any representation or warranty made by it in Article 5. (d) ABB will take, or cause to be taken, such actions as may be necessary or appropriate to ensure that, at the Closing, all outstanding shares of the Swedish Unit are owned of record and beneficially by NBSE. -22- 3.2. ABB TRADEMARKS AND TRADE NAMES It is understood and agreed that, except to the extent provided in Section 7.10, no rights to the trademarks, servicemarks, trade names or corporate or business names or other indicia of origin including the initialisms or words "ABB", "BBC", "Asea", "Brown", or "Boveri" in whole or in part shall be acquired by Purchaser or the NB Group under this Agreement. 3.3. THE LOANS ABB and/or other companies in the ABB Group may extend loans to companies in the NB Group to help them finance with debt any or all of the transactions contemplated by Section 3.1. Prior to making any final decision on the capitalization of NBDE, NBSE and, where applicable, US I&C Newco, ABB will provide Purchaser with a reasonable opportunity to submit a proposal in this regard and, if so submitted, will consider such proposal in good faith. ARTICLE 4 THE CLOSING 4.1. CLOSING DATE The Closing shall take place at the offices of White & Case LLP, 1155 Avenue of the Americas, New York, New York 10036, U.S.A., at 10:00 a.m. on a date specified by ABB that is not earlier than two (2) days and not later than ten (10) days following the satisfaction or waiver of the conditions to the Closing set forth in Section 8.1(b), or, if the other conditions to the Closing set forth in Article 8 have not been satisfied or waived by such date, as soon as practicable after such conditions have been satisfied or waived, and the Closing shall be deemed to take place at 10:00 a.m. on such date. 4.2. DELIVERIES BY ABB ABB shall deliver (or shall cause its Affiliates to deliver) to Purchaser at the Closing: (i) all certificates or other instruments representing the Shares and the Loans, in each case duly endorsed and/or accompanied by other documents required under Applicable Law in order to transfer title to the Shares and the Loans; (ii) if executed on the Closing Date, duly executed counterparts of the applicable Local Agreements in respect of the Additional Business Assets and Additional Business Liabilities; and (iii) unless otherwise requested by Purchaser at least ten (10) days prior to the Closing, resignations as director, effective as of the Closing, of each member of the board of directors of each company in the NB Group. -23- 4.3. DELIVERIES BY PURCHASER Purchaser shall deliver to ABB (or, at ABB's direction, one or more of its Affiliates) at the Closing (i) the Purchase Price; and (ii) all other amounts, if any, required to be paid by Purchaser to ABB prior to or at the Closing pursuant to this Agreement, in each case by wire transfer in immediately available funds, without set-off or counterclaim and to the account or accounts designated by ABB. 4.4. LIMITATION ON ASSIGNMENTS To the extent that the Transaction would constitute the assignment of any Contract of ABB or any of its Affiliates requiring the consent of another party thereto, this Agreement and, to the extent applicable, the relevant Local Agreement, shall not constitute an agreement to assign the same if an attempted assignment would constitute a breach thereof. It is understood and agreed that the failure to obtain such consents shall not reduce the Purchase Price or relieve either party from its obligation to consummate the Transaction at the Closing, but shall be subject to the rights and obligations of the parties under Section 7.5. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ABB ABB represents and warrants to Purchaser that the following statements are true and correct: 5.1. ORGANIZATION (a) ABB is a company duly organized and validly existing under the laws of Switzerland and has the requisite corporate power and authority to own its properties and to carry on its business as presently being conducted. (b) Each of NBUS, NBFR and NBSE and their respective Subsidiaries, and each Seller, is a corporation or company duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of incorporation or organization and each of them has the requisite corporate power and authority to own its assets and to conduct its business as presently being conducted. (c) At the Closing, NBDE and, where applicable, each newly formed company referred to in Section 3.1(a)(ii) will be a company duly organized, validly existing and, where applicable, in good standing under the laws of its jurisdiction of incorporation or organization and will have the requisite corporate power and authority to own their respective properties and -24- to conduct the respective businesses transferred to them in accordance with this Agreement. Except as set forth on SCHEDULE 5.1(c), at the Closing, neither NBDE nor any newly-formed company referred to in Section 3.1(a)(ii) will have any Subsidiaries. 5.2. AUTHORITY (a) ABB has the requisite corporate power and authority to execute, deliver and perform this Agreement. The execution and delivery of this Agreement by ABB and the consummation of the Transaction have been duly authorized by all necessary corporate action on the part of ABB and do not require the approval of the stockholders of ABB or of any Affiliate of ABB other than approvals already obtained. Each Seller has the requisite corporate power and authority to consummate the Transaction to the extent it is applicable to such Seller. At the time of Closing, the consummation of the Transaction shall have been duly authorized by all necessary corporate action on the part of each Seller to the extent it is applicable to such Seller. This Agreement has been duly executed and delivered by ABB and, assuming the due authorization, execution and delivery of this Agreement by Purchaser, this Agreement constitutes a legal, valid and binding obligation of ABB enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general principles of equity. (b) No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to ABB or any of its Affiliates in connection with the execution and delivery of this Agreement or the consummation of the Transaction, except for (i) compliance with and filings under the HSR Act and under applicable competition laws and regulations in Sweden, Germany and Spain; (ii) voluntary notification under the Exon-Florio Amendment; (iii) consents or novations which may be required for the assignment of any Contract or Intellectual Property; (iv) compliance with, and notices and filings under, Environmental Law or under Permits issued pursuant to Environmental Law; (v) compliance with, and notices, filings and approvals under, the regulations of the NRC or any Agreement State, or of any other Nuclear Regulator, including any applications for licenses or license transfers; (vi) approval of the Ministry of Finance and Economy in France and the filing with the Nuclear Power Inspectorate in Sweden and (vii) those the failure of which to obtain or make, individually or in the aggregate, would not materially impair the ability of ABB or any of its Affiliates to perform its obligations under this Agreement or the Ancillary Agreements to which it is a party. -25- 5.3. NO CONFLICTS Neither the execution and delivery of this Agreement by ABB, nor the consummation of the Transaction, nor compliance by ABB with any of the provisions hereof applicable to it, will (i) violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under (A) the memorandum, articles of association or other organizational documents of ABB or any Seller; or (B) any material agreement to which ABB or any Seller is a party or by which any such Person or any of its material assets may be bound; or (ii) violate any Applicable Law or any order, judgment or decree of any court or other Governmental Authority applicable to ABB or any Seller. 5.4. SHARES AND LOANS At the Closing: (i) the authorized and outstanding capital stock of NBUS, NBSE, NBFR and NBDE, and, where applicable, each newly formed company referred to in Section 3.1(a)(ii) will be as set forth on Schedule 5.4 hereto; (ii) the Shares will have been duly authorized, validly issued, will be fully paid up and non-assessable, and will be owned of record and beneficially by ABB and/or its Affiliates as set forth on Schedule 5.4, in each case free and clear of any and all Encumbrances; (iii) there will be no outstanding options, warrants or other rights of any kind entitling any Person to acquire any additional shares of capital stock of NBUS, NBSE, NBFR, NBDE or, where applicable, any newly formed company referred to in Section 3.1(a)(ii) which is not owned by NBUS, NBSE, NBDE, or NBFR or any of their respective Subsidiaries, or securities convertible into or exchangeable for any such additional shares and none of NBUS, NBSE, NBFR, NBDE or, where applicable, any such newly-formed company will have committed to issue any such option, warrant, right or security; and (iv) all Loans will be owned of record and beneficially by a company in the ABB Group, free and clear of any and all Encumbrances. 5.5. SUBSIDIARIES At the Closing, the authorized and outstanding capital stock of each direct and indirect Subsidiary of NBUS, NBSE, NBFR and NBDE, and, where applicable, each newly formed company referred to in Section 3.1(a)(ii), as applicable, will be as set forth on SCHEDULE 5.5, and except as set forth on SCHEDULE 5.5, all of such issued and outstanding shares of capital stock will be (i) owned, directly or indirectly, beneficially and of record by NBUS, NBSE, NBFR and NBDE, and, where applicable, each newly formed company referred to in Section 3.1(a)(ii), as applicable, as set forth on SCHEDULE 5.5, free and clear of any and all Encumbrances; and (ii) duly authorized, validly issued, fully paid up and non-assessable. Except as set forth on -26- SCHEDULE 5.5, there will not, at the Closing, be any outstanding options, warrants or other rights of any kind entitling any Person to acquire any additional shares of capital stock of any such Subsidiary or securities convertible into or exchangeable for any such additional shares and none of such Subsidiaries have committed to issue any such option, warrant, right or security. 5.6. FINANCIAL INFORMATION (a) ABB has previously delivered the Financial Statements and the Combined Financial Data to Purchaser. The Financial Statements have been prepared from the books and records of ABB and/or its Affiliates relating to the Business and have been prepared in accordance with the ABB Accounting Principles applied on a basis consistent with that of the unaudited financial statements of the Business for the immediately preceding fiscal year of the ABB Group, except for changes in IAS or as otherwise provided in SCHEDULE 5.6(a). The ABB Accounting Principles comply in all respects with IAS. (b) The order backlog information set forth in SCHEDULE 5.6(b) was true and correct in all material respects as of September 30, 1999. (c) With respect to the information in relation to the Business set out in SCHEDULE 5.6(c), the information for fiscal year 2000 is based on the budget for such year, and the information for fiscal years 2001 and 2002 is based on the strategic plan for such years, which budget and strategic plan were prepared by ABB and/or its Affiliates in the ordinary course of planning for the future conduct of the Business, and not for purposes of the Transaction, and were reviewed and approved in the normal budget and strategic planning processes applicable within the ABB Group. (d) The information on restructuring charges and on corporate charges and allocations set out in SCHEDULE 5.6(d) is true and accurate in all material respects. 5.7. COMPLIANCE WITH LAW (a) The Business is being and, at all times since December 31, 1996, has been conducted in compliance with Applicable Law, except for violations, if any, which in the aggregate have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. All governmental approvals, permits and licenses required in connection with the conduct of the Business have been obtained and are in full force and effect and are being complied with except for such approvals, permits and licenses, the failure of which to obtain or the violation of which individually or in the aggregate have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. None of the Business Units has at any time since December 31, 1996 (i) made any illegal payments for political contributions or -27- any bribes, illegal kickback payments or other illegal payments; or (ii) been disqualified from bidding on any public or private contract or project as a result of having violated Applicable Law. This Section 5.7 does not relate to labor and employment matters (to which Section 5.12 is applicable), employee benefits matters (to which Section 5.13 is applicable), Tax matters (to which Section 5.14 is applicable), litigation matters (to which Section 5.15 is applicable), or environmental matters (to which Section 5.16 is applicable). (b) Each member of the NB Group has at least the minimum amount of capital required by Applicable Law. 5.8. SUFFICIENCY OF ASSETS (a) The Business Units have, and, subject to Section 4.4, at the Closing the NB Group will have, good and valid title to, or subsisting leasehold interests in, all material tangible personal property primarily used or held for use in the Business, free and clear of any and all Encumbrances other than Permitted Encumbrances. (b) Without limiting Section 5.8(a), and except as set forth on SCHEDULE 5.8(b), to ABB's knowledge, the Business Units have, and subject to Section 4.4, at the Closing the NB Group will have, good and valid title to, or subsisting leasehold interests in or licenses to, all material assets (including without limitation Contracts and Intellectual Property) primarily used or held for use in the Business, free and clear of any and all Encumbrances other than Permitted Encumbrances (and, in the case of real property, other Encumbrances referred to in Section 5.9(b)). 5.9. REAL PROPERTY (a) SCHEDULE 5.9 is in all material respects an accurate and complete list as of the date hereof of the street addresses of all real property owned or leased by ABB and/or any of its Affiliates and primarily used or held for use in the Business, and indicating whether such real property is owned or leased. (b) The Business Units have, and at the Closing the NB Group will have, fee title to all real property owned by ABB and/or its Affiliates and primarily used or held for use in the Business ("OWNED REAL PROPERTY"), free and clear of any and all Encumbrances other than (i) Permitted Encumbrances; (ii) recorded or unrecorded easements, covenants, rights-of-way and similar restrictions; and (iii) zoning, building and other similar restrictions; none of which items set forth in clauses (ii) and (iii) above, individually or in the aggregate, materially impairs the ability of any Business Unit, or will at the Closing Date materially impair the ability of any member of the NB Group, to use any Owned Real Property for the purposes for which it is -28- currently being used or planned to be used in connection with the Business. Except as set forth in SCHEDULE 5.9, no material portion of any Owned Real Property is leased by ABB and/or its Affiliates to any Person. Neither ABB nor any of its Affiliates has received, since December 31, 1996, any notice of any condemnation or expropriation proceeding relating to any Owned Real Property and no such proceedings are pending which, if adversely determined, would materially preclude or impair the use of any Owned Real Property. (c) With respect to all real property leased by ABB and/or any of its Affiliates and primarily used or held for use in the Business ("LEASED REAL PROPERTY"), ABB has heretofore delivered or made available to Purchaser true and complete copies of all related leases, including all amendments and modifications thereto (other than the leases referred to in Section 7.21(c) and (d), which Purchaser acknowledges are not formally documented). With respect to each Leased Real Property: (i) each lease is valid and subsisting and in full force and effect; (ii) no notice of a material default has been sent or received by ABB or any Affiliate of ABB under the applicable lease which remains uncured; and (iii) the tenant is in occupancy of the space demised under the applicable lease. 5.10. INTELLECTUAL PROPERTY AND TECHNOLOGY (a) SCHEDULE 5.10(a) is in all material respects an accurate and complete list, as of the date hereof, of all material Intellectual Property (other than trade dress and slogans) primarily used or held for use in the Business and owned by ABB and/or its Affiliates (the "OWNED INTELLECTUAL PROPERTY"), and, to the extent indicated on such SCHEDULE 5.10(a), the Owned Intellectual Property has been duly registered in, filed in or issued by the United States Copyright Office or the United States Patent and Trademark Office or Network Solutions, Inc., the appropriate offices in the various states of the United States and the appropriate offices of other jurisdictions. (b) SCHEDULE 5.10(b) is in all material respects an accurate and complete list, as of the date hereof, of all material Intellectual Property which is used under express license primarily in the Business by ABB and/or its Affiliates (the "LICENSED INTELLECTUAL PROPERTY"), and except to the extent indicated on such Schedule, ABB has delivered or made available to Purchaser true and complete copies of all related licenses, including all amendments and modifications thereto. Since December 31, 1996, no notice of a material default has been sent or received by ABB and/or its Affiliates under any such license which remains uncured. (c) Except as set forth on SCHEDULE 5.10(c), at the Closing, the NB Group will be the sole and exclusive owner of all Owned Intellectual Property, subject to Sections 3.2 and 7.10 and to the recording by the applicable Governmental Authorities of any transfer of Owned -29- Intellectual Property in connection with the Pre-Closing Reorganization, free and clear of any and all Encumbrances other than Permitted Encumbrances, and will be the successor-in-interest to the license for any Licensed Intellectual Property that is used under license by a Business Unit (subject to Section 4.4). No Owned Intellectual Property material to the conduct of the Business has been cancelled, abandoned or otherwise terminated and all renewal fees in respect thereof have been duly paid. Except as set forth in SCHEDULE 5.10(c), no Business Unit has granted any license or other rights with respect to Owned Intellectual Property to any other Person. (d) Except as set forth in SCHEDULE 5.10(d), at the Closing, subject to Sections 3.2 and 7.10, the NB Group will be the sole and exclusive owner of all Technology primarily used or held for use in the Business and owned by ABB and/or its Affiliates, free and clear of any and all Encumbrances other than Permitted Encumbrances, and will be the successor-in-interest to the license for any Technology which is used under express license primarily in the Business by ABB and/or its Affiliates (subject to Section 4.4). Except as set forth in SCHEDULE 5.10(d), no Business Unit has granted any license or other rights with respect to Technology material to the conduct of the Business to any other Person. (e) Except as set forth in SCHEDULE 5.10(e), since December 31, 1996, no Business Unit has received any written notice from any other Person challenging in any material respect the right of a Business Unit to use any of the Owned Intellectual Property, Licensed Intellectual Property or Technology material to the conduct of the Business. (f) Except as set forth in SCHEDULE 5.10(f), since December 31, 1996, no Business Unit has made any claim in writing of a violation, infringement, misuse or misappropriation by others of its rights to or in connection with any Owned Intellectual Property or Technology material to the conduct of the Business, which claim is still pending. (g) Except as set forth in SCHEDULE 5.10(g), since December 31,1996, no Business Unit has received any claim in writing from any third Person of a violation, infringement, misuse or misappropriation by any Business Unit of any intellectual property or technology owned by any third Person, or of the invalidity of any patent or registration of a copyright, trademark, service mark, domain name or trade name included in the Owned Intellectual Property, which claim is still pending. (h) Except as set forth in SCHEDULE 5.10(h), since December 31, 1996, there have been no interferences or other contested proceedings, either pending or, to the knowledge of ABB, threatened in writing in the United States Copyright Office, the United States Patent and Trademark Office or any Governmental Authority relating to any pending application with respect to any Owned Intellectual Property. -30- 5.11. MATERIAL CONTRACTS (a) Except for Contracts listed in SCHEDULE 5.11, as of the date hereof, no Business Unit is bound by any Material Contract (as defined below). Except for Contracts listed in SCHEDULE 5.11 and Material Contracts entered into in accordance with this Agreement after the date hereof but before the Closing, as of the date of Closing, no member of the NB Group will be bound by any Material Contract, regardless of whether such Material Contract relates to the Business. Except as indicated in SCHEDULE 5.11, ABB has heretofore delivered or made available to Purchaser true and complete copies of all Material Contracts outstanding as of the date of this Agreement, including all amendments and modifications thereto. (b) Each outstanding Material Contract constitutes a valid and binding agreement, enforceable against ABB or the relevant Affiliate of ABB in accordance with its terms, and, to the knowledge of ABB, each other party thereto, subject in each case to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general principles of equity. No notice of a default has been sent or received by ABB and/or its Affiliates under any such Material Contract which remains uncured, except for defaults which in the aggregate have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. (c) For purposes of this Agreement, "MATERIAL CONTRACT" means a Contract which: (i) involves future payment or receipt of funds in excess of Five Million United States dollars (US$ 5,000,000) or future performance or receipt of services or delivery or receipt of goods and materials, in each case with an aggregate value in excess of Five Million United States dollars (US $5,000,000); (ii) is a guarantee in respect of indebtedness of any Person (other than any Business Unit in relation to the Business) or is a mortgage, security agreement or other collateral arrangement securing such indebtedness; (iii) is a lease relating to real property providing for annual rental payments in excess of Five Hundred Thousand United States dollars (US$ 500,000) or a lease relating to any machinery, equipment, vehicle or other tangible personal property providing for annual rental payments in excess of Two Hundred Fifty Thousand United States dollars (US $250,000); (iv) is an employment or consulting agreement for any Person with an annual base compensation in excess of Two Hundred Thousand United States dollars (US $200,000) or a collective bargaining agreement relating to the employees of the Business; -31- (v) is a Technology license agreement material to the Business; (vi) is a partnership, joint venture, shareholders' or other similar agreement with any Person; (vii) is a Contract relating to (A) the future disposition or acquisition of any assets and properties valued in excess of Five Hundred Thousand United States dollars (US $500,000), other than dispositions or acquisitions in the ordinary course of business consistent with past practice; and (B) any business combination; (viii) other than Contracts entered into in the ordinary course of business consistent with past practice for the purchase or sale of products or services from or to the Business and that do not involve expenditures or receipts in excess of One Hundred Thousand United States dollars (US $100,000) in any fiscal year, is a Contract with (A) ABB or any of its Affiliates, or (B) any director, officer or employee of ABB or any of its Affiliates, that will not be terminated at or prior to the Closing; (ix) other than letters of credit, foreign exchange contracts, bonds and similar instruments obtained in the ordinary course of business consistent with past practices, is a Contract which is an indenture, note, loan or credit agreement or other Contract relating to the borrowing of money in an amount in excess of One Million United States dollars (US $1,000,000); (x) is a Contract containing a covenant not to compete, other than those contained in project-related teaming, consortium or similar agreements with respect to the project that is the subject of such agreement, customary covenants contained in distributor agreements and those of which the Business is the beneficiary in employee-related agreements; (xi) is any take-or-pay or requirements Contract or other Contract requiring any member of the NB Group to pay regardless of whether products or services are received; (xii) is a Contract relating to the acquisition by any member of the NB Group of any operating business or the capital stock of any other Person; (xiii) is a Contract made outside the ordinary course of business consistent with past practices relating to Business and involving an amount in excess of One Million United States dollars (US $1,000,000); (xiv) is a Contract which is a license or development agreement and involving annual payments or receipts in excess of Two Hundred and Fifty Thousand United States -32- dollars (US$ 250,000) or the termination of which would have, or would reasonably be expected to have, a Material Adverse Effect on the Business; or (xv) is a Contract which is a tolling agreement with respect to potential claims against ABB or any of its Affiliates. 5.12. LABOR MATTERS SCHEDULE 5.12 is in all material respects an accurate and complete list of all currently effective labor and collective bargaining agreements applicable to employees of each Business Unit, copies of which have been made available to Purchaser. Except as set forth in SCHEDULE 5.12, there is no pending (i) labor strike, work stoppage or lockout against any Business Unit in connection with the Business; (ii) unfair labor practice charge or complaint against any Business Unit in connection with the Business before the National Labor Relations Board or any similar body; or (iii) union grievance against any Business Unit in connection with the Business, which, in the case of Clauses (i), (ii) and (iii), in the aggregate have had, or would reasonably be expected to have, a Material Adverse Effect on the Business. 5.13. EMPLOYEE BENEFITS (a) SCHEDULE 5.13 is in all material respects an accurate and complete list, as of the date hereof, of all Employee Benefit Plans. Except as set forth in SCHEDULE 5.13, ABB has made available to Purchaser an accurate and complete list, as of the date hereof, of all anticipated Closing Business Employees which is identified as such list. With respect to each U.S. Employee Benefit Plan, ABB has made available to Purchaser, and with respect to each Foreign Employee Benefit Plan (other than a Non-ABB Employee Benefit Plan) as to which there is any material (i) unfunded liability, or (ii) liability that could arise as a result of the Transaction, ABB has made available to Purchaser, and with respect to each other Foreign Employee Benefit Plan (other than a Non-ABB Employee Benefit Plan), ABB will make available to Purchaser within 45 (forty-five) days of the date of this Agreement, where applicable, true and complete copies of (i) the plan document and amendments thereto, and (ii) the actuarial valuation report. With respect to each U.S. Employee Benefit Plan, ABB has made available to Purchaser, and, with respect to each Foreign Employee Benefit Plan, ABB will make available to Purchaser, within 45 (forty-five) days of the date of this Agreement, where applicable, true, complete and correct copies of (i) the most recent annual report on Form 5500 filed with the Internal Revenue Service or similar periodic filing with regulatory authorities having jurisdiction over the plans of non-U.S. Business Units; (ii) the most recent summary plan description and summary of material modifications, where such description or modification has been prepared by ABB and/or its Affiliates; (iii) any trust agreement or annuity contract in effect on the date hereof; and (iv) the -33- most recent audited financial statement. No Employee Benefit Plan is a multiemployer plan as defined in Section 4001(a)(3) or Section 3(37) of ERISA. Except as set forth in SCHEDULE 5.13, no collectively bargained employees of any Business Unit are entitled to post-retirement medical or other benefits. (b) Each Employee Benefit Plan which by its terms is intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and, except as set forth in SCHEDULE 5.13 or as would not adversely affect the qualification of such plan, such determination letter approves all amendments for which the remedial amendment period provided in the Code and applicable Internal Revenue Service rulings and regulations has expired. (c) Except as set forth in SCHEDULE 5.13, and except where failures to do so have not had, and would not reasonably be expected to have, in the aggregate a Material Adverse Effect on the Business: (i) except with respect to any Non-ABB Employee Benefit Plan, all Employee Benefit Plans have been established and administered in accordance with their respective terms and in compliance with Applicable Law, including without limitation ERISA, COBRA, the Health Insurance Portability and Accountability Act of 1996, and all applicable tax-qualification requirements, and all reports, returns, or similar documents with respect to the Employee Benefit Plans required to be filed with any Governmental Authority or distributed to participants have been timely filed or distributed; (ii) except with respect to any Non-ABB Employee Benefit Plan, there are no pending claims in respect of any Employee Benefit Plans by any Person or Persons covered thereby which allege violations of Applicable Law, and there are no pending or ongoing investigations of any Employee Benefit Plans by any Governmental Authority; and (iii) (A) no "reportable event" within the meaning of Section 4043(c) of ERISA or the regulations thereunder has occurred with respect to any Represented ABB Retirement Plan (other than such "reportable event", if any, occurring by reason of the Pre-Closing Reorganization or the Transaction); (B) no Employee Benefit Plan has incurred any accumulated funding deficiency; (C) within the six years prior to the date hereof, no Employee Benefit Plan sponsored by ABB or its Affiliates (whether or not applicable to Business Employees) covered by Title IV of ERISA has been terminated in a distress termination described in Section 4041(c) of ERISA or in an involuntary termination described in Section 4042 of ERISA and, to the knowledge of ABB, no -34- proceedings have been instituted to terminate or appoint a trustee to administer any such Employee Benefit Plan; (D) no Business Unit, nor to the knowledge of ABB, any other "disqualified person" or "party in interest" (as defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) employed by or affiliated with any Business Unit has engaged in any transactions in connection with any Employee Benefit Plan that would reasonably be expected to result in the imposition of a penalty pursuant to Section 502 of ERISA, damages pursuant to Section 409 of ERISA or a Tax pursuant to Section 4975 of the Code for which a Business Unit could be liable; (E) all contributions to, and payments from, the Employee Benefit Plans that have been required of ABB or its Affiliates under the terms of such Employee Benefit Plans, Applicable Law, or collective bargaining or labor agreements have been timely and properly made; and (F) no Employee Benefit Plan sponsored by ABB or its Affiliates has incurred any liability to the Pension Benefit Guaranty Corporation, other than premiums that have been paid when due. (d) Except as set forth in SCHEDULE 5.13, no Closing Business Employee will become entitled to any bonus, retirement, severance, job security, or similar benefit or the acceleration of payment of any such benefit solely as a result of the Transaction. No company in the NB Group is obligated to make any payments, or is party to any agreement that could require it to make payments, not deductible for purposes of Section 162(m) or Section 280G of the Code or similar provisions of state, local, or foreign law or regulation. Except as set forth in SCHEDULE 5.13, there are no written severance agreements or arrangements with respect to any Closing Business Employees other than the Involuntary Separation Pay Plan and severance benefits described in the collective bargaining agreements shown in SCHEDULE 5.12 and there are no oral severance agreements other than oral severance agreements which in the aggregate would not result in liability exceeding $500,000. 5.14. TAXES Except as set forth on SCHEDULE 5.14: (i) all material Tax Returns which are required to be filed on or prior to the date of this Agreement with respect to the assets, income or operations of the Business have been filed when due, including any period of extension, and have been true, correct and complete in all material respects; (ii) all Taxes shown on such Tax Returns have been paid when due and payable, after giving effect to any applicable extensions; -35- (iii) all material Taxes relating to the income, properties or operations of the Business or the NB Group which ABB and/or its Affiliates or the NB Group is required by Applicable Law to withhold or collect have been duly withheld or collected and have been timely paid over to the proper authorities to the extent due and payable; (iv) no taxing authority has asserted any material Tax deficiency that has not been paid or properly reserved for with respect to the NB Group or the Business; (v) except in connection with any consolidated, affiliated, or combined United States federal, state, or local Tax Return: (A) no Person has requested any extension of time within which to file any Tax Return with respect to the NB Group or the Business, which Tax Return has not since been filed, and (B) no Person has executed any waivers or comparable consents regarding the application of statutes of limitation with respect to Taxes or Tax Returns for or relating to the NB Group or the Business; (vi) no company in the NB Group is required to include in income any adjustment pursuant to Section 481(a) of the Code or any comparable provision of state, local or foreign law or regulations, and no taxing authority has proposed any such adjustment or any change in Tax accounting method; (vii) no material audits or administrative proceedings or court proceedings are presently pending with regard to Taxes or Tax Returns of the NB Group or the Business; (viii) there is no pending claim by any taxing authority of a jurisdiction where any member of the NB Group or any Seller (or any of their Affiliates) has not filed Tax Returns with respect to the Business that such member or such Seller is subject to taxation by the jurisdiction with respect to the Business; (ix) no power of attorney currently in force has been granted by ABB or any of its Affiliates with respect to the NB Group or the Business that would be binding on Purchaser with respect to Tax matters for taxable periods including, or beginning after, the Closing Date; (x) no Seller or member of the NB Group has received a Tax ruling or entered into a closing or similar agreement with any taxing authority with respect to the Business that would likely affect the Tax liabilities of the NB Group or the Business in a material manner after the Closing Date; -36- (xi) each member of the NB Group has timely paid (or there has been timely paid on its behalf) all required current estimated Tax payments in amounts sufficient to avoid interest charges or underpayment penalties; (xii) none of the members of the NB Group is or has been a member of any U.S. partnership (or Person treated as a partnership for U.S. Tax purposes) or the holder of any beneficial interest in any trust, in each case for any period for which all applicable statutes of limitation for any Tax has not yet expired; and (xiii) assuming the designated Affiliate of Purchaser is a qualified purchaser of the stock of NBUS and US I&C Newco and joins Seller or Sellers in making the proper elections, the Seller or Sellers of NBUS and US I&C Newco have or will have the requisite ownership and are otherwise entitled to make valid elections under Section 338(h)(10) of the Code with respect to the acquisitions by Purchaser of NBUS and US I&C Newco. 5.15. LITIGATION Except as set forth on SCHEDULE 5.15, there is no action, suit, proceeding or investigation pending or, to the knowledge of ABB, presently threatened in writing which remains unresolved, against ABB or any of its Affiliates in connection with the Business before or by any court or other Governmental Authority, except such actions, suits, proceedings and investigations which in the aggregate, if adversely determined, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. 5.16 ENVIRONMENTAL MATTERS Except as disclosed by ABB or its Affiliates to Purchaser either in documents (which documents are listed on SCHEDULE 5.16) or orally in interviews of employees of ABB or its Affiliates (which interviews are listed on such SCHEDULE 5.16), and except for such other Business-Related Environmental Liabilities as in the aggregate have not, since September 30, 1999, had, and would not reasonably be expected to have, a Material Adverse Effect on the Business: (i) the Business is in compliance with all applicable Environmental Laws, and has obtained, and is in compliance with, all Permits required under such Environmental Laws; and -37- (ii) there are no proceedings or actions by any Governmental Authority or by any other Person relating to the Business pending against ABB or any of its Affiliates under any Environmental Law; and (iii) there are no facts, circumstances or conditions relating to the Business that would reasonably be expected to give rise to Business-Related Environmental Liabilities. 5.17. ABSENCE OF CERTAIN CHANGES Except as set forth in the Schedules hereto, including SCHEDULE 5.17, or as contemplated by this Agreement, (i) from September 30, 1999 until the date of this Agreement, ABB and its Affiliates have conducted the Business in all material respects only in the ordinary course of business consistent with past practices (but excluding this Transaction); and (ii) since September 30, 1999, there has not been any event that has had, or would reasonably be expected to have, a Material Adverse Effect on the Business. 5.18. BROKERS AND INTERMEDIARIES ABB has not employed any agent, broker, investment banker, finder, advisor or intermediary in connection with the Transaction or this Agreement which would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. 5.19 INSURANCE SCHEDULE 5.19 sets forth a list and brief description (specifying the insurer, the policy number or covering note number with respect to binders, the amount of any deductible, and the aggregate limit, if any, of the insurer's liability thereunder) of all policies or binders of fire, liability, errors and omissions, workers' compensation, vehicular and other insurance (other than (i) directors' and officers' liability insurance, (ii) political risk insurance and (iii) kidnap and ransom insurance, each as maintained by the ABB Group) held by or on behalf of ABB or any of its Affiliates with respect to the Business. Such policies and binders are valid and enforceable in accordance with their respective terms in all material respects (subject to applicable insolvency laws and principles of equity of general application), and, as of the date hereof, are in full force and effect. No notice of a default has been received by ABB and/or its Affiliates under any such policies or binders which remains uncured, except for defaults which in the aggregate have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. As of the date hereof, neither ABB nor any of its Affiliates has received any notice of cancellation or non-renewal of any such policy or binder. -38- 5.20 YEAR 2000 ABB has provided to Purchaser copies of all material reports and plans prepared by ABB and its Affiliates in connection with the Business relating to compliance or readiness in connection with year 2000. Except as provided in this Section 5.20, ABB makes no representations or warranties with respect to the capability of any of the equipment, systems, software, data or databases relating to the Business to adapt, accommodate or respond to the year 2000 and thereafter, or with respect to the absence of Liabilities, contingent or otherwise, arising therefrom or related thereto (but without limiting the representations and warranties set forth in Sections 5.6 and 5.17). 5.21. DISCLAIMER OF OTHER WARRANTIES (a) ABB does not make, and has not made, any representations or warranties of any kind whatsoever in connection with this Agreement or the Transaction other than those expressly set out in this Article 5. Without limiting the generality of the foregoing, ABB has not made, and shall not be deemed to have made, any representations or warranties in any communication or document relating to the Business or the Transaction, including, without limitation, in any information memorandum supplied to Purchaser and/or its representatives or advisors by or on behalf of ABB or the NB Group prior to the Closing or in any presentation of the Business in connection with the Transaction. It is understood that any cost estimates, projections or other predictions, or, except as expressly provided herein, any other financial information or data, provided by ABB in relation to the Business or in connection with the Transaction are not, and shall not be deemed to be or to include, representations or warranties of ABB. (b) No Person has been authorized by ABB to make any representation or warranty relating to ABB, the NB Group or the Business or otherwise in connection with the Transaction and, if made, such representation or warranty must not be relied upon as having been authorized by ABB. Purchaser acknowledges that it has not relied on any representations or warranties in connection with this Agreement or the Transaction other than those expressly set out in this Article 5 (as qualified by any disclosure contained in any Schedule hereto and in the Ancillary Agreements). 5.22. DISCLOSURE Notwithstanding anything to the contrary contained in this Agreement or in any of the Schedules, any information disclosed in one Schedule shall be deemed to be disclosed in all Schedules. Certain information set forth in the Schedules is included solely for informational -39- purposes and may not be required to be disclosed pursuant to this Agreement. The disclosure of any information shall not be deemed to constitute an acknowledgement that such information is required to be disclosed in connection with the representations and warranties made by ABB in this Agreement or that it is material, nor shall such information be deemed to establish a standard of materiality. 5.23. TIMING OF REPRESENTATIONS AND WARRANTIES The representations and warranties in Sections 5.1 through 5.5 and Section 5.18 shall be deemed to be given upon the execution of this Agreement as well as at the Closing, and, without limiting the effect of Section 8.2, all other representations and warranties shall be deemed to be given as of the date of this Agreement only. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to ABB that the following statements are true and correct: 6.1. ORGANIZATION Purchaser is a corporation duly organized and validly existing under the laws of England and has the requisite corporate power and authority to own its properties and to carry on its business as presently being conducted. 6.2. AUTHORITY (a) Purchaser has the requisite corporate power and authority to execute, deliver and perform this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the Transaction have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery of this Agreement by ABB, this Agreement constitutes a legal, valid and binding obligation of Purchaser enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors' rights generally from time to time in effect and to general principles of equity. (b) No consent, approval, license, permit, order or authorization of, or registration, declaration or filing with, any Governmental Authority is required to be obtained or made by or with respect to Purchaser or any of its Affiliates in connection with the execution and -40- delivery of this Agreement or the consummation of the Transaction, except for (i) compliance with and filings under the HSR Act and under applicable competition laws and regulations in Sweden, Germany and Spain; (ii) voluntary notification under the Exon-Florio Amendment; (iii) approval of the Ministry of Finance and Economy in France and the filing with the Nuclear Power Inspectorate in Sweden; (iv) compliance with, and notices and filings under, Environmental Law or under Permits issued pursuant to Environmental Law; (v) compliance with, and notices, filings and approvals under, the regulations of the NRC or any Agreement State, or of any Nuclear Regulator, including any applications for licenses or license transfers; and (vi) those the failure of which to obtain or make, individually or in the aggregate, would not materially impair the ability of Purchaser or any of its Affiliates to perform its obligations under this Agreement or the Ancillary Agreements to which it is a party. 6.3. NO CONFLICTS Neither the execution and delivery of this Agreement by Purchaser, nor the consummation of the Transaction, nor compliance by Purchaser with any of the provisions hereof applicable to it, will (i) violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under (A) the memorandum, articles of association or other organizational documents of Purchaser; or (B) any material agreement to which Purchaser is a party or by which Purchaser or any of its material assets may be bound; or (ii) violate any Applicable Law or any order, judgment or decree of any court or other Governmental Authority applicable to Purchaser. 6.4. FINANCING Purchaser has sufficient funds and/or has obtained firm commitments for the financing of the payment in full of the Purchase Price and all other amounts payable by Purchaser hereunder at the Closing and such funds and financing will be available at the Closing for such purposes. 6.5. BROKERS AND INTERMEDIARIES Except for N.M. Rothschild & Sons Ltd. and its Affiliates, the fees and expenses of which will be paid by Purchaser, Purchaser has not employed any agent, broker, investment banker, finder, advisor or intermediary in connection with the Transaction or this Agreement which would be entitled to a broker's, finder's or similar fee or commission in connection therewith or upon the consummation thereof. 6.6. SHAREHOLDER APPROVAL -41- Purchaser and its Affiliates have been duly authorized by its principal shareholder, the Department of Trade and Industry, to execute and deliver this Agreement and to consummate the Transaction. 6.7. DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES Purchaser does not make, and has not made, any representations or warranties of any kind whatsoever in connection with this Agreement or the Transaction other than those expressly set out in this Article 6. ABB acknowledges that it has not relied on any representations or warranties in connection with this Agreement or the Transaction other than those expressly set out in this Article 6. 6.8. TIMING OF REPRESENTATIONS AND WARRANTIES The representations and warranties in Sections 6.1 through 6.6 shall be deemed to be given upon the signature of this Agreement as well as at the Closing. ARTICLE 7 COVENANTS 7.1. CONDUCT OF BUSINESS (a) From the date hereof until the Closing, except as provided in or contemplated by this Agreement, including but not limited to Article 3, or to the extent that Purchaser shall otherwise consent (which consent shall not be unreasonably withheld or delayed), ABB shall, and shall use all reasonable efforts to ensure that its Affiliates will, carry on the Business in the ordinary course consistent with past practices and use all reasonable efforts consistent with past practices to keep available the services of the Business' present officers and employees and preserve the Business' relationships with customers, suppliers and others having business dealings with the Business. (b) Without limiting the generality of Paragraph (a) above, except as contemplated by SCHEDULE 7.1 or as otherwise provided in or contemplated by this Agreement, including but not limited to Article 3, ABB shall not, and shall ensure that its Affiliates will not, with respect to the Business, do any of the following from the date hereof until the Closing without the consent of Purchaser (which consent shall not be unreasonably withheld or delayed): (i) adopt or amend in any material respect any Employee Benefit Plan, except as required by Applicable Law or pursuant to the terms of any collective bargaining agreement or any existing Contract; -42- (ii) grant to any executive officer of the Business any increase in compensation, benefits or loans or severance benefits, except in the ordinary course of business consistent with past practices or as may be required under any existing Contract; (iii) acquire by merging or consolidating with, or by purchasing a material portion of the assets of, or by any other manner, any Person or division thereof; (iv) sell, lease, mortgage, pledge or otherwise dispose of, or grant preferential rights to, any of its assets that are, individually or in the aggregate, material to the Business as a whole, except for the sale of inventory in the ordinary course of business consistent with past practices; (v) enter into any lease of real property for an annual rent in excess of Five Hundred Thousand United States dollars (US$ 500,000), except for any renewals of existing leases in the ordinary course of business consistent with past practices and except for the leases referred to in Section 7.21(c); (vi) knowingly waive any right in respect of the Business, including in the context of a settlement or compromise of any claim against or in favor of the Business, with a value in excess of One Million United States dollars (US$ 1,000,000); (vii) enter into any material transactions with officers, directors, employees, consultants, agents or other representatives of the Business (other than employment and similar arrangements made in the ordinary course of business); (viii) except in the ordinary course of business, amend in any material respect or enter into any Contract of a type required to be disclosed pursuant to Section 5.11; (ix) declare or pay any non-cash dividend, other than dividends of property not relating to the Business, or declare any cash dividend that is not paid before the Closing Date; (x) amend the certificate of incorporation or by-laws or similar organizational documents of any member of the NB Group, except as required in connection with the Pre-Closing Reorganization; (xi) adopt or amend in any material respect any collective bargaining agreement, except as required by Applicable Law or pursuant to the terms of any existing collective bargaining agreement or other existing Contract; -43- (xii) incur or assume any indebtedness for borrowed money in excess of Two Million United States dollars (US $2,000,000) in the aggregate which would constitute a liability of the NB Group, or guarantee any such indebtedness; (xiii) acquire any assets which are material, individually or in the aggregate, to the Business, taken as a whole, except in the ordinary course of business consistent with past practices; (xiv) enter into any equity joint venture, partnership or any similar arrangement; (xv) enter into, amend or terminate any employment agreement, except in the ordinary course of business and, in the case of new employment agreements, consistent with past practices; (xvi) make any wage or salary increase or other compensation payable or to become payable or bonus, or increase in any other direct or indirect compensation, for or to any of its officers, employees, consultants, agents or other representatives employed in the Business, or any accrual for or commitment or agreement to make or pay the same, in each case other than in the ordinary course of business consistent with past practices, or as may be required under existing Contracts; (xvii) enter into any transactions with ABB or its Affiliates or any of their officers, directors, employees, consultants, agents or other representatives (other than in the ordinary course of business consistent with past practices) to the extent the obligations arising from any such transaction constitute a Liability of the NB Group or an Additional Business Liability; (xviii) make any payment of, or commitment (which would constitute a Liability of the NB Group after the Closing Date) to pay, any severance or termination payment to any Person or any of its officers, directors, employees, consultants, agents or other representatives employed in the Business, other than payments pursuant to existing Contracts or Employee Benefit Plans; (xix) reassign or transfer any employees of ABB or its Affiliates who are not involved in the Business as of the date hereof to the Business or to duties primarily engaged in the Business, except in the ordinary course of business consistent with past practices; or (xx) agree, whether in writing or otherwise, to do any of the foregoing. -44- (c) ABB and its Affiliates shall submit for review by an accounting firm of international standing mutually acceptable to ABB and Purchaser (the "REVIEWING FIRM") each bid for a Contract made by ABB or any of its Affiliates after the date of this Agreement which, if such Contract had been entered into prior to the date hereof, would have been required to have been disclosed on Schedule 5.11, together with such information relating to such bid as the Reviewing Firm shall reasonably request for purposes of making the determination provided for in this Section 7.1(c). The Reviewing Firm shall be authorized and directed by the parties to advise Purchaser, immediately prior to the Closing, whether, in the judgment of the Reviewing Firm, such bid, individually or when aggregated with all other bids submitted to the Reviewing Firm pursuant to this Section 7.1(c), if awarded, would have, or would reasonably be expected to have, a Material Adverse Effect on the Business. It is understood and agreed that the Reviewing Firm should not, under any circumstances, at any time prior to the Closing, disclose to or otherwise provide Purchaser and/or its Affiliates access to any bid or any other information made available to the Reviewing Firm pursuant to this Section 7.1(c) and, if this Agreement is terminated and the Transaction is abandoned pursuant to Article 9, the Reviewing Firm shall be required to return all written information (including any copies thereof) to ABB. 7.2. NOTICE OF CHANGES ABB shall promptly notify Purchaser of (i) any actions, suits, claims or proceedings or, to the knowledge of ABB, investigations commenced against any Business Unit that, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Sections 5.15 or 5.16; and (ii) the damage or destruction by fire or other casualty of any material asset (or part thereof) of the Business or in the event that any such material asset (or part thereof) becomes the subject of any proceeding for the taking thereof or any part thereof or of any right relating thereto by condemnation, eminent domain or other similar governmental action. 7.3. ACCESS TO INFORMATION ABB shall, and shall cause its Affiliates to, afford to Purchaser and its accountants, counsel and other representatives reasonable access during the period prior to the Closing to all the properties, books, contracts, commitments, information regarding decisions to maintain or abandon Intellectual Property, Tax Returns (excluding the U.S. consolidated federal income Tax Returns that include any ABB Affiliates other than the NB Group and any U.S. state or local combined, unitary or stand alone Tax Returns of or including any ABB Affiliate other than the NB Group, PROVIDED, HOWEVER, that ABB shall provide to Purchaser pro forma separate company Tax Returns of any member of the NB Group that is included in a consolidated, combined or unitary Tax Return of ABB or any ABB Affiliate) and records of the Business, and -45- during such period shall furnish promptly to Purchaser any information concerning the Business as Purchaser may reasonably request; and shall use all reasonable efforts to cause their officers, employees, consultants, agents, accountants and attorneys to cooperate fully with Purchaser's representatives in connection with such review and examination; PROVIDED, HOWEVER, that ABB is under no obligation to disclose to Purchaser (i) any information the disclosure of which, in ABB's reasonable opinion, is restricted by Contract or Applicable Law except in strict compliance with the applicable Contract or Applicable Law (it being understood that ABB shall use reasonable commercial efforts to obtain any necessary consent for disclosure under such Contract); (ii) any information as to which the attorney client privilege, the attorney work product doctrine or the self evaluative privilege may be available, until a mutually satisfactory joint defense agreement has been executed by Purchaser and ABB; (iii) the medical records pertaining to any employee or former employee of the Business until after the Closing; or (iv) any "Classified Information" other than in compliance with NRC and any other applicable government security regulations. All requests for information, to visit facilities or to meet with ABB's or its Affiliates' representatives shall be made in writing and directed to and coordinated with the person(s) designated to Purchaser from time to time by ABB or its Affiliates as the "NB Coordinators". Purchaser acknowledges that any information being provided to it or its representatives by ABB or its Affiliates, or by the Business Units or the NB Group, is subject to the terms of the confidentiality undertaking dated May 20, 1999, made by Purchaser in favor of ABB and its Affiliates, which terms are incorporated herein by reference; provided that any information made available to Purchaser or its Affiliates or representatives by ABB or its Affiliates, or by the Business Units or the NB Group, may be provided to Purchaser's principal shareholder, the Department of Trade and Industry, and its advisers or representatives, who, by the time the information is provided, will have agreed in writing (a copy of which agreement shall be provided to ABB) to keep such material confidential. Nothing contained herein is intended to limit or restrict Purchaser's use or disclosure of information concerning the Business following the Closing. 7.4. GOVERNMENTAL APPROVALS (a) Each of ABB and Purchaser shall as promptly as practicable (i) file with the United States Federal Trade Commission and the United States Department of Justice the notification and report form, and any supplemental information requested in connection therewith, under the HSR Act required for the Transaction; (ii) file with the Committee on Foreign Investment in the United States the voluntary notification under the Exon-Florio Amendment for the Transaction; (iii) file with the NRC or applicable Governmental Authority in the relevant Agreement States such applications for licenses or license transfers as necessary in connection with the Transaction; and (iv) comply with Applicable Law pursuant to which any other consent, -46- approval, order or authorization of, or registration, declaration or filing with, any Governmental Authority in connection with the Transaction is necessary. Each of ABB and Purchaser shall furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of any filing, registration or declaration which is necessary under Applicable Law. ABB and Purchaser shall keep each other appraised of the status of any communications with, and any inquiries or requests (formal or informal) for additional information or documentary material from, any Governmental Authority, and shall comply promptly with any such inquiry or request. ABB and Purchaser shall each use all reasonable efforts to obtain any consent, approval, order or authorization of any Governmental Authority, necessary in connection with the Transaction or to resolve any objections which may be asserted by any Governmental Authority with respect to the Transaction. (b) Subject to the terms and conditions of this Agreement, each party shall use all reasonable efforts to cause the Closing to occur as promptly as practicable. Without limiting the generality of the foregoing, each party shall use all reasonable efforts to (i) defend against any lawsuits, actions or proceedings, judicial or administrative, challenging this Agreement or the consummation of the Transaction; (ii) seek to prevent the entry or imposition of any preliminary injunction, temporary restraining order, stay or other legal restraint or prohibition by any court or other Governmental Authority; and (iii) appeal and seek to have vacated or reversed as promptly as possible any such injunction, order, stay or other restraint or prohibition that is not yet final and nonappealable. (c) Purchaser shall use all reasonable efforts to obtain as promptly as practicable all permits, licenses, approvals, consents and authorizations by or of Governmental Authorities required by Applicable Law or contract to which Purchaser is a party for Purchaser and/or its Affiliates to own and control the NB Group or for the NB Group to conduct the Business following the Closing and to own the properties of the Business (each, a "PURCHASER PERMIT"), and ABB shall, and shall ensure that the Business Units will, cooperate with Purchaser in connection therewith. Notwithstanding the foregoing, Purchaser shall not be obligated to obtain any Purchaser Permit which Applicable Law requires be obtained by ABB rather than the Purchaser. (d) Notwithstanding anything to the contrary which may be contained herein, Purchaser undertakes, at its sole cost, to comply in good faith with all restrictions or conditions, if any, imposed by any Governmental Authority with respect to antitrust laws as a requirement for granting any necessary clearance or terminating any applicable waiting period, unless compliance with such restrictions or conditions would require Purchaser to divest or restrict operations to an extent which would materially and adversely affect British Nuclear Fuels plc, Westinghouse Electric Company LLC or the NB Group after the Closing. -47- (e) Pursuant to Connecticut's Transfer of Hazardous Waste Establishment Act ("TRANSFER ACT"), the relevant Affiliate of ABB shall, on or before the Closing Date, certify to the Connecticut Governmental Authorities that, to the extent necessary to minimize or mitigate a threat to human health or the environment, such Affiliate shall contain, remove or otherwise mitigate the effects of any Release of Hazardous Substance (including those defined pursuant to Section 22a-134 of the Transfer Act) on the sites currently owned by ABB and/or its Affiliate in the State of Connecticut included in the Business, in accordance with such procedures and time schedule approved by the applicable Connecticut Governmental Authorities pursuant to an order, stipulated judgment, or consent agreement. Unless otherwise agreed in Section 10.2, ABB shall perform, at its sole cost and expense, all actions necessary to implement the procedures required by the Connecticut Governmental Authorities pursuant to the Transfer Act. Purchaser is entitled, during the term that it retains any possessory or ownership interest in any facilities or establishments subject to the Transfer Act, to participate in any actions at those facilities that are subject and give rise to the obligations of ABB and/or its Affiliates under the Transfer Act. 7.5. THIRD-PARTY CONSENTS (a) ABB and Purchaser will cooperate and use all their respective reasonable efforts to obtain as promptly as reasonably practicable all consents, approvals and waivers required by third Persons in connection with the Pre-Closing Reorganization and the Transaction (including, to the extent required, agreement to novation of Contracts with Governmental Authorities in the United States and elsewhere). (b) If any and all consents, approvals or waivers necessary for the assignment or transfer of any Contract or Intellectual Property, or any right arising thereunder or resulting therefrom, shall not have been obtained prior to the Closing Date (other than with respect to consents, approvals or waivers relating to a Local Agreement which has not been executed as of the Closing Date), then the parties shall use all reasonable efforts (without expenditure, in the aggregate, of any material sum) to the extent permitted by Applicable Law to provide Purchaser with the benefits, if any, of such Contracts and Intellectual Property, and, in the case of such Contracts and Intellectual Property, to relieve ABB and its Affiliates of the performance and other obligations and liabilities, if any, relating to or arising thereunder. Purchaser shall, and shall cause its Affiliates to, pay, perform and discharge and indemnify ABB and its Affiliates against, and hold them harmless from, all obligations and liabilities of ABB and/or its Affiliates relating to such performance or failure to perform under such Contracts or Intellectual Property, including any related guarantees, in each case if Purchaser or its Affiliates have received the benefit, if any, thereof pursuant to this Section 7.5 (provided that, if Purchaser or its Affiliates have only received from ABB and its Affiliates a proportion of such benefit, if any, then Purchaser or its Affiliates shall only have the obligation to indemnify ABB and its Affiliates in -48- the same proportion as the proportion of the benefit received bears to the total benefit), and, in the event of a failure of such indemnity, ABB shall cease to be obligated under this Agreement in respect of the Contract or Intellectual Property which is the subject of such failure. 7.6. EMPLOYEE MATTERS (a) Purchaser and its Affiliates shall be solely responsible for all compensation accruing for service on and after the Closing Date with respect to the Closing Business Employees. Except as provided in Section 7.6(h), Purchaser shall also assume and be solely responsible for all compensation accrued but unpaid as of the Closing Date with respect to the Business Employees, and the liability for such compensation shall be treated as a liability of the Business for purposes of calculating the Actual Equity. (b) Subject to Section 7.6(c), Purchaser shall, and shall cause its Affiliates to, for a period beginning on the Closing Date and ending no earlier than December 31, 2000, provide for the Closing Business Employees, compensation and employee benefit plans and arrangements which in the aggregate are comparable to the compensation and employee benefit plans and arrangements provided to Closing Business Employees immediately prior to the Closing Date. (c) With respect to any collective bargaining agreement that relates to Closing Business Employees, Purchaser shall, and shall cause its Affiliates to: (i) recognize each union which at the Closing Date represents any group of Closing Business Employees as the collective bargaining representative of such group of Closing Business Employees as of the Closing Date; and (ii) assume the obligations for Closing Business Employees under any such collective bargaining agreement and any obligations under any such collective bargaining agreement for retiree welfare benefits referred to in SCHEDULE 5.13. Effective as of the Closing Date, Purchaser shall, and shall cause its Affiliates to, establish and qualify or register with applicable authorities, and become the plan administrator of, such employee benefit plans which are required for the Closing Business Employees under the terms of any collective bargaining agreement. (d) From and after the Closing Date, Purchaser shall, and shall cause its Affiliates to, credit to the Closing Business Employees, under all employee benefit plans, employee benefit arrangements and employee compensation policies and practices of Purchaser and its Affiliates, all prior service recognized by ABB or any of its Affiliates with respect to such Closing Business Employees prior to the Closing Date, provided that such service shall be credited for purposes of eligibility to participate in, vesting, eligibility for early retirement (including any subsidized benefit provided upon retirement), optional forms of distribution, but not, except as otherwise provided in this Section 7.6, for purposes of determining the amount of -49- any benefit under any "employee pension benefit plan" (as defined in Section 3(2) of ERISA) maintained by the Purchaser or any of its Affiliates. From and after the Closing Date, ABB shall, and shall cause its Affiliates to, credit to the Closing Business Employees, under the Asea Brown Boveri Inc. Cash Balance Pension Plan, the Pension Plan for Employees of Asea Brown Boveri Inc. and the defined benefit portion of the ABB Retirement Income Plan Restoration Plan (the "RESTORATION PLAN") (the "ABB RETIREMENT PLANS") all post-Closing service recognized by Purchaser or any of its Affiliates with respect to such Closing Business Employees, provided that such service shall be credited for purposes of vesting and eligibility for early retirement (including any subsidized benefit provided upon retirement) and optional forms of distribution, but not for purposes of determining the amount of any benefit under such plans. For purposes of computing deductible amounts (or like adjustments or limitations on coverage) under any "welfare plan" (as defined in Section 3(1) of ERISA), expenses and claims previously recognized for similar purposes under the applicable welfare plan of ABB or any of its Affiliates shall be credited or recognized under the welfare plan of the Purchaser and its Affiliates. Notwithstanding anything in this Section 7.6 to the contrary, Purchaser shall, and shall cause its Affiliates to, give the Closing Business Employees full credit for all prior service recognized by ABB with respect to such Closing Business Employees immediately prior to the Closing Date under the vacation pay plan or policy and severance pay plan or policy of Purchaser and its Affiliates. Purchaser shall make available to all Closing Business Employees who are participating in the group health plan of ABB or any of its Affiliates (including medical and dental benefits) immediately prior to the Closing Date a group health plan (including medical and dental benefits) which has no waiting period for such Closing Business Employees with respect to eligibility to enroll and participate and no exclusions or limitations based on pre-existing conditions for such Closing Business Employees. (e) Purchaser agrees that as of and immediately after the Closing Date, Purchaser or its Affiliates shall offer continued employment to all Closing Business Employees so that such Closing Business Employees shall be afforded the opportunity for uninterrupted employment before and immediately after the Closing Date. ABB and Purchaser agree that the Transaction shall not constitute a severance of employment of any Closing Business Employee, and that such Closing Business Employees will be deemed for all purposes to have continuous and uninterrupted employment before and immediately after the Closing. Purchaser shall indemnify and hold ABB and its Affiliates harmless from and be responsible for any claims made by any Closing Business Employee for severance or other benefits based on separation, for any claims based on breach of contract and for any other claims arising out of or in connection with the employment, or the suspension or termination of employment of, any Closing Business Employees; provided that Purchaser's obligation to indemnify ABB and its Affiliates with respect to any claim by a Closing Business Employee that the Transaction constitutes a -50- termination, or constructive termination, of employment shall be limited to claims arising from the actions of Purchaser, including, but not limited to, Purchaser's termination of a Closing Business Employee's employment, or reducing the compensation of, or changing the position or terms and conditions of employment of, a Closing Business Employee, on or after the Closing Date. Purchaser shall not be responsible for, and shall be under no obligation to indemnify ABB or its Affiliates with respect to, any claims made by Closing Business Employees for severance or other benefits or claims based solely on the Transaction and ABB shall indemnify and hold Purchaser harmless from, and be responsible for, any claims made by Closing Business Employees for severance or other benefits or claims based solely on the Transaction. (f) Effective as of the Closing Date, Purchaser shall assume and be solely responsible for all liability of ABB and its Affiliates for post-retirement and post-termination health benefits and/or coverage (including medical and dental benefits) and post-retirement and post-termination life insurance benefits and/or coverage for Closing Business Employees and their respective dependents and those Former Business Employees and their respective dependents who are entitled to such benefits by virtue of being covered under a collective bargaining agreement referred to in SCHEDULE 5.13. On and after the Closing Date, Purchaser shall indemnify and hold harmless ABB for any and all Losses including reasonable legal fees and disbursements) relating to post-retirement and post-termination health benefits and/or coverage (including medical and dental benefits) and post-retirement and post-termination life insurance benefits and/or coverage for Closing Business Employees and for Former Business Employees and their dependents referred to in the immediately preceding sentence. For purposes of determining Actual Equity under Article 2 hereof, post-retirement welfare benefits shall be valued based on the actuarial assumptions and methodology used by ABB and its Affiliates in developing the OPEB liability component of the "Pension Liabilities" for September 30, 1999 shown under column "Actual 9909" in the balance sheet for NBUS in the Financial Statements provided to Purchaser, provided that the interest rate shall be discount rate in effect as of December 31, 1999 for purposes of Statement of Financial Accounting Standards 132 (one hundred thirty-two) disclosure. (g) Except as otherwise provided in this Section 7.6, effective as of the Closing Date, Purchaser shall assume, and the NB Group shall retain, liability for employee benefit plans and bonus, incentive compensation, severance or termination pay, death benefit, welfare benefit, incentive, profit-sharing, pension, retirement, deferred compensation, medical, life, disability, accident, salary continuation, accrued leave, vacation, sick pay, sick leave, supplemental retirement, unemployment benefit, and fringe benefit plans, programs and arrangements and employment, consulting, termination and severance contracts or agreements, -51- in each case covering Business Employees, and ABB and its Affiliates shall have no further liability with respect to such plans, programs, arrangements, contracts or agreements. (h) ABB and/or its Affiliates shall, with respect to Business Employees, continue to be responsible after the Closing Date for welfare benefits or claims (whether submitted before or after the Closing Date) which will, by reason of events which took place prior to the Closing Date, become payable under any group life insurance policy, accidental death and dismemberment policy, group health program (including medical and dental benefits) or any flexible spending account plan maintained by ABB and/or its Affiliates in the United States with respect to such Business Employees. In the case of health benefits, the event referred to in the immediately preceding sentence is the provision of the service for which the reimbursement or payment is sought by the employee. ABB and/or its Affiliates shall also continue to be responsible after the Closing Date for: (1) the benefits accrued by Business Employees as of the Closing Date under the ABB Retirement Plans, including any benefits to which such employees become entitled as a result of service with Purchaser or its Affiliates that is credited for certain purposes under such plans pursuant to Section 7.6(d); (2) benefits payable to Business Employees under the Personal Retirement Investment and Savings Management Plan for Employees of Asea Brown Boveri Inc. and the Personal Retirement Investment and Savings Management Plan for Certain Represented Employees of the Asea Brown Boveri Inc. (the "ABB SAVINGS PLANS"); (3) except as otherwise specified in this Section 7.6, liability for post-retirement and post-termination health benefits and/or coverage (including medical and dental benefits) and post-retirement and post-termination life insurance benefits and/or coverage for Former Business Employees and their dependents; and (4) provision of coverage required under COBRA for Business Employees becoming entitled to such coverage before the Closing Date. At the discretion of Purchaser, stay bonuses may be paid to the individuals listed on Schedule 7.6(h) in the amounts of six months of each such individual's base salary at the Closing Date, which bonuses, if any, shall be paid on a date which occurs no later than twelve months following the Closing Date. Purchaser shall bill ABB for, and ABB shall promptly reimburse Purchaser for the amount of, 50% of such stay bonuses actually paid. ABB or its Affiliates shall be responsible after the Closing Date for any incentive, bonus or similar payment (other than the stay bonuses described in Schedule 7.6(h)) committed to by ABB or its Affiliates to a Closing Business Employee on account of the Transaction. Purchaser shall provide to ABB within twenty days of the date of this Agreement, and subject to ABB's approval prior to the distribution of such letter to any individual listed in Schedule 7.6(h), a form of letter to each such individual describing the terms and conditions of the stay bonus referred to in this Section 7.6(h). -52- (i) Purchaser shall indemnify ABB for any Actuarial Losses (as defined below) with respect to the Asea Brown Boveri Inc. Cash Balance Pension Plan (the "CASH BALANCE PLAN") and the defined benefit portion of the Restoration Plan resulting from any Closing Business Employee terminating employment and commencing the receipt of benefits prior to age 65 during the Relevant Period (as defined below). Such indemnification shall occur within 30 days after the Actuarial Losses for each Plan year of the Cash Balance Plan and the Restoration Plan or portion thereof within the Relevant Period are determined by ABB's Actuary and communicated to Purchaser and Purchaser's actuary, or, if Section 7.6(s) hereof applies, within 30 days following a determination by the impartial actuary under Section 7.6(s). The "Relevant Period" is the period from the Closing Date through December 31, 2004. Purchaser shall cooperate with ABB in providing data to enable ABB to determine any Actuarial Losses. Actuarial Losses shall be determined by ABB's actuary and shall be equal to the amount by which (i) the aggregate actual benefits to the Closing Business Employees to which the Closing Business Employees are entitled under the terms of the Cash Balance Plan and the defined benefit portion of the Restoration Plan for each Plan year or portion of a Plan year of the Cash Balance Plan and the Restoration Plan falling within the Relevant Period exceeds (ii) 105% (one hundred five percent) of the aggregate accumulated benefit obligation with respect to the Closing Business Employees receiving a distribution under the Cash Balance Plan and the defined benefit portion of the Restoration Plan for the Relevant Plan year, but in no event shall Actuarial Losses be indemnified for any Plan year for which Actuarial Losses do not exceed $150,000 (one hundred fifty thousand dollars) or a pro rata portion of $150,000 (one hundred fifty thousand dollars) or for a partial Plan year based on the ratio of the number of days in such partial Plan year to 365. The determination of the accumulated benefit obligation with respect to the applicable employees for each Plan year shall be based upon the actuarial assumptions and methodology used for purposes of Statement of Financial Accounting Standards Number 87 (eighty-seven), uniformly applied for all participants in the Cash Balance Plan and the Restoration Plan, as contained in the actuarial valuation for the Cash Balance Plan prepared by ABB's actuary as of the first day of each such Plan year. (j) Effective as of the Closing Date, Purchaser shall be responsible for any claims (whether made before or after the Closing Date) and related losses and expenses under any workmen's compensation or employer liability law, self-insured plan or employee benefit plan or otherwise, in each case resulting from a work-related accident or event which results in bodily injury or disease or from continuous or repeated exposure while on the job to conditions which result in bodily injury or disease or from any other occurrence which is otherwise covered under applicable workmen's compensation law with respect to the Business Employees. -53- (k) Effective as of the Closing Date, Purchaser shall be responsible for all short-term disability benefits and long-term disability benefits for the Business Employees (including, for the avoidance of doubt and without limitation, Closing Business Employees and Former Business Employees and their respective dependents) and, except as otherwise provided in Section 7.6(h), any rights to medical, dental, health, life or welfare benefits arising before or after the Closing Date and any pension benefits accrued on or after the Closing Date for persons on short-term or long-term disability. (l) Effective as of the Closing Date, Purchaser shall be responsible for all obligations under Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA ("COBRA") with respect to all Closing Business Employees. (m) As soon as practicable following December 31, 2000, Purchaser shall take all actions necessary to cause one or more defined contribution plans designated by Purchaser (the "PURCHASER SAVINGS PLANS") to permit each Closing Business Employee who is a participant in the Personal Retirement Investment and Savings Management Plan for Employees of Asea Brown Boveri Inc. or the Personal Retirement Investment and Savings Management Plan for Certain Represented Employees of Asea Brown Boveri Inc. (the "ABB SAVINGS PLANS") as of the Closing Date to effect a direct rollover of the taxable portion of such participant's accrued benefits under the respective ABB Savings Plan to a Purchaser Savings Plan. In connection with any such direct rollover elected by any such employee, Purchaser shall allow any such employee's outstanding loan and related promissory note under the ABB Savings Plan to be directly rolled-over into a Purchaser Savings Plan. Effective as of the Closing Date, ABB shall take all actions necessary to vest the Closing Business Employees in their respective account balances under the ABB Savings Plans as of the Closing Date. (n) As soon as practicable following the Closing Date, ABB and Purchaser shall cause to be transferred from the Asea Brown Boveri Inc. Master Trust (the "MASTER TRUST") to one or more trusts or insurance contracts established by Purchaser as of the Closing Date the assets of such Master Trust which are as of the date of transfer attributable to the following Employee Benefit Plans: (i) Pension Plan for Employees of ABB Combustion Engineering Nuclear Power, Inc. Represented by the Teamsters Local Union No. 688, Affiliated with the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (Hematite)/Combustion Engineering, Inc.; (ii) Pension Plan for Employees of ABB Combustion Engineering Nuclear Power, Inc. Represented by the International Guards Union of America Local No. 45 (Hematite)/Combustion Engineering, Inc.; (iii) Pension Plan for Employees of ABB Combustion Engineering Nuclear Power, Inc., Represented by the International Brotherhood of Boilermakers, Iron Shipbuilders, Blacksmiths, Forgers and Helpers, Subordinate Lodge No. 558(AFL-CIO) (Windsor)/Combustion Engineering, Inc.; (iv) Pension Plan for -54- Employees of ABB Combustion Engineering Nuclear Power, Inc., Represented by the International Brotherhood of Boilermakers, Iron Shipbuilders, Blacksmiths, Forgers and Helpers, Subordinate Lodge No. 651 (AFL-CIO) (Newington)/ Combustion Engineering, Inc.; and (v) Pension Plan for Employees of ABB Combustion Engineering Nuclear Power, Inc., Represented by District No. 9 of the International Association of Machinists and Aerospace Workers (Hematite)/Combustion Engineering, Inc. (collectively "REPRESENTED ABB RETIREMENT PLANS"). Pending such transfer, ABB shall cause the Trustee of the Master Trust to pay all benefits under the Represented ABB Retirement Plans. Such transfer of assets shall take place within 90 days after the Closing Date; provided, however, in no event shall such transfer of assets take place until at least five (5) days after Purchaser has provided ABB with the form of such transferee trust or insurance contract and ABB has approved the form thereof, which approval will not be unreasonably withheld. This Section 7.6(n) assumes that the aggregate amount of the assets as of the Closing under each of the Represented ABB Retirement Plans ("AGGREGATE ASSETS") are equal to the aggregate amount of the liabilities as of the Closing Date under each Represented ABB Retirement Plan where the amount of such liabilities for each Represented ABB Plan is determined based on the actuarial assumptions and methodology as specified in Schedule 7.6(n) ("AGGREGATE LIABILITIES"). If the amount of the Aggregate Assets as of the Closing Date is not equal to the amount of the Aggregate Liabilities as of the Closing Date, then the Actual Equity will be adjusted as follows: (a) if the amount of the Aggregate Assets as of the Closing Date exceeds the amount of the Aggregate Liabilities as of the Closing Date, the Actual Equity shall be increased by the amount of such difference; and (b) if the amount of the Aggregate Liabilities as of the Closing Date exceeds the amount of the Aggregate Assets as of the Closing Date, the Actual Equity shall be decreased by the amount of such difference. Prior to the Closing Date, Purchaser shall prepare amendments to the Represented ABB Retirement Plans, effective as of the Closing Date, pursuant to which such plans shall be amended to delete Asea Brown Boveri Inc. as plan administrator and named fiduciary of each such plan and to provide that all powers, duties and liabilities of Asea Brown Boveri Inc. or its Affiliates under each such plan shall become powers, duties, authority and liabilities of the Purchaser and its Affiliates, effective as of the Closing Date. Purchaser shall share such amendments with ABB at least five (5) days in advance of the Closing Date and shall obtain ABB's approval to the form of such amendments, which approval shall not be unreasonably withheld. Purchaser shall take such action as is necessary to adopt such amendments effective as of the Closing Date. (o) Effective as of the Closing Date, Purchaser shall adopt the ABB Executive Life Insurance Plan (the "EXECUTIVE LIFE INSURANCE PLAN") for the benefit of the Closing Business Employees covered by such plan on the Closing Date, and the parties hereto shall take all steps necessary so that Purchaser (i) shall be substituted for ABB or its Affiliates as the owner of those portions of the split dollar life insurance policy maintained pursuant to the Executive Life -55- Insurance Plan which were formerly owned by ABB or its Affiliates; and (ii) shall succeed to all rights of ABB and its Affiliates under such policy. The cash value of such split dollar life insurance policy shall be treated as an asset of the Business for purposes of calculating the Actual Equity. (p) Effective as of the Closing Date, Purchaser shall establish an employee benefit plan for the benefit of the Business Employees (and their beneficiaries) who participate in the ABB Deferred Compensation Plan (the "DEFERRED COMPENSATION PLAN") as of the Closing Date (such Business Employees shall be referred to as the "DEFERRED COMPENSATION PLAN EMPLOYEES") pursuant to which Purchaser shall assume all liabilities and obligations of ABB and its Affiliates under the Deferred Compensation Plan with respect to the Deferred Compensation Plan Employees, which obligations shall be treated as a liability of the Business for purposes of calculating the Actual Equity. (q) It is understood that Forsakringsbolaget SPP and/or its Affiliates may in the future allocate, credit, refund or pay client company funds (FORETAGSANKNUTNA MEDEL) to affiliated employers. If at any time NBSE or the Swedish Unit, or any other company in the NB Group, receives any allocation, credit, refund, payment or other benefit from SPP and/or its Affiliates attributable to funds paid by NBSE or the Swedish Unit prior to the Closing (the "SURPLUS ENTITLEMENT"), Purchaser shall, or shall cause its Affiliates to, promptly transfer such Surplus Entitlement to ABB or its designated Affiliate(s) at no cost to them and without further consideration; PROVIDED that if any or all of such Surplus Entitlement is not transferable under Applicable Law to ABB or its designated Affiliate(s), Purchaser shall, or shall cause its Affiliates to, promptly pay to ABB or its designated Affiliate(s), in cash by wire transfer in immediately available funds to the account or accounts designated by ABB, an amount equal to such portion of the Surplus Entitlement which cannot be so transferred but which Purchaser and its Affiliates can immediately obtain and utilize (it being understood and agreed that, if only a portion of the Surplus Entitlement can be immediately obtained and utilized by Purchaser and its Affiliates, Purchaser shall make one or more further such payments as and when additional portions of the Surplus Entitlement can be so obtained and utilized). Purchaser agrees that it shall, and shall cause its Affiliates to, take such action, and cooperate with ABB and its Affiliates, as is reasonably required (without Purchaser and its Affiliates incurring any material costs) to obtain the Surplus Entitlement. Any transfer or payment to ABB with respect to any portion of such Surplus Entitlement shall be reduced to the extent necessary to hold Purchaser and its Affiliates harmless from any Taxes imposed on them with respect to such portion of the Surplus Entitlement. (r) For purposes of determining the adjustment and the amounts payable under Sections 2.5 and 2.6 of this Agreement, all costs and liabilities under the Foreign Employee -56- Benefit Plans shall be determined under IAS 19 (paragraphs 64 and 65) and, in the case of Foreign Employee Benefit Plans promising a defined benefit, based on the actuarial assumptions and methodology set forth in Schedule 7.6(r). ABB and its Affiliates shall provide Purchaser's actuaries and accountants with the data necessary to review such determination and any disagreement as to the proper amount shall be resolved in the manner set forth in Section 7.6(s). (s) Any actuarial determinations by ABB's or Purchaser's actuary shall be based on the assumptions and methodologies provided in each instance provided in this Section 7.6 for the applicable actuarial determination and shall be subject to review by the other party's actuary. If there is any dispute as to an actuarial determination that cannot in good faith be resolved within 30 days of the date the determination and supporting data are provided to the applicable party, ABB and Purchaser shall jointly select a third-party, impartial actuary to resolve the dispute. If the parties cannot jointly select a third-party, impartial actuary within 15 days of the end of the 30-day period, the President of the Conference of Consulting Actuaries shall select an impartial actuary. The cost of the impartial actuary shall be shared equally by ABB and Purchaser. 7.7. SHARED ASSETS (a) In the event any properties, assets or rights of the Business are also used or held for use by ABB and/or its Affiliates in, or otherwise also relate to, activities which do not form part of the Business, then: (i) in the case of any real property, or lease in respect thereof, the relevant company in the ABB Group shall have the right to lease or sublease, as the case may be, from the NB Group, on an arms-length basis, the portion of such real property used or held for use by it as of the Closing Date for purposes similar to the purposes for which such portion is used or held for use as of the Closing Date; (ii) in the case of any Intellectual Property, or license in respect thereof, the ABB Group shall have the right to license or sublicense to use, practice and/or sublicense, as the case may be, on an arm's-length basis from the NB Group, any Intellectual Property used, practiced or held for use by any entity in the ABB Group as of the Closing Date, in a manner similar to the manner in which such Intellectual Property is used, practiced or held for use as of the Closing Date; and (iii) in the case of any Contract, the relevant company in the ABB Group shall have the right to enter into a subcontract or similar arrangement, on a back-to-back basis, with the NB Group in respect of the relevant portion of such Contract. -57- (b) The parties shall use all reasonable efforts to ensure that their respective Affiliates enter into agreements in form and substance reasonably satisfactory to each of them formalizing the arrangements referred to in this Section 7.7. (c) Paragraphs (a) and (b) above shall apply MUTATIS MUTANDIS in the event any properties, assets or rights of activities of ABB and/or its Affiliates which do not form part of the Business are also used or held for use in, or otherwise relate to, the Business. 7.8. CERTAIN INFORMATION (a) After the Closing, upon reasonable written notice, ABB and Purchaser shall furnish or cause to be furnished to each other and their respective accountants, counsel and other representatives access, during normal business hours, to such information, personnel and assistance relating to the Business as is reasonably necessary for financial reporting and accounting matters, the preparation and filing of any returns, reports or forms or the defense or prosecution of, or response required under or pursuant to, any lawsuit, action or proceeding or in order to enable the parties to comply with this Agreement. (b) ABB and Purchaser shall, and shall use all reasonable efforts to ensure that their respective Affiliates will, retain for a period of five (5) years after the Closing Date all such records pertinent to the Business which are owned by such Person immediately after the Closing. After the expiration of such period, and before disposing of any such records, the applicable party shall give notice to such effect to the other, and shall give the other, at the other's cost and expense, a reasonable opportunity to remove and retain all or any part of such records as the other may select. This Section 7.8 does not relate to cooperation with respect to Tax matters (to which Section 7.9 is applicable). 7.9. TAX MATTERS (a) ABB shall timely prepare and file (or cause to be timely prepared and filed) all Tax Returns with respect to the assets, income or operations of the Business required by Applicable Law to be filed by the NB Group for all taxable years or other taxable periods ending on or prior to the Closing Date. All such Tax Returns shall be prepared in accordance with Applicable Law. ABB shall pay or cause to be paid all Taxes (i) shown on any such Tax Returns to the extent due on or prior to the Closing Date and (ii) shown on any such Tax Returns due after the Closing Date with respect to taxable years or periods ending on or prior to the Closing Date (including the portion of the Straddle Period (as defined below) that ends on the Closing Date) to the extent such Taxes exceed the accrual for Taxes (not including any net accrual for book/tax timing differences) on the books and records of the NB Group on the Closing Date, as -58- confirmed in the calculation of Actual Equity in the Final Audit Report (as such accrual may have been reduced to reflect prior charges against such accrual). With respect to all separate company Tax Returns of the NB Group (or, with respect to any member of the NB Group that is included in a consolidated, combined or unitary Tax Return of ABB or any ABB Affiliate, pro forma separate company Tax Returns of such member) due after the Closing Date, ABB shall provide Purchaser with a copy of such Tax Returns, along with a notice setting forth in reasonable detail the calculations regarding the Taxes shown as due on such Tax Returns at least thirty (30) days prior to the due date for filing such Tax Returns, and after Purchaser's review and approval of such Tax Returns (which approval shall not be unreasonably withheld or delayed), Purchaser shall remit to ABB or its designated Affiliate within five (5) business days after Purchaser's approval of such Tax Returns the lesser of (i) the Taxes shown as due on such Tax Returns and (ii) in the case of a member of the NB Group that is included in a consolidated, combined or unitary Tax Return of ABB or any ABB Affiliate, the amount of the Tax liability such member would have paid ABB or such ABB Affiliate under a Tax sharing agreement or similar agreement, or consistent with past practices if such member had not been sold to Purchaser, but in an amount not in excess of the accrual for Taxes (not including any net accrual for book/tax timing differences) on the books and records of the NB Group on the Closing Date, as confirmed in the calculation of Actual Equity in the Final Audit Report (as such accrual may have been reduced to reflect prior charges against that accrual); PROVIDED, HOWEVER, ABB shall not be obligated to submit any such Tax Returns to Purchaser for its review and approval to the extent that ABB does not request a remittance of any amount for Taxes shown to be due on such Tax Returns. Except to the extent of any refund of Taxes for which a receivable was reflected in the calculation of Actual Equity in the Final Audit Report, ABB shall be entitled to all refunds (including, without limitation, to interest with respect thereto) of Taxes received by or on behalf of the NB Group relating to any periods ending on or prior to the Closing Date and, with respect to the Straddle Period, the portion of such period that ends on and includes the Closing Date. Purchaser shall pay, or cause to be paid, to ABB any and all such refunds promptly after receipt thereof by Purchaser or its Affiliates. At the request of ABB, Purchaser shall file, or cause to be filed, any claims for such refunds. (b) Purchaser shall timely prepare and file (or cause to be timely prepared and filed) all Tax Returns with respect to the assets, income or operations of the Business required by Applicable Law to be filed by the NB Group for any taxable period beginning prior to, and ending after, the Closing Date (the "STRADDLE PERIOD"). Purchaser shall provide ABB with a copy of such Tax Returns, along with a notice setting forth in reasonable detail the calculations regarding ABB's share of Taxes shown as due on such Tax Returns, at least thirty (30) days prior to the due date for filing such Tax Returns, and after ABB's review and approval of such Tax Returns (which approval shall not be unreasonably withheld or delayed), ABB shall remit to -59- Purchaser ABB's allocable share of Taxes for the Straddle Period in accordance with the terms of Section 7.9(g) and Purchaser shall file or cause such Tax Returns to be filed. Any Taxes with respect to assets, income or operations of the NB Group that relate to a Straddle Period shall be apportioned between ABB and Purchaser as determined from the books and records of the NB Group during the portion of such period ending on the Closing Date and the portion of such period beginning on the day following the Closing Date, and based on accounting methods, elections and conventions that do not have the effect of distorting income or expenses, as follows: (i) in the case of Taxes other than income, sales and use and withholding Taxes, on a per diem basis; and (ii) in the case of income, sales and use and withholding Taxes, as determined from the books and records of the NB Group as though the taxable year of the NB Group terminated at the close of business on the Closing Date. (c) Purchaser shall timely prepare and file (or cause to be timely prepared and filed) all Tax Returns with respect to the assets, income or operations of the Business required by Applicable Law to be filed by the NB Group for all taxable periods commencing after the Closing Date and shall duly pay or cause to be paid all Taxes payable for such periods with respect to the assets, income or operations of the Business. (d) ABB and Purchaser shall each provide the other with such assistance as may be reasonably requested (including making employees reasonably available to provide information or testimony) in connection with the preparation or filing of any Tax Return, any Tax Controversy (as defined in paragraph (e) below), or the determination of liability for Taxes with respect to the assets, income or operations of the Business. Such assistance shall include the retention and (upon the other party's reasonable request), the provision of records and information that are relevant to any Tax, Tax Return, or Tax Controversy. ABB and Purchaser each shall, and shall ensure that its Affiliates will, retain until seven (7) years after the Closing Date or, if the applicable statute of limitation has been extended by virtue of any Tax Controversy, the later of (i) sixty (60) days after the expiration of the statute of limitation applicable to the taxable year or period to which such Tax Controversy relates; (ii) the date on which any decision with respect to a Tax Controversy becomes final and nonappealable; and (iii) the execution of a closing agreement with the relevant taxing authority that provides a final and irrevocable termination of the Tax liability to which such Tax Controversy relates, all Tax Returns, books and records, schedules, work papers and material documents of the Business relating to Tax matters that are owned by such Person immediately after the Closing and that relate to the Business or its assets. ABB and Purchaser further agree, upon the reasonable request of the other party, to use reasonable efforts to provide, obtain or execute any certificate or other document from any governmental authority or other Person as may be necessary to -60- mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the Transaction). (e) In the event Purchaser or any of its Affiliates receives notice, whether orally or in writing, of any examination, claim, proposed settlement, proposed adjustment or related matter with respect to any Taxes for which Purchaser may be indemnified hereunder ("TAX CONTROVERSIES"), Purchaser shall promptly notify ABB thereof; PROVIDED that failure to give such notification shall not affect the indemnification provided hereunder except to the extent ABB shall have been actually prejudiced as a result of such failure (except that ABB shall not be liable for any interest or other expenses incurred during the period in which Purchaser failed to give such notice). ABB shall be entitled at its sole discretion and expense to handle, control and compromise or settle the Tax Controversies, and shall reasonably inform Purchaser of the progress of the Tax Controversies; PROVIDED that in the event Purchaser waives its rights to indemnification with respect to any Tax Controversy, Purchaser may assume at its expense, and have the sole discretion to handle, control, compromise, or settle such Tax Controversy. ABB shall not settle any Tax Controversies in a manner that would likely affect the Tax liabilities of Purchaser or any member of the NB Group in a material manner for any taxable year or period ending after the Closing Date without the prior written consent of Purchaser, which consent shall not be unreasonably withheld or delayed. (f) Purchaser shall not amend any Tax Return relating to any taxable year or period ending on or prior to the Closing Date without the written consent of ABB, which consent shall not be unreasonably withheld or delayed. ABB shall not, with respect to the NB Group or US I&C Newco, from the date hereof through the Closing Date, (A) settle any Tax audit or dispute with any taxing authority; (B) make or terminate any Tax election of the NB Group; or (C) unless required by Applicable Law, change any Tax accounting method of the NB Group, in each case that will likely affect the Tax liabilities of Purchaser or any member of the NB Group in a material manner for any taxable year or period ending after the Closing Date without the prior written consent of the Purchaser, which consent shall not be unreasonably withheld or delayed. (g) Except as limited by the remainder of this Paragraph (g) and subject to the limitations imposed in Article 10, ABB agrees to indemnify and hold harmless Purchaser and the NB Group against all Taxes of the NB Group or with respect to the Business for all periods ended on or prior to the Closing Date and, with respect to the Straddle Period, the portion of such period ending on and including the Closing Date. Notwithstanding the preceding sentence, ABB shall not indemnify and hold harmless Purchaser or the NB Group for any such Taxes to the extent of any accrual for Taxes (not including any net accrual for book/tax timing differences) on the books and records of the NB Group on the Closing Date, as confirmed in the calculation of -61- Actual Equity in the Final Audit Report (as such accrual may have been reduced to reflect prior charges against that accrual). To the extent that a payment is due by ABB to Purchaser pursuant to this Section 7.9(g) with respect to Taxes shown on a Tax Return for the portion of the Straddle Period that ends on the Closing Date, ABB shall pay such Taxes to Purchaser within five (5) business days after ABB's approval of the Tax Return that generated such indemnification payment. Except as set forth in this Section 7.9, the procedures for indemnification set forth in Article 10 shall govern any indemnification for Taxes. (h) All Tax sharing agreements or similar agreements with respect to or involving the NB Group shall be terminated as of the Closing Date and, after the Closing Date, neither ABB and its Affiliates nor Purchaser or the NB Group shall be bound thereby or have liability thereunder. (i) With respect to NBUS and US I&C Newco, if formed, ABB shall cause the proper Seller to furnish to Purchaser on or before the Closing Date a certification of such Seller's non-foreign status as set forth in Section 1445 of the Code and the Treasury Regulations promulgated thereunder. (j) Sellers and Purchaser shall join to make a timely and irrevocable election under Section 338(h)(10) of the Code and similar elections under any applicable state, local or foreign Tax laws (a "SECTION 338(h)(10) ELECTION") for NBUS and each of its Subsidiaries and US I&C Newco, if formed (the "TARGET COMPANIES"). Each Seller, Purchaser, and the Target Companies shall report the purchase of the shares of stock of the Target Companies consistent with the Section 338(h)(10) Elections made with respect to those companies and shall take no position contrary thereto. Notwithstanding any other provision of this Agreement, the obligation of Asea Brown Boveri Inc. or any of its Affiliates to make a Section 338(h)(10) Election pursuant to this Section 7.9(j) is contingent upon receipt by Asea Brown Boveri Inc. of a payment from Purchaser in the amount of Fourteen Million United States dollars (US $14,000,000) on or prior to the date the Section 338 Forms are filed with the United States Internal Revenue Service. (k) Each Seller, Purchaser, and the Target Companies shall execute any and all documents, statements, and other forms that are required to be submitted to any taxing authority in connection with a Section 338(h)(10) Election (the "SECTION 338 FORMs") no later than 15 days prior to the date such Section 338 Forms are required to be filed. Each Seller, Purchaser, and the Target Companies shall cause the Section 338 Forms to be duly executed by an authorized person for such Seller, Purchaser, and the Target Companies, and shall duly and timely file the Section 338 Forms in accordance with applicable Tax laws and the terms of this Agreement. -62- (l) Each Seller, ABB and Purchaser shall use its best efforts, as soon as practicable after the Closing Date, to enter into an agreement, as may be amended from time to time (the "ALLOCATION AGREEMENT"), to allocate the Purchase Price (with subsequent adjustment for any amounts that are treated as adjustments to the Purchase Price for tax purposes including any adjustments pursuant to Sections 2.5, 2.6 or 10.6) allocable to the shares of the Target Companies and the liabilities of such Target Companies to the assets of the Target Companies for all applicable Tax purposes, including the computation of the Modified Aggregate Deemed Sale Price (as defined under applicable Treasury Regulations and similar state, local or foreign tax provisions) ("MADSP") for the assets of the Target Companies. Purchaser shall initially prepare a statement setting forth a proposed computation and allocation of MADSP (the "COMPUTATION") consistent with the provisions of Article 2 hereof. Purchaser shall submit the Computation to ABB along with copies of all workpapers, reports, opinions and other similar documents used to prepare the Computation ("WORKPAPERS"), no later than ninety (90) days after the Closing Date. If, within sixty (60) days of ABB's receipt of the Computation and the Workpapers, ABB shall not have objected in writing to such Computation, the Computation shall become the Allocation Agreement. If ABB objects in writing to the Computation within such sixty (60) days, Purchaser and ABB shall negotiate in good faith to resolve the Computation. If Purchaser and ABB shall not have agreed to the Computation and adopted an Allocation Agreement within thirty (30) days after ABB's objection, any disputed aspects of the Allocation Agreement shall be resolved by an accounting or law firm mutually acceptable to Purchaser or ABB (the "338 AUDITORS") as soon as practicable but in no event later than thirty (30) days prior to the earlier of (i) the last date on which the Section 338 Forms may be filed or (ii) the last date on which either Purchaser or ABB (whichever is earlier) must file a Tax Return relating to the transactions contemplated hereby. The decision of the 338 Auditors shall be final, and the costs, expenses and fees of the 338 Auditors shall be borne equally by Purchaser and ABB. Purchaser and ABB shall not take a position before any taxing authority or otherwise (including in any Tax Return) inconsistent with the Allocation Agreement. For purposes of this Paragraph (l), references to ABB shall include ABB or any of its designated Affiliates. (m) For purposes of Paragraphs (j), (k), and (l) of this Section 7.9, if the Seller of the Target Companies is other than ABB, ABB shall cause such Seller to take any action required in those paragraphs or refrain from taking any action prohibited under those paragraphs. 7.10. NO USE OF TRADEMARKS (a) As from the Closing, neither the Purchaser nor any of its Affiliates shall have any right to use in any way any trademarks, servicemarks, trade names or corporate or business names or other indicia of origin including the words "ABB", "BBC", "Asea" "Brown", or "Boveri" in whole or in part, except as otherwise provided in this Section 7.10. In furtherance -63- hereof, Purchaser shall, and shall cause its Affiliates to, within six (6) months after the Closing Date, remove from all signs and stationery, purchase order forms, packaging and other similar supplies, advertising and promotional materials, product, training and service literature and materials, and computer programs and like materials (collectively, "SUPPLIES"), any reference to "ABB", "BBC", "Asea", "Brown" or "Boveri"; PROVIDED that to the extent any Supplies included in the assets of the Business so indicate, Purchaser may, for a period of six (6) months after the Closing Date, use such Supplies after first crossing out, marking over or otherwise covering and redacting such reference and otherwise clearly indicating on such Supplies that the Business is no longer a division or unit of ABB or any of its Affiliates. Purchaser shall not reorder or produce any Supplies which state or otherwise indicate thereon that the Business is a division or unit of ABB or any of its Affiliates or contain any reference to "ABB", "BBC", "Asea", "Brown" or "Boveri". (b) Except as set forth on Schedule 7.10, at the Closing, ABB shall turn over to Purchaser all confidential documents (and any copies thereof within the possession or control of ABB or any of its Affiliates) relating to the Intellectual Property and Technology, and shall not retain any copies thereof. (c) ABB agrees that it shall not, and shall use all reasonable efforts to ensure that its Affiliates will not, object to Purchaser or its Affiliates using the designations "Reaktor" or "Atom" in a corporate name, trade name or trademark in connection with the operation of the Business. (d) ABB shall (i) cause a grant to be made to Purchaser and its Affiliates of a non-exclusive, perpetual, worldwide, royalty free license, effective from the Closing Date, to use the trademarks "CE," "C-E" and "COMBUSTION ENGINEERING", alone or, subject to the terms and conditions of the license agreement to be entered into, in combination with other marks used by Purchaser, solely in connection with (A) the design, manufacture, sale and service of nuclear reactors; and (B) the design, manufacture and sale of nuclear fuels, and (ii) not grant to any other Person, for a period of seven (7) years from the Closing Date, any such rights to use said trademarks in the activities referred to in this Paragraph (d). This license shall be assignable only to a successor-in-interest to the business of the NB Group. (e) From the date hereof until Closing, if ABB should determine in the ordinary course that a patent or trademark registration of the Business should not be maintained, Purchaser, at its option, shall have the right to pay for the continued maintenance of such patent or trademark registration on ABB's behalf. In the event that Purchaser elects to continue the maintenance of any such patent or trademark registration, Purchaser shall pay all costs, expenses -64- and fees (including reasonable attorneys' fees) incurred in connection with, and ABB agrees to execute any documentation reasonably required to effect, such continued maintenance. 7.11. REPAYMENT OF LOANS (a) Each company in the NB Group shall repay, prior to the Closing, the unpaid principal amount of each and every outstanding loan or other indebtedness (other than the Loans) of any kind, together with all accrued interest thereon, made to it by any company in the ABB Group. This Paragraph (a) shall not apply to trade payables owing by any company in the NB Group arising in the ordinary course of business. (b) ABB shall, or shall cause each company in the ABB Group to, repay, prior to the Closing, the unpaid principal amount of each and every outstanding loan or other indebtedness of any kind, together with all accrued interest thereon, made to any of them by any company in the NB Group. This Paragraph (b) shall not apply to trade payables owing by any company in the ABB Group arising in the ordinary course of business (but shall apply to amounts recorded on the books of any company in the NB Group as financing receivables). 7.12. RELEASE OF COMMITMENTS (a) Purchaser acknowledges that in the course of the conduct of the Business, ABB and/or its Affiliates (other than the Business Units) have entered into, and may continue to enter into, various arrangements in which guarantees, letters of credit, indemnities or other similar arrangements, including surety and performance bonds, were issued by or for the account of ABB and/or its Affiliates (other than the Business Units) in relation to the Business. Such arrangements by such parties are hereinafter referred to as the "ABB COMMITMENTS". (b) Not later than the Closing, Purchaser shall use its best efforts to obtain substitute guarantees, letters of credit, indemnities or other similar arrangements in replacement for the ABB Commitments, which arrangements will be in effect at the Closing, and shall procure that ABB and every other company in the ABB Group and, where applicable, its sureties be irrevocably released in full from their respective obligations under the ABB Commitments (it being understood and agreed that each such release shall be in form and substance reasonably satisfactory to ABB and/or the relevant company in the ABB Group). (c) Failing any release required pursuant to Paragraph (b) above, Purchaser shall, after the Closing Date, promptly indemnify ABB and each other company in the ABB Group and, where applicable, its sureties against any liability any of them may incur under any ABB Commitment. -65- 7.13. CONFIDENTIALITY ABB shall not, and shall use all reasonable efforts to ensure that none of its Affiliates will, for a period of seven (7) years from the Closing Date, disclose any confidential technical, financial or other business information of any kind or form relating solely to the Business ("CONFIDENTIAL INFORMATION") to any third Person, except (i) in the event ABB or any of its Affiliates is required to disclose any of such information pursuant to Applicable Law or by applicable legal process; (ii) to the extent such information becomes generally available to the public other than as a result of a disclosure by ABB or its Affiliates in violation of this Agreement; or (iii) to the extent such information becomes available to ABB or its Affiliates on a non-confidential basis from a source other than ABB or its Affiliates; PROVIDED that such source is not, to the knowledge of ABB and/or its Affiliates, prohibited from disclosing such information by a contractual, legal or fiduciary obligation. In addition, this undertaking shall not prohibit ABB or any of its Affiliates from disclosing Confidential Information to its legal or other advisors, who are bound by an obligation of confidentiality, in connection with any dispute between ABB or such Affiliate of ABB on the one hand and Purchaser or any Affiliate of the Purchaser on the other hand in relation to this Agreement or the Transaction. 7.14. RELATED AGREEMENTS ABB and Purchaser agree to enter into, or use all reasonable efforts to ensure that their respective Affiliates will enter into, the following agreements or arrangements: (a) At the Closing, ABB Ltd. and Purchaser shall enter into the Non-Competition Agreement. (b) At the Closing, Purchaser and the applicable Affiliate(s) of ABB shall enter into the Transitional Services Agreement. (c) During the period from the Closing through December 2001, ABB and its Affiliates shall lease or sublease to the NB Group (other than to NBUS, which is separately covered by Paragraph (b) above and Section 7.21) those properties that are currently leased to the NB Group (other than NBUS) by ABB or its Affiliates, and shall provide to the NB Group (other than NBUS) all necessary corporate support and administration services (including payroll, information technology, accounting, and other corporate services) that are currently provided by ABB and/or its Affiliates to the Business (other than NBUS), upon the following terms and conditions: (i) If any such lease is governed by, or any such services are provided under, a contract or arrangement in existence on the date of this Agreement (an "EXISTING -66- CONTRACT") the Existing Contract will remain in effect, and the parties will comply, or cause their Affiliates to comply, with the terms of the Existing Contract, except that if any Existing Contract will expire before December 31, 2001, or is terminable by ABB or its Affiliates because the recipient of the services is no longer a member of the ABB Group, ABB will procure that the Existing Contract is renewed or continued through December 31, 2001. (ii) Subject to clause (i) above with respect to leases and services that are covered by Existing Contracts, the terms of any such lease shall be substantially the same as the existing terms, and such services shall be provided in, substantially the same form, to substantially the same extent at substantially the same quality standard and timeliness and on substantially the same arm's length terms and conditions (including pricing and escalation terms) as they are currently provided to the Business. (iii) ABB and/or its Affiliates shall perform all such services in accordance with the terms of any Existing Contract and otherwise in accordance with normal prudent business standards. In the event of any failure by ABB or its Affiliates to perform any service in accordance with the terms of this Section 7.14, which results in a material error or defect in such service, then at the reasonable request of the NB Group entity that is receiving such service, ABB or the Affiliate performing such service shall correct such error or defect or reperform such service in a timely manner. Such re-performance shall be at the expense of ABB and its Affiliates where the error is due to the fault of ABB or its Affiliates and shall be at the expense of Purchaser and its Affiliates where the error is due to the fault of Purchaser. Subject to the foregoing provisions of this clause (iii) and to the terms of any Existing Contract, neither ABB nor its Affiliates shall have any liability to Purchaser or any of its Affiliates for any failure to perform a service covered by this Section 7.14 except to the extent such failure results from the gross negligence or willful misconduct of ABB or its Affiliates. (d) At the Closing, ABB and/or its Affiliates shall enter into the Supply and Licensing Agreement. (e) ABB shall ensure that its relevant Affiliates execute and deliver the Parent Guarantee as soon as reasonably possible. 7.15. INSURANCE (a) Subject to Section 7.15(b), as from the Closing Date, the NB Group will cease to be covered by property, liability and other insurance programs, if any, maintained by ABB -67- and/or its Affiliates (other than companies in the NB Group); PROVIDED that, with respect to any such program which relates solely to the Business, the parties shall make all reasonable efforts to obtain as soon as reasonably possible from the relevant insurance carrier its consent to the assignment of such program to Purchaser and, subject to such consent having been obtained, shall assign such program in accordance with its terms and such consent with effect as from the Closing. Purchaser shall ensure that, following such assignment, ABB and/or its Affiliates will remain as insureds under each such program in respect of occurrences in the Business occurring prior to the Closing Date ("PRE-CLOSING OCCURRENCES") and shall not cancel such program or allow coverage thereunder to lapse without first affording ABB and/or its Affiliates a reasonable opportunity to obtain separate cover. Notwithstanding anything to the contrary contained herein, but subject to Paragraph (b), ABB and/or its Affiliates shall not be obliged to maintain any insurance program in relation to the Business after the Closing; PROVIDED that with respect to "occurrence based" insurance programs providing coverage for Pre-Closing Occurrences, ABB and/or its Affiliates shall not cancel any such program or allow coverage thereunder to lapse without first affording Purchaser and/or its Affiliates a reasonable opportunity to obtain separate cover. (b) To the extent that (i) the "occurrence-based" insurance programs of ABB and/or its Affiliates cover Pre-Closing Occurrences and (ii) the terms and conditions of such "occurrence-based" programs designate members of the NB Group as insureds, or additional insureds, with respect to Pre-Closing Occurrences, the relevant member of the NB Group shall have access after the Closing Date to such "occurrence based" insurance programs in respect of Pre-Closing Occurrences in accordance with, and subject to, the terms and conditions of such programs. With respect to Pre-Closing Occurrences (other than Pre-Closing Occurrences the Program Costs (as defined below) of which have been finally and fully paid or reimbursed to ABB and/or its Affiliates prior to the Closing Date with respect to claims closed prior to the Closing Date), Purchaser shall pay or reimburse ABB and/or its Affiliates for any retrospective insurance premiums, self-insured retentions, deductibles, retentions, and related insurance program expenses, including without limitation, claims handling fees, taxes, residual market loadings and state surcharges (collectively, "PROGRAM COSTS"), in accordance with the terms and conditions of such programs or the internal distribution protocols or methods of ABB and/or its Affiliates. 7.16. APPROVAL OF DIVIDENDS It is understood that the Swedish Unit and/or NBSE may declare and pay, prior to the Closing Date, interim dividends to be determined. Purchaser undertakes to ensure that such dividends are approved and ratified by the first ordinary shareholders' meeting(s) of the Swedish Unit and/or NBSE, as the case may be, held after the Closing. -68- 7.17. PERFORMANCE OF OBLIGATIONS Without prejudice to any other provision contained herein, after the Closing, Purchaser shall, and shall cause its Affiliates to, perform and comply with in all respects the obligations of the NB Group arising under or relating to any Contract or under Applicable Law relating to the Business to the extent that ABB and/or its Affiliates could have any liability in respect thereof by any non-performance thereof, and Purchaser agrees to indemnify ABB and its Affiliates against and hold them harmless from, all obligations and liabilities of ABB and/or its Affiliates arising out of or relating to the Business (other than Liabilities described on Schedule 3.1(b)(ii) hereto and Liabilities not included in the NB Group and not transferred to Purchaser pursuant to this Agreement, the Local Agreements or any other documents executed by the parties in connection herewith or therewith). 7.18 OMITTED ASSETS If within twenty-four (24) months after the Closing Date, either party or any of its Affiliates discovers that any properties, assets, goodwill or rights of ABB and/or its Affiliates primarily used or held for use in, or primarily relating to or arising out of the conduct of, the Business (other than the properties, assets, goodwill and rights described in Schedule 3.1(b)(i) hereto) ("OMITTED ASSETS") were not included in the NB Group and not subsequently transferred to Purchaser and/or its Affiliates, then such party shall so notify the other party, and at Purchaser's option, each party shall use all reasonable efforts to effect the transfer of such Omitted Assets from ABB and/or its Affiliates to the Purchaser and/or its Affiliates, and the assumption by Purchaser and/or its Affiliates of all Liabilities directly related to such Omitted Assets, in each case as soon as possible, without further consideration. The transfer shall be effected pursuant to an agreement between the relevant transferor and transferee, to which agreement Section 3.1(c) shall apply MUTATIS MUTANDIS. 7.19 RESTRUCTURING PLANS Until the Closing, ABB shall, and shall cause its Affiliates to, diligently implement (but does not guarantee the completion of) the Restructuring Plans. 7.20 ABB AUTOMATION STAFF AUGMENTATION ABB shall cause its Affiliates to continue, to the extent reasonably requested by Purchaser, to make available personnel currently assigned to the OKG Contract in support of the performance of the OKG Contract for the term thereof at the rates (subject to commercially reasonable escalation) and in all other respects on substantially the same terms and conditions as are applicable on the date of this Agreement. -69- 7.21 JV SERVICES AND LEASES (a) ABB agrees to use all reasonable efforts to cause Combustion Engineering, Inc. or its Affiliates to provide to NBUS, for the period of twelve months after the Closing, those services listed in the "Products and Services Proposal 2000 for Support Services" prepared by Combustion Engineering Inc. that are currently provided by Combustion Engineering, Inc. or its Affiliates to NBUS; provided that such services are to be provided in substantially the same form, to substantially the same extent, at substantially the same quality standard and timeliness and on substantially the same arm's length terms and conditions (including pricing and escalation terms) as such services are currently provided to NBUS. ABB agrees that, to the extent ABB is not able to procure such services as contemplated by the preceding sentence, ABB shall, subject to the limitations in Section 10.3(f), indemnify Purchaser and/or its Affiliates for any additional costs or expenses incurred by NBUS arising from the procurement of such services during the remainder of such twelve-month period from a third party vendor; PROVIDED that Purchaser shall cause NBUS to use all reasonable efforts to procure reasonably comparable services on commercially reasonable terms. (b) ABB agrees to use all reasonable efforts to cause Combustion Engineering, Inc. or its Affiliates to enter into written lease agreements with NBUS prior to the Closing covering the use by NBUS of the real property located at (i) 1201 River Front Parkway, Chattanooga, Tennessee, U.S.A. (the "CHATTANOOGA LEASE") and (ii) that portion of 2000 Day Hill Road, Windsor, Connecticut, U.S.A. that is not subject to the Existing Windsor Pro Forma Lease (as defined below) (the "WINDSOR LEASE" and together with the Chattanooga Lease, the "JV LEASES"), which JV Leases shall be on terms and conditions substantially similar to the terms and conditions under which NBUS currently leases or occupies such property and otherwise on such terms and conditions as are customary for the rental of similarly situated property (including, without limitation, the provision of reasonable credit support if required by Combustion Engineering, Inc. or its Affiliates) and shall contain the following material terms: (A) with respect to the Chattanooga Lease, a term of no less than two (2) years and no more than four (4) years and, with respect to the Windsor Lease, a term of twelve (12) months from the Closing Date; and (B) an aggregate rental charge (subject to commercially reasonable escalation amounts) substantially identical to the amount being paid by NBUS as of the date of this Agreement (increased by any commercially reasonable escalation in rental charge as may have been imposed by Combustion Engineering, Inc. or its Affiliates between the date of this Agreement and the execution of the JV Leases) (the "APPLICABLE RATE"). If any JV Lease shall not comply in any material respect with the preceding sentence, or such JV Lease should not be executed, then to the extent the use of such property, or the use of any substitute property, by NBUS after the Closing results in any costs or expenses in excess of the Applicable Rate (but -70- excluding any escalation in rental charges over the term of NBUS's use of such property that are not customary and commercially reasonable), ABB shall, during the one-year period (with respect to the Windsor Lease) or the two-year period (with respect to the Chattanooga Lease) immediately following the Closing and subject to Section 10.3(f), indemnify Purchaser and/or its Affiliates for all such costs and expenses reasonably incurred. Such costs and expenses may also include any reasonable out-of-pocket expenses associated with NBUS's move from such property to a substitute property if (1) such move is required due to action taken by Combustion Engineering, Inc. or its Affiliates to evict NBUS during such two-year period (with respect to the Chattanooga Lease) or twelve-month period (with respect to the Windsor Lease) (other than because of the gross negligence or willful misconduct of Purchaser and/or its Affiliates) and (2) Purchaser and/or its Affiliates have sent to ABB in writing at least sixty (60) days prior notice of such move (or, if later, within 14 days after receipt by Purchaser of notice of eviction) and ABB is unable during such notice period to enable NBUS to remain on such property on commercially reasonable terms (provided that Purchaser and its Affiliates shall cooperate with ABB and its Affiliates, at ABB's expense, to all reasonable extents to enable ABB to secure NBUS's continued use of such property on such terms). (c) ABB shall use its commercially reasonable efforts, with the cooperation of Purchaser, to procure (i) as soon as reasonably practicable after the Closing Date and with effect as from the first anniversary thereof, the assignment of the lease agreement concerning the Windsor Site, dated June 28, 1999, between Combustion Engineering, Inc. and NBUS (the "EXISTING WINDSOR PRO-FORMA LEASE") by NBUS to an Affiliate of ABB in the United States, or the termination of the Existing Windsor Pro-Forma Lease and the execution of a new lease in substitution thereof by such Affiliate; and (ii) as soon as reasonably practicable after the Closing Date (taking into account such operations of the Business that NBUS may continue to conduct at the Windsor Site during its one-year tenancy), but in no event later than the first anniversary thereof, NRC approval to transfer all existing NRC licenses held by NBUS with respect to the Windsor Site to an appropriate Affiliate of ABB. 7.22 FOREIGN CURRENCY HEDGES During the period prior to the Closing Date, ABB and its Affiliates shall hedge the currency exposure of the Business in accordance with the hedging policies of the ABB Group. -71- ARTICLE 8 CONDITIONS TO CLOSING 8.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS The obligation of each of ABB and Purchaser to consummate the Transaction is subject to the fulfilment of each of the following conditions prior to or at the Closing: (a) No injunction, restraining order or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the transactions contemplated by this Agreement shall be in effect. (b) The consents and authorizations by or of, and filings with and notifications to, Governmental Authorities set forth in SCHEDULE 8.1(b) shall have been obtained or effected, or any applicable waiting periods shall have expired or been terminated and, in the case of such consents and authorizations, shall be in full force and effect. 8.2. CONDITIONS TO OBLIGATIONS OF PURCHASER The obligation of Purchaser to consummate the Transaction is subject to the fulfilment of each of the following conditions prior to or at the Closing (any or all of which may be waived by Purchaser in its sole discretion): (a) The representations and warranties of ABB set forth in this Agreement shall (i) in the case of representations and warranties not qualified by reference to materiality or "Material Adverse Effect" be true and correct in all material respects, and (ii) in the case of representations that are so qualified, shall be true in all respects, in each case as of the date of this Agreement and, except for those made as of a particular date, as of the Closing as though made at and as of the Closing, except in each case for (i) changes permitted or contemplated by this Agreement, and (ii) such failures of representations and warranties to be true and correct that, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. Purchaser shall have received a certificate signed by an authorized officer of ABB, dated as of the Closing Date, to the effect that the conditions set out in this Paragraph (a) are satisfied. (b) ABB shall have performed and complied in all respects with all of its respective undertakings and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing; PROVIDED that the non-compliance of an -72- undertaking or agreement at any time shall not constitute a failure of the condition contained in this Section 8.2(b) if all such non-compliances, in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on the Business. (c) The relevant companies in the ABB Group shall have executed the Ancillary Agreements to which they are a party. (d) The Parent Guarantee shall have been duly executed and delivered by ABB Ltd. (e) Purchaser shall have received an opinion of the General Counsel of ABB Ltd, dated the Closing Date, addressed to Purchaser and substantially in the form of ANNEX 7 hereto. 8.3. CONDITIONS TO OBLIGATIONS OF ABB The obligation of ABB to consummate the Transaction is subject to the fulfilment of each of the following conditions prior to or at the Closing (any or all of which may be waived by ABB in its sole discretion): (a) The representations and warranties of Purchaser set forth in this Agreement shall be true and correct in all material respects on and as of the date of this Agreement and as of the Closing as though made at and as of the Closing, except for (i) changes permitted or contemplated by this Agreement, and (ii) such failures of representations and warranties to be true and correct that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on ABB. ABB shall have received a certificate signed by an authorized officer of Purchaser, dated as of the Closing Date, to the effect that the conditions set out in this Paragraph (a) are satisfied. (b) Purchaser shall have performed and complied in all respects with all of its respective undertakings and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing; PROVIDED that the non-compliance of an undertaking or agreement at any time shall not constitute a failure of the condition contained in this Section 8.3(b) if all such non-compliances, in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect on ABB. (c) Purchaser and/or its Affiliates shall have executed the Ancillary Agreements to which they are a party. -73- (d) ABB shall have received an opinion of the General Counsel of British Nuclear Fuels plc, dated the Closing Date, addressed to ABB and substantially in the form of ANNEX 8 hereto. ARTICLE 9 TERMINATION, AMENDMENT AND WAIVER 9.1. TERMINATION (a) Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated and the Transaction abandoned at any time prior to the Closing by action taken or authorized by the terminating party or parties: (i) by mutual written consent of ABB and Purchaser; (ii) by either ABB or Purchaser, if the Transaction shall not have been consummated by December 31, 2000; PROVIDED, HOWEVER, that the right to terminate this Agreement under this Section 9.1(a)(ii) shall not be available to a party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Transaction to occur on or before such date; and (iii) by either ABB or Purchaser, if any Governmental Authority shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or other action the parties shall have used their reasonable efforts to resist, resolve or lift, as applicable, subject to the provisions of Section 7.4) permanently restraining, enjoining or otherwise prohibiting the Transaction, and such order, decree, ruling or other action shall have become final and non-appealable; PROVIDED, HOWEVER, that the provisions of this Section 9.1(a)(iii) shall not be available to a party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, such order or injunction. (b) In the event of termination by either party pursuant to this Section 9.1, written notice thereof shall forthwith be given to the other party. (c) If this Agreement is terminated and the Transaction is abandoned as described in this Section 9.1, this Agreement shall become null and void and of no further force and effect, except for the provisions of this Agreement relating to expenses (including but not limited to Section 12.9), this Section 9.1, and Articles 11 and 12. Nothing in this Section 9.1 shall be deemed to release either party from any liability for any breach by such party of the terms and provisions of this Agreement. -74- (d) If this Agreement is terminated and the Transaction is abandoned as described in this Section 9.1, Purchaser shall promptly return to ABB (i) all documents and other material received from ABB and/or its Affiliates relating to the Transaction, whether so obtained before or after the execution hereof; and (ii) all written information received by Purchaser with respect to the Business and the other operations of ABB and/or its Affiliates (in each case together with all copies thereof). 9.2. AMENDMENTS AND WAIVERS (a) This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto by their duly authorized representatives. (b) Each party may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement that such other party was or is obligated to comply with or perform. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement or of any further breach of the provision so waived. No extension of time for the performance of any obligation or act thereunder shall be deemed to be an extension of time for the performance of any other obligation or act. ARTICLE 10 INDEMNIFICATION 10.1. INDEMNIFICATION Subject to the limitations set forth in this Article 10, each party hereto (the "INDEMNIFYING PARTY") hereby agrees to indemnify the other party hereto (the "INDEMNIFIED PARTY") and its Affiliates, and their respective officers, directors, employees, agents and representatives, against, and agrees to hold them harmless from, any and all Losses (including reasonable legal fees and disbursements), payable quarterly upon request, to the extent caused by or resulting from: (i) any breach by the Indemnifying Party of any of its representations or warranties set out in Article 5 or Article 6, as the case may be; or (ii) any failure by the Indemnifying Party duly to perform any undertakings and agreements required by this Agreement to be performed by the Indemnifying Party. -75- 10.2 ADDITIONAL INDEMNIFICATION BY ABB. Subject to the limitations imposed by this Article 10, ABB, as the Indemnifying Party, hereby agrees to indemnify Purchaser, as the Indemnified Party, and its Affiliates, and their respective officers, directors, employees, agents and representatives, against, and agrees to hold them harmless from, any and all Losses (including reasonable legal fees and disbursements), payable quarterly upon request, to the extent consisting of, caused by or arising from: (i) any Non-Business Liabilities; (ii) the portion of Liabilities in excess of Five Million United States Dollars (US$ 5,000,000) arising from the matter described in Schedule 10.2(ii); (iii) subject to Section 10.13, any Actual OKG Losses; PROVIDED, HOWEVER, that ABB shall not have any Liability under this clause (iii) except to the extent the aggregate of any Actual OKG Losses for which ABB, but for this proviso, would be liable exceeds the provision established in the Final Audit Report in respect of the OKG Contract ("PROVIDED OKG AMOUNT"), in which case (x) for aggregate Actual OKG Losses of more than the Provided OKG Amount, but less than $10,000,000 in excess of the Provided OKG Amount, ABB shall pay 50% of such Actual OKG Losses, and (y) for aggregate Actual OKG Losses of more than $10,000,000 in excess of the Provided OKG Amount, ABB shall pay 100% of all such Actual OKG Losses; (iv) any Liability under the Existing Windsor Pro Forma Lease attributable to the period after the first anniversary of the Closing Date and any Windsor Site Environmental Liabilities; PROVIDED, HOWEVER, that ABB shall not have any Liability for Losses caused as a consequence of Purchaser's operation of any facilities at the Windsor Site during its short-term tenancy in accordance with Section 7.21(b) and (c); (v) any Hematite Legacy Liabilities, PROVIDED, HOWEVER, that ABB shall not have any Liability under this clause (v) except to the extent the aggregate of all such Losses for which ABB, but for this proviso, would be liable exceeds $30,000,000, in which case, (x) for aggregate Losses of more than $30,000,000, but less than $75,000,000, ABB shall pay 75% of such Losses, and (y) for aggregate Losses of $75,000,000 or more, ABB shall pay 100% of all such Losses and further provided that the Losses for which ABB is liable under this clause (v) are incurred by the Indemnified Party within fifteen (15) years of the Closing Date; -76- (vi) all Business-Related Environmental Liabilities and Decontamination and Decommissioning Liabilities, but excluding Windsor Site Environmental Liabilities and Hematite Legacy Liabilities; PROVIDED, HOWEVER, that ABB shall not have any Liability in respect of Losses under this clause (vi) except to the extent the aggregate of all such Losses for which ABB, but for this proviso, would be liable exceeds $50,000,000, in which case (x) for aggregate Losses of more than $50,000,000, but less than $80,000,000, ABB shall pay 50% of such Losses, (y) for aggregate Losses of $80,000,000 or more but less than $120,000,000, ABB shall pay 75% of such Losses, and (z) for aggregate Losses of $120,000,000 or more, ABB shall pay 100% of all such Losses; and FURTHER PROVIDED, HOWEVER, that ABB shall have no liability for Decontamination and Decommissioning Liabilities caused by the operation, after the Closing Date, of any facility associated with the Business (it being understood that such Decontamination and Decommissioning Liabilities shall not be deemed to be "caused by" such operation after the Closing Date solely by reason of the passage of time); and FURTHER PROVIDED, HOWEVER, that the Losses for which ABB is liable under this clause (vi) with respect to any facility are incurred by the Indemnified Party within ten (10) years after any date on which such facility is taken out of service, decommissioned, or operated for a purpose that is materially different from its current purpose, or within thirty (30) years of the Closing Date, whichever is earliest; (vii) any Taxes of any member of an affiliated, consolidated, combined, unitary, or similar group of which any of the companies in the NB Group is or was a member on or prior to the Closing Date (other than Taxes of the members of the NB Group, which shall be covered by Section 7.9(g)) by reason of the liability of such companies for such Taxes pursuant to Treasury Regulations Section 1.1502-6 or any similar provision under state, local, or foreign law or regulation, or any contractual liability for Taxes of any Person (other than members of the NB Group, which shall be covered by Section 7.9(g)); (viii) any Taxes related to the transactions described in Section 3.1 of this Agreement or to the formation (or any restructuring or dividending of the assets) of NBUS, NBDE, NBSE, the portion of the assets of the US I&C Unit that are transferred pursuant to Section 3.1, US I&C Newco, the Swedish Unit, or the German Unit; and (ix) any Taxes resulting from the Section 338(h)(10) Election. 10.3. CERTAIN LIMITATIONS (a) No claim, or recovery in respect thereof, for breach of any representation or warranty (except representations and warranties contained in Section 5.14) shall be allowed (i) -77- unless the amount recoverable in respect of each claim or group of related claims exceeds Forty Thousand United States dollars (US $40,000) (or the foreign currency equivalent thereof) and the amount recoverable in respect of all such qualifying claims exceeds Twenty Million United States dollars (US $20,000,000) in the aggregate (or the foreign currency equivalent thereof), in which case the liability of the Indemnifying Party shall not be restricted to merely the excess over the threshold amounts referred to above; and (ii) with respect to an obligation which is contingent, unless and until the obligation becomes actual. (b) The amounts which, but for this Paragraph (b), would be recoverable under this Article 10, shall be reduced to the extent of any insurance proceeds recoverable in respect thereof by the Indemnified Party or any of its Affiliates under any policy of insurance carried by any of them. (c) The Indemnifying Party shall have no liability hereunder for a breach of any representation or warranty to the extent that: (i) in the case of ABB, a specific provision or reserve in respect of the relevant Losses was made in the Financial Statements or such Losses were deducted in the calculation of the Actual Equity; (ii) in the case of ABB, any specific provision or reserve made as aforesaid proves insufficient only by reason of any reduction of Tax allowances or reliefs after the Closing Date; (iii) such Losses would not have arisen but for any alteration or repeal or enactment of any Applicable Law after the Closing Date; (iv) such Losses would not have arisen but for any change in the accounting policies, practices or procedures adopted by the Indemnified Party and/or its Affiliates or for any other act or omission by any of them after the Closing Date; or (v) such Losses would not have arisen but for a failure by the Indemnified Party or any of its Affiliates to take reasonable steps to mitigate the effect of the circumstances giving rise to the claim. (d) Without limiting either party's rights under Article 8, the Indemnifying Party shall have no liability hereunder for a breach of any representation or warranty if the matter in question is subject to any indemnity (other than the indemnity referred to in clause (i) of Section 10.1) given by the Indemnifying Party in this Agreement, whether or not, under such indemnity, a portion of the Losses is to be absorbed by the Indemnified Party. -78- (e) Except with respect to claims relating to Taxes, the aggregate liability of the Indemnifying Party for all claims pursuant to clause (i) of Section 10.1 shall be limited to an aggregate amount equal to seventy percent (70%) of the Purchase Price. (f) No special, indirect, consequential or punitive damages or losses of any kind (including but not limited to loss of profits, loss of revenue, loss of use, loss of production, costs of capital or costs connected with the interruption of operation), regardless of the legal theory on which the claim is based, shall be recoverable hereunder. (g) If a failure by the Indemnifying Party duly to perform its obligations under this Agreement is capable of being remedied, the Indemnified Party shall not be entitled to compensation for any breach unless the Indemnifying Party is given written notice of such failure and either (i) fails to commence remedial action within thirty (30) days of such notice, (ii) fails to pursue such action diligently at all times thereafter until the original failure has been remedied, or (iii) fails to remedy the original failure within one hundred eighty (180) days after such notice. (h) The Indemnified Party shall use all reasonable efforts to pursue any and all rights to reimbursement, recovery or indemnification with respect to all Losses for which it is entitled to indemnification under this Article 10 pursuant to any Contract, insurance policy or arrangement with any Person (other than Affiliates of the Indemnified Party) prior to bringing any claim against the Indemnifying Party under this Article 10. The Indemnified Party shall not be required to expend any material sum or commence any litigation or arbitration proceeding unless the Indemnifying Party expressly agrees to indemnify the Indemnified Party for such expenditure and any Losses incurred by the Indemnified Party in such litigation or arbitration. (i) Nothing in Section 10.3(a)(ii), (g) or (h) shall preclude the Indemnified Party from giving the Indemnifying Party notice of any claim in accordance with Section 10.7, in which case such claim, if such notice is given within the applicable time period provided for in Section 10.7, shall not be time-barred under that Section; PROVIDED that, with respect to Section 10.3(a)(ii), any claim pursuant thereto shall be time-barred ninety (90) days after the date that the relevant obligation becomes actual, unless prior to the expiration of such ninety (90) day period the Indemnified Party shall have notified the Indemnifying Party of such fact and shall have demanded payment of such claims; and PROVIDED FURTHER that with respect to Sections 10.3(g) and (h), such tolling period shall terminate (i) in the case of Section 10.3(g), when the Indemnifying Party shall have notified the Indemnified Party that it has ceased pursuit of a remedy of the alleged breach in question or, if earlier, the expiration of the 180-day period provided for in such Section and (ii) in the case of Section 10.3(h), when the Indemnified Party shall have ceased -79- pursuing rights to reimbursement, recovery or alternative indemnification pursuant to such Section. 10.4. DOUBLE RECOVERY (a) If the Indemnifying Party pays an amount in discharge of any claim under this Agreement and the Indemnified Party, or its Affiliates, or any of their respective officers, directors, employees, agents and representatives, subsequently recovers from a third Person a sum which is attributable to the subject matter of the claim, the Indemnified Party shall promptly pay to the Indemnifying Party an amount equal to all amounts recovered up to the aggregate amount thus paid by the Indemnifying Party hereunder. (b) For purposes of Section 10.3(b) and this Section 10.4, the amount of any recovery on a claim under any insurance shall be the gross amount received in such recovery less any retrospective insurance premiums directly attributable to such claim. 10.5. THIRD PARTY CLAIMS (a) If any claim is made or proceeding is instituted by any third Person in respect of which the Indemnified Party may seek recovery hereunder (other than a Tax Controversy, procedures for which are set out in Section 7.9 or a claim under clause (iv), (v) or (vi) of Section 10.2, procedures for which are set out in Section 10.12) ("THIRD-PARTY CLAIM"), the Indemnified Party shall give written notice thereof to the Indemnifying Party, describing in reasonable detail the nature of the Third-Party Claim, within fifteen (15) days after receipt by the Indemnified Party of notice of the Third-Party Claim; PROVIDED, HOWEVER, that the failure to give timely notice shall not affect the rights to indemnification hereunder to the extent the Indemnified Party demonstrates that the Indemnifying Party suffered no actual damage as a result of such failure; PROVIDED FURTHER, that, in the event of such failure to give timely notice, the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnified Party failed to give such notice. Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, promptly after the Indemnified Party's receipt thereof, copies of all notices and documents, including citations, summons and similar court papers, received by the Indemnified Party in respect of the Third-Party Claim. (b) The Indemnifying Party shall be entitled to participate in the defence of any Third-Party Claim and, if it so chooses, to assume the defence thereof with counsel of its own choice. If the Indemnifying Party so elects to assume the defence of a Third-Party Claim, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses subsequently incurred by the Indemnified Party in connection with the defence thereof (but the Indemnifying Party shall be so liable for such legal expenses incurred from the date the -80- Indemnifying Party receives notice of the Third-Party Claim pursuant to Paragraph (a) above to the date the Indemnifying Party assumes the defence thereof pursuant to this Paragraph (b)). (c) The Indemnified Party shall be entitled to participate in the defence of any Third-Party Claim, the defence of which has been assumed by the Indemnifying Party, and to employ counsel, at its own expense, separate from the counsel employed by the Indemnifying Party. Notwithstanding the foregoing, the Indemnifying Party shall at all times control the defence of any such Third-Party Claim. (d) If the Indemnifying Party chooses to defend or prosecute a Third-Party Claim, the Indemnified Party shall, at its own cost, cooperate in all reasonable respects in the investigation, trial and defence thereof and in connection with any appeal arising therefrom. Without limiting the generality of the foregoing, the Indemnified Party shall retain and, upon the Indemnifying Party's request, provide to the Indemnifying Party copies of all records and information which are reasonably relevant to such Third-Party Claim, and make employees available on a mutually convenient basis to provide additional information and explanation of any material furnished hereunder. (e) If the Indemnifying Party chooses to defend or prosecute any Third-Party Claim, the Indemnified Party will agree to any settlement, compromise or discharge of such Third-Party Claim which the Indemnifying Party may recommend and which by its terms obligates the Indemnifying Party to pay to the Indemnified Party the full amount of the liability in connection with such Third Party Claim. If the proposed settlement, compromise or discharge does not require full payment of such liability to the Indemnified Party, the Indemnified Party shall have the right to consent to such settlement, compromise or discharge (which consent shall not be unreasonably withheld or delayed). (f) Whether or not the Indemnifying Party shall have assumed the defence of a Third-Party Claim, the Indemnified Party shall not admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the Indemnifying Party's prior written consent (which consent shall not be unreasonably withheld or delayed). 10.6. CHARACTERIZATION OF PAYMENTS All amounts paid by ABB or Purchaser, as the case may be, under this Article 10 and Article 7.9 shall, to the extent permitted by Applicable Law, be treated as adjustments to the Purchase Price for all purposes (including but not limited to Tax purposes). 10.7. TERMINATION OF CERTAIN INDEMNIFICATION -81- (a) No action or claim may be brought for indemnity in respect of any breach by ABB of any of its representations or warranties set out in Article 5, unless the claim, describing in reasonable detail the nature of the claim and the calculation of the amount claimed, is made in writing to ABB within twenty-four (24) months of the Closing Date; PROVIDED that claims for misrepresentation or breach of warranty under Section 5.14 shall become time-barred ninety (90) days after the earlier of (i) the date the relevant Tax assessment has become final and non-appealable or the case has been settled with the relevant taxing authorities and (ii) the expiration of the statute of limitations period applicable to the claim underlying the claim for indemnity; PROVIDED FURTHER that claims for misrepresentation or breach of warranty under Sections 5.1 through 5.5 and Section 5.18 shall not be time-barred, but rather shall survive the Closing without limitation. Actions or claims for indemnity for any breach by Purchaser of any of its representations or warranties set out in Article 6 shall not be time-barred, but rather shall survive the Closing without limitation. (b) No action or claim may be brought for indemnity under Section 10.1(ii), unless the claim, describing in reasonable detail the nature of the claim and the calculation of the amount claimed, is made in writing to and received by the Indemnifying Party within ninety (90) days after the Indemnified Party becomes aware of the breach. (c) All claims duly made within the applicable period in accordance with Paragraphs (a) and (b) above shall become time-barred six (6) months after the expiration of said period, unless proceedings to enforce such claim have been commenced in accordance with Article 11 prior to such date. (d) All claims by Purchaser for Losses with respect to Taxes (other than those addressed in Paragraph (a) above) including, without limitation, for Taxes referred to in Section 10.2, shall become time-barred ninety (90) days after the earlier of (i) the relevant Tax assessment has become final and non-appealable or the case has been settled with the relevant taxing authorities and (ii) the expiration of the statute of limitations period applicable to the claim underlying the claim for indemnity; PROVIDED, HOWEVER, that, in the case of any claim attributable to a contractual claim for Taxes against any member of the NB Group, such claim shall be time-barred no earlier than ninety (90) days after the date on which Purchaser or the NB Group, as the case may be, received such contractual claim. 10.8. EXCLUSIVE REMEDIES Each party hereto acknowledges and agrees that its sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement shall be pursuant to the indemnification provisions set forth in this Article 10 (other than the equitable -82- remedy of specific performance in connection with the breach of any covenant contained in this Agreement). In furtherance hereof, and except as otherwise set forth in this Article 10, each party hereby waives, to the fullest extent permitted under Applicable Law, any and all rights, claims and causes of action it may have against the other party, its Affiliates and their respective officers, directors, employees, stockholders, agents and representatives, arising under or based upon Applicable Law. Nothing in this Section 10.8 shall limit either party's remedies under the Ancillary Agreements. 10.9. SUBROGATION Without limiting Purchaser's indemnification obligations pursuant to this Article 10, ABB and its Affiliates shall be subrogated to the rights of Purchaser and its Affiliates under any Contracts of the Business (including any rights to indemnification and reimbursement) in connection with any defense in respect of, arising out of or involving a claim by any Person against ABB or any of its Affiliates in relation to the Business. 10.10. CURRENCY TRANSLATION All recoverable Losses expressed in any currency other than United States dollars shall be translated into United States dollars on the basis of (i) in the case of currencies published at 4 p.m. (London time) by Reuters 2000 Service, page FXFX, the applicable closing mid-point rate for such currencies fixed by the Foreign Exchange Market in London on the date of the claim for recovery hereunder or, if such date is not a business day, on the last business day immediately preceding such claim; and (ii) in the case of currencies not so published by Reuters, the applicable mid-point rate calculated on the basis of the relevant rates published in The Financial Times in regard to such date or, if not available in The Financial Times, on the basis of the relevant rates of Citibank N.A. published by Reuters simultaneously with the ones published on page FXFX. 10.11 ARBITRATION OF CERTAIN ENVIRONMENTAL LIABILITIES Notwithstanding the provisions of Sections 11.2 and 11.3 of this Agreement, any dispute concerning the obligations of any party under subsections (iv), (v) and (vi) of Section 10.2 shall be settled by arbitration in accordance with the Commercial Rules of the American Arbitration Association. Any party may commence arbitration hereunder by delivering notice to the other party or parties to the dispute, claim or controversy. The arbitration panel shall consist of three arbitrators. Within ten (10) days after delivery of the notice of commencement of arbitration referred to above, the Purchaser and ABB shall each appoint one arbitrator, and the two arbitrators so appointed shall designate a third arbitrator within ten (10) days of their appointment. If the arbitrators designated by the parties to the arbitration are unable or fail to -83- agree upon the third arbitrator, the third arbitrator shall be designated by the American Arbitration Association under its rules. The arbitrators will be bound by the substantive law of the State of New York, but will not be bound by the laws of evidence and procedure customary in courts of law. The arbitrators shall be required to submit a written statement of their findings and conclusions within sixty (60) days of the evidentiary hearing. The award of the arbitrators shall be final, binding and conclusive on the parties; PROVIDED that, where a remedy for breach is prescribed hereunder or limitations on remedies are prescribed, the arbitrators shall be bound by such restrictions. Judgment upon the award may be entered in any court having jurisdiction thereof. The arbitration proceedings shall be conducted in New York, New York. Unless otherwise determined by the arbitrator (which determination shall be final and binding on Purchaser and ABB), each party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be shared equally by Purchaser and ABB. 10.12 PROCEDURES RELATING TO THIRD PARTY ENVIRONMENTAL CLAIMS. (a) After the Closing, each of Purchaser and ABB shall notify (the "NOTIFYING PARTY") the other in writing, and in reasonable detail, of any claim in respect of, arising out of or involving a claim made by any third party against the Notifying Party constituting an Environmental Liability or a Decontamination and Decommissioning Liability indemnified under Sections 10.2(iv), (v) or (vi) hereof (in each case a "SHARED CLAIM"), within ten (10) business days after receipt by the Notifying Party of written notice of the Shared Claim; PROVIDED, HOWEVER, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the other party shall have been actually prejudiced as a result of such failure (except that the other party shall not be liable for any expenses incurred during the period in which the Notifying Party failed to give such notice). Thereafter, each party shall deliver to the other party, promptly after such party's receipt thereof, copies of all notices and documents (including court papers) received by such party relating to the Shared Claim. (b) Purchaser and ABB shall negotiate in good faith to allocate responsibility for the defense of Shared Claims, it being agreed that: (i) Purchaser and ABB will each be entitled to participate in the defense of any Shared Claim and will each cooperate in the defense of any Shared Claim, including the retention and (upon request) the provision to the requesting party of records and information which are reasonably relevant to such Shared Claim, and making employees (including any Business Employees familiar with such Shared Claim) available on a mutually convenient basis to provide additional information and explanation of any such records and information; -84- (ii) Purchaser and ABB will consult with each other and shall mutually agree on any significant strategic decisions in respect of any Shared Claim, and shall make appropriate and mutually agreeable arrangements with respect to day-to-day administration of any Shared Claim; (iii) Purchaser and ABB will consult with each other and shall mutually agree on any settlement, compromise or discharge of any Shared Claim; (iv) neither Purchaser nor ABB shall admit any liability with respect to or settle, compromise or discharge, any Shared Claim without the other party's prior written consent (which consent shall not be unreasonably withheld or delayed); and (v) with respect to any decisions under Paragraphs (ii) and (iii) above, if ABB and Purchaser cannot agree, the party with the greater share of the potential liability with respect to such Shared Claim shall make such decision. 10.13 OKG CONTRACT (a) Any payment of indemnity under Section 10.2(iii) shall be made within sixty (60) days after approval by ABB of Purchaser's final statement on the OKG Contract provided pursuant to Paragraph (c)(ii) below. (b) Purchaser shall, and shall cause its Affiliates to, use all reasonable efforts to meet the contractual terms and conditions of the OKG Contract. (c) Purchaser shall deliver to ABB (i) periodic statements, on a quarterly basis no later than the 15th of the first calendar month in each quarter after the Closing, setting out in reasonable detail such information on the technical, financial, commercial and factual progress and status of the OKG Contract as ABB may reasonably request (including but not limited to information on costs incurred or expected to be incurred, realized or expected revenues and any technical problems) and (ii) a final statement to be delivered promptly after full performance (or termination) of the OKG Contract by the Purchaser and/or its Affiliates as evidenced by the customer's final acceptance thereunder (or appropriate evidence of termination thereof), setting out in reasonable detail the calculation of the Actual OKG Loss incurred under the OKG Contract. In addition, ABB and its accountants, counsel and other representatives (whose costs shall be paid by ABB), once monthly at such times and in such manner as may be agreed with Purchaser, shall have the right to meet with the project manager and other key personnel involved in the execution of the OKG Contract for purposes of receiving an in-depth status report and discussing efforts taken by the Purchaser and/or its Affiliates with a view to securing -85- cost-effective performance and, where applicable, suitable remedial action under the OKG Contract. (d) ABB and its counsel, and other representatives (whose costs shall be paid by ABB) shall have access to the premises, properties, books, accounting records and other documentation (including supporting contractual documentation) and personnel of Purchaser and/or its Affiliates for the purpose of verifying the statements submitted by Purchaser pursuant to Paragraph (c) above or Purchaser's compliance with this Section 10.13. (e) Each party shall nominate one person, who shall be the main contact person of such party for purposes of implementing the provisions of this Section 10.13, and shall keep each other informed of the identity and address of such person (including any replacements). (f) Whenever, pursuant to the last available report on the OKG Contract, the project is in a projected loss position, ABB shall have the right to offer consultancy support from the Automation Segment in the ABB Group in addition to the support required to be provided to Purchaser pursuant to Section 7.20. Any such additional consulting support shall be provided at ABB's expense. Purchaser shall procure that the NB Group gives due consideration to the advice provided pursuant to such consulting support. (g) The provisions of this Section 10.13 shall apply from the Closing until ABB has given its consent to the final report of Purchaser submitted pursuant to Paragraph (c) above or the Actual OKG Loss has been determined pursuant to the provisions of Article 11, as the case may be. ARTICLE 11 DISPUTE RESOLUTION 11.1. AMICABLE RESOLUTION The parties will use their best efforts to resolve amicably any dispute, controversy or claim arising out of or relating to this agreement, or the breach, termination or invalidity thereof. 11.2. ARBITRATION Except as otherwise provided for in Sections 2.5 and 10.11, any such dispute, controversy or claim which cannot be settled amicably within thirty (30) days of written notice by either party describing in reasonable detail the dispute, controversy or claim, shall be settled -86- by arbitration in accordance with the then applicable arbitration rules of the International Chamber of Commerce. 11.3. PROCEDURE The arbitration provided for in Section 11.2 shall be held in London, England and shall be conducted by three (3) arbitrators, of which each party shall appoint one (1) arbitrator and the two (2) arbitrators thus appointed shall appoint the presiding arbitrator. The language to be used in the arbitration proceedings shall be English, unless otherwise agreed in writing by the parties. The arbitrators shall give reasonably detailed justifications for their award in any proceeding and the award shall be final and binding upon the parties. The parties agree that the award of the arbitrators may be enforced by any court having jurisdiction over the party against which the award has been rendered or the assets of such party, wherever the same may be located. 11.4. ONGOING OBLIGATIONS Upon and after the submission of any dispute to arbitration, the parties shall continue to exercise their remaining respective rights, and fulfil their remaining respective obligations, under this Agreement, except insofar as the same may be related directly to the matters in dispute. ARTICLE 12 GENERAL PROVISIONS 12.1. ANNOUNCEMENTS Unless disclosure is required by Applicable Law or stock exchange regulations to be made by either party hereto, each party agrees to keep the existence and content of this Agreement confidential and will make no public announcement with respect thereto without the prior written approval of the other party (such approval not to be unreasonably withheld or delayed). In the event of any required disclosure, the relevant party shall provide advance notice to and, to the extent practicable, shall coordinate the content, form and manner of publication with the other party. 12.2. COOPERATION Unless otherwise expressly provided in this Agreement, whenever the parties are required to cooperate for any particular purpose hereunder, neither party, nor their respective Affiliates, shall be required to make any material monetary expenditure, commence or be a plaintiff -87- in any litigation or offer or grant any material accommodation or concession (financial or otherwise) to any Person. 12.3. ENTIRE AGREEMENT This Agreement, the Local Agreements, the Ancillary Agreements and the confidentiality undertaking dated May 20, 1999 made by Purchaser in favor of ABB and its Affiliates contain the entire understanding of the parties hereto with respect to the subject matter contained herein and supersede and cancel all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter, including without limitation, the Letter Agreement, dated October 15, 1999, between ABB Ltd. and British Nuclear Fuels plc. There are no restrictions, promises, agreements or undertakings of any party hereto with respect to the Transaction other than those set forth herein or made hereunder and in or under the Local Agreements and the Ancillary Agreements. 12.4. SEVERABILITY If at any time any provision of this Agreement is or becomes invalid, illegal or unenforceable under Applicable Law of any jurisdiction, the validity, legality and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected, and the validity, legality and enforceability of the whole Agreement in any other jurisdiction shall not be affected. In the event any provision is held in any proceeding pursuant to Article 11 to be invalid, illegal or unenforceable, the parties shall replace that provision with a new provision permitted by law and having an economic effect as close as possible to the deficient provision. 12.5. NO THIRD PARTY BENEFICIARIES This Agreement shall be directed and interpreted to the advantage of the parties only and their permitted assignees, and no third Person shall obtain any rights by virtue hereof. 12.6. ASSIGNMENT Neither party may assign its rights or obligations under this Agreement to any third Person without the prior written consent of the other party, except that Purchaser may without the further consent of ABB assign to one or more of Purchaser's Subsidiaries the right to acquire part or all of the business and assets of the Business hereunder, together with the other rights of Purchaser hereunder with respect thereto; PROVIDED that no such assignment shall relieve Purchaser of any liability hereunder (including any liability under Article 10) or affect any limitations on ABB's liability under Article 10; PROVIDED FURTHER that, notwithstanding any such assignment (i) any claims by Purchaser or its Subsidiaries for, or relating to, any indemnity under -88- this Agreement shall be brought by Purchaser, and not its Subsidiaries, and ABB shall only be obligated to deal with Purchaser in connection with any such claims; and (ii) ABB may seek any indemnity it may be entitled to under this Agreement solely from Purchaser and without having first to seek indemnity from any such Subsidiaries of Purchaser. If such assignment is made to more than one Subsidiary of Purchaser, such Subsidiaries shall be deemed a single entity for purposes of calculating the limitations on liability of ABB under Article 10. 12.7. NOTICES All notices and other communications that are required or permitted to be given under this Agreement shall be in writing and hand delivered or sent by registered mail (return receipt requested) or confirmed facsimile to the following addresses (which may be changed in writing by notice to the appropriate address): If to ABB: ABB Handels- und Verwaltungs AG c/o ABB Ltd. PO Box 8131 CH-8050 Zurich Switzerland Fax No.: +41 1 317 7992 Attention: Dept. CS-LE with a copy to: White & Case 7-11 Moorgate London EC2R 6HH England Fax No.: +44 20 7600 7030 Attention: Mats Sacklen, Esq. If to Purchaser: British Nuclear Fuels plc Hinton House Risley, Warrington Cheshire WA3 6AS England -89- Fax: 011-441-925-832058 Attn: Alvin J. Shuttleworth with a copy to: Westinghouse Electric Company 4350 Northern Pike Energy Center Monroeville, PA 15146-2886 Fax No.: (412) 374-6122 Attn: Ramsey Coates and Sutherland Asbill & Brennan LLP 1275 Pennsylvania Ave., N.W. Washington, D.C. 20004 Fax No.: (202) 637-3593 Attn: Mark D. Herlach Unless the contrary is proved, a notice to a party shall be deemed to have been received (i) on the date of delivery, when the notice is delivered by hand at that address to a responsible person during normal business hours; (ii) within five (5) days from the date it was mailed, postage prepaid, when the notice is sent by first class registered mail in a correctly addressed envelope to the address specified above; and (iii) within four hours of transmission (if the transmission occurs during the hours of 9:00 a.m. to 5:30 p.m. in the location of the recipient) or within twelve (12) hours of transmission (if the transmission occurs outside those hours), if the notice is transmitted by facsimile at the facsimile number specified above; PROVIDED, in the case of notices via facsimile, that the notice is also left or sent by pre-paid recorded delivery or registered mail in accordance with item (i) or (ii) above no later than three (3) days thereafter, or receipt is confirmed in writing at any time by the recipient. Any notice or communication received on a day which is not a business day shall be deemed to have been received on the immediately following business day. 12.8. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within the -90- State of New York (without regard to the laws that might otherwise govern under applicable principles of conflict of laws). 12.9. COSTS AND EXPENSES (a) All costs and expenses incurred in connection with the preparation, negotiation and implementation of this Agreement and the Transaction shall be borne by the party incurring such costs and expenses. (b) All stamp, transfer, documentary, sales and use, value added, registration and other such Taxes and fees (including any penalties and interest) and all notarial, registration and filing fees incurred in connection with the Transaction shall be borne by Purchaser, and Purchaser shall, at its own expense, procure any share transfer stamps required by Applicable Law, and properly file on a timely basis all necessary Tax Returns and other documentation with respect to such Tax and provide ABB with evidence of payment of all such Taxes. 12.10. FURTHER ASSURANCES Each party undertakes to take all steps to implement this Agreement and to sign, or to have signed, from time to time all other documents necessary or appropriate in order to fulfill the object of this Agreement and give full effect to all of the provisions contained herein. 12.11. COUNTERPARTS This Agreement may be executed (which execution may be via facsimile) in two (2) or more counterparts, each of which shall be deemed to be an original, but all the counterparts shall together constitute one (1) and the same agreement. Unless otherwise provided herein, this Agreement shall be dated and become effective, and each counterpart shall be dated, on the date on which the last of the parties executes this Agreement or a counterpart of this Agreement, as the case may be. 12.12. PAYMENT OF INDEMNITIES ABB shall cause the relevant Seller(s) of Shares or Loans, or of Additional Business Assets or Additional Business Liabilities, to make all payments, if any, pursuant to any indemnity given by ABB in this Agreement (including but not limited to the indemnities given by ABB in Section 7.9(g) and Article 10). [signature page immediately follows] -91- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized representatives on the date first set forth above. ABB HANDELS- UND VERWALTUNGS AG BRITISH NUCLEAR FUELS plc By: /s/ Eric Lint By: /s/ John Taylor Name: Name: John Taylor Title: Title: Chief Executive By: /s/ Hans Enhorning By: /s/ Alvin Shuttleworth Name: Name: Alvin Shuttleworth Title: Title: Company Secretary and Group Legal Director -92- EXECUTION COPY FIRST AMENDMENT TO THE PURCHASE AGREEMENT THIS FIRST AMENDMENT (this "FIRST AMENDMENT") is dated as of April 28, 2000 between: ABB HANDELS-UND VERWALTUNGS AG, a company organized and existing under the laws of Switzerland with its principal office at CH-8050 Zurich ("ABB"), and BRITISH NUCLEAR FUELS plc, a company organized and existing under the laws of England with its principal office at Risley, Warrington, Cheshire WA3 6AS, England ("Purchaser"). Capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Purchase Agreement (as defined below), unless the context otherwise requires. WITNESSETH: WHEREAS, ABB and Purchaser are parties to a Purchase Agreement dated December 21, 1999 (the "PURCHASE AGREEMENT"); and WHEREAS, the parties hereto desire to amend the Purchase Agreement as provided herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed as follows: ARTICLE 1 AMENDMENTS 1.1. SECTION 1.1 (DEFINITIONS) (a) The defined term "NBSE" in Section 1.1 (Definitions) of the Purchase Agreement is hereby amended by substituting "AB Cythere 62" for "ABB Cynthere 62 AB". (b) The defined term "Non-Business Liabilities" in Section 1.1 (Definitions) of the Purchase Agreement is hereby amended by adding "; and (vi) Liabilities arising in connection with ABB Monolit, Kharkov-664". 1.2. SECTION 1.3 (INTERPRETATION) (a) Section 1.3 (Interpretation) of the Purchase Agreement is hereby amended by inserting the following text at the end of paragraph (d): "and any amendments to this Agreement or such Annexes or Schedules" (b) Section 1.3 (Interpretation) of the Purchase Agreement is hereby amended by adding a new paragraph (k) as follows: "(k) Whenever any reference is made in this Agreement to assets or properties consisting of real estate, such reference, for purposes of determining whether such real estate is primarily used, or held for use, in the Business, shall be deemed a reference to the entire legal unit of such real estate, including all land and all buildings, structures and other improvements located thereon forming part of such legal unit." 1.3. SECTION 2.1 (SALE AND PURCHASE) Section 2.1(b) (Sale and Purchase) of the Purchase Agreement is hereby amended by inserting the following text at the end of such paragraph (b): "; PROVIDED, HOWEVER, that (i) each of Erick Anckaert and Giorgio Cravato (each a "Temporary ABB Employee") shall continue as an employee of the relevant Affiliate of ABB after the Closing until (A) in the case of Erick Anckaert, June 30, 2000 or, at Purchaser's option exercised by written notice to ABB within sixty (60) days of the Closing, August 30, 2000; or (B) in the case of Giorgio Cravato, December 31, 2000; (ii) ABB shall use all reasonable efforts to ensure that the services of each Temporary ABB Employee are made available to Purchaser and/or its Affiliates on a full-time basis -2- throughout the relevant period; (iii) Purchaser shall promptly, and from time to time, reimburse the relevant Affiliate of ABB for any and all amounts paid or costs incurred by such Affiliate in providing compensation, social insurance, benefits and perquisites to any Temporary ABB Employee during such period at the levels prevailing at the Closing, with such increases as ABB and Purchaser may subsequently implement by mutual agreement; (iv) at or prior to the expiration of the relevant period referred to herein, Purchaser shall offer each Temporary ABB Employee employment with Purchaser and/or its Affiliates on terms, including but not limited to position and level of compensation, no less favorable to such Temporary ABB Employee than those then applicable and Purchaser shall assume all then existing employment-related obligations with respect to such Temporary ABB Employee; and (v) if Purchaser fails to offer employment to any Temporary ABB Employee as provided herein, then Purchaser shall, as and when paid by the relevant Affiliate of ABB, promptly indemnify such Affiliate against any and all costs and liabilities with respect to severance, separation or other compensation and benefits to which such Temporary ABB Employee is entitled upon termination of his employment with such Affiliate. 1.4. SECTION 3.1 (CERTAIN TRANSFERS) (a) Section 3.1(b) (Certain Transfers) of the Purchase Agreement is hereby amended by inserting the following text at the end of such paragraph (b): "; PROVIDED, HOWEVER, that, with respect to the transfer of the activities within the scope of the Business conducted by the US I&C Unit referred to in Paragraph (a) above, the transfer of all properties, assets goodwill and rights to be transferred and all Liabilities to be assumed may be effected by way of a dividend thereof from the US I&C Unit to Asea Brown Boveri Inc. and a subsequent contribution thereof by Asea Brown Boveri Inc to, and assumption thereof by, NBUS; PROVIDED FURTHER that no employees of ABB Utilities Automation GmbH dedicated to performing services at the Super Phenix nuclear power plant in France or at the Muelheim-Kaerlich nuclear power plant in Germany shall be offered employment with or transferred to NBDE." (b) Section 3.1(c) (Certain Transfers) of the Purchase Agreement is hereby amended by inserting the following text after the word "purchase agreement" in the third line of such paragraph (c): ", contribution agreement or other appropriate agreement" -3- 1.5. NEW SECTION 3.4 (TRANSFER OF CERTAIN PERSONNEL) A new Section 3.4 is hereby added to the Purchase Agreement as follows: "3.4 TRANSFER OF CERTAIN PERSONNEL (a) ABB shall use all reasonable efforts to ensure that, prior to the Closing, all employees listed on SCHEDULE 3.4(a) hereto are transferred to the Swedish Unit and all Liabilities in relation to such employees are assumed by the Swedish Unit. If, within twenty-four (24) months of the Closing, the Purchaser, acting reasonably, determines that, in view of the order intake and backlog situation of the Swedish Unit at the time, it is probable that, in the short to medium term, it will not be able to keep one or more of such employees gainfully employed within the Swedish Unit in a position commensurate with their experience, credentials and compensation level and provides written notice to such effect to ABB, then ABB shall, at its option, exercised by written notice to Purchaser within thirty (30) days of receipt of Purchaser's notice, either (i) cause one of its Affiliates to offer employment to and, upon acceptance of such offer, employ each such employee; or (ii) reimburse Purchaser for fifty (50) percent of all severance payments actually made by the Swedish Unit to such employees in connection with the termination of their employment with the Swedish Unit; PROVIDED that such employees are given written notice of termination (with a copy to ABB) within sixty (60) days of the expiration of said 30-day period; PROVIDED FURTHER that such severance payments are no greater than the severance payments that would have been payable to such employees by ABB or its Affiliates had such employees been terminated from their present positions instead of transferred to the Swedish Unit (subject to reasonable additional payments based solely on customary and reasonable salary increases and additional service in the ordinary course for such employees prior to their termination by the Swedish Unit). If ABB fails to provide timely notice of its election to offer employment or reimburse severance payments pursuant to the immediately preceding sentence or if one or more employees of the Swedish Units are offered employment by an Affiliate of ABB in Sweden as provided in the previous sentence, but reject such offer, ABB shall be deemed, on the conditions of such sentence, to have chosen to reimburse Purchaser for severance payments incurred by the Swedish Unit. (b) ABB shall use all reasonable efforts to ensure that, prior to the Closing, all employees listed on SCHEDULE 3.4(b) hereto are transferred to NBDE and all Liabilities in relation to such employees are assumed by NBDE. (c) In the event the employees to be transferred pursuant to Paragraph (a) or (b) above have not been so transferred by the Closing, the parties will use all reasonable efforts -4- to ensure that they are transferred as provided therein as soon as reasonably possible thereafter." 1.6. SECTION 7.1(c) (CONDUCT OF BUSINESS) Section 7.1(c) (Conduct of Business) of the Purchase Agreement is hereby amended by deleting the second sentence in such Section 7.1(c) and replacing it with the following: "The instructions to the Reviewing Firm shall be substantially in the form as set forth in ANNEX 9 hereto." 1.7. SECTION 7.7 (SHARED ASSETS) Section 7.7 (Shared Assets) of the Purchase Agreement is hereby amended by adding a new paragraph (d) as follows: "(d) For purposes of Section 7.7(c), German patent number 4434284.2, German patent number 19525907.6, German patent number 19828446.2 and German trademark for "Unibloc" shall be deemed to be Intellectual Property of ABB and/or its Affiliates which do not form part of the Business, but which are also used or held for use in, or otherwise relate to, the Business." 1.8. SECTION 7.10 (NO USE OF TRADEMARKS) Section 7.10 (No Use of Trademarks) of the Purchase Agreement is hereby amended by adding a new paragraph (f) as follows: "(f) As soon as reasonably possible after the Closing, ABB shall cause its relevant Affiliate to enter into a license agreement with NBDE pursuant to which NBDE will be granted a non-exclusive license to use the trademarks "Hartmann & Braun" and "H&B" solely in connection with (i) the design, manufacture and sale of products by the instrumentation and control unit of NBDE currently located in Munich, Germany to customers in Germany, France, Belgium and Switzerland for use in nuclear powered electric generating facilities, nuclear processing facilities or nuclear test facilities (collectively, "Nuclear Installations") in such countries, to the extent such products are of a kind designed, manufactured and sold by such unit as of the Closing, and any and all successor products designed, manufactured and sold by such unit at any time thereafter during the term of the license to customers in Germany, France, Belgium and Switzerland for use in Nuclear Installations in such countries; and (ii) the provision of services by the instrumentation and control unit of NBDE currently located in Frankfurt, Germany at -5- Nuclear Installations in Germany, to the extent such services are of a kind provided by such unit as of the Closing. Apart from terms and conditions customarily found in license agreements of the kind contemplated by this Section 7.10(f), the license agreement to be entered into pursuant hereto shall (x) have a term of fifteen (15) years, but shall be terminable by NBDE in whole or in part at any time upon ninety (90) days' prior written notice; (y) except for the first year of the license, which shall be royalty-free, provide for a royalty, payable quarterly, at the rate of two (2) percent of the aggregate net sales of the instrumentation and control units referred to above under the tradename "Hartmann & Braun" or "H&B"; (z) require NBDE to apply, in a prominent fashion, to all licensed products, and all promotional, packaging, advertising and similar matter relating to licensed products or services, a notice that the trademark in question is used under license from the relevant Affiliate of ABB, the word "nuclear" or a similar designation clearly indicating the business in which such trademark is used and such other notices and designations as ABB may reasonably request." 1.9. SECTION 7.15 (INSURANCE) Section 7.15 (Insurance) of the Purchase Agreement is hereby amended by adding a new paragraph (c), a new paragraph (d) and a new paragraph (e) as follows: "(c) Without limiting the generality of Paragraphs (a) and (b) above, but subject to Paragraph (e) below, Purchaser agrees that, as from the Closing, it will maintain the nuclear property insurance coverage written by Hartford Steam Boiler Inspection & Insurance Co. ("HSB") then in effect with respect to the Hematite Site and the Windsor Site or equivalent coverage, provided that Purchaser shall promptly provide ABB with copies of such policy(s). As from the Closing, ABB and/or its Affiliates separately designated to Purchaser in writing prior to the Closing and Combustion Engineering, Inc., ABB Alstom Power Inc. and ABB Alstom Power NV (but only with respect to their ownership interest in Combustion Engineering, Inc. and only until Combustion Engineering Inc. is acquired by ABB and/or its Affiliates) shall be provided with additional insured status (including, in the case of Combustion Engineering, Inc., its rental income exposure in relation to the Windsor Lease (as defined in Section 7.21(b)) and a waiver of subrogation under the nuclear property policy with respect to the Windsor Site in accordance with the current terms and conditions thereof. (d) Without limiting the generality of Paragraphs (a) and (b) above, but subject to Paragraph (e) below, ABB agrees that, as from the Closing, it will maintain the facility form policy and worker certificates then in effect covering the operations at the Windsor Site and any obligations or liabilities under the applicable NRC license. As from the -6- Closing, a Person separately designated by Purchaser in writing to ABB prior to the Closing shall be provided with additional insured status under such insurance coverage until such Person ceases to hold a broad scope radioactive materials NRC license to conduct operations at the Windsor Site. ABB shall make all reasonable efforts to assign, or cause its Affiliates to assign, as from the Closing, the facility form policies and worker certificates then in effect covering the operations at the Hematite Site and the site at 1201 River Front Parkway, Chattanooga, Tennessee, U.S.A., respectively, to one or more Persons designated by Purchaser in writing to ABB prior to the Closing (it being understood that the omnibus insured provisions under such policies, as written, will continue to protect ABB and any other insured entity who may be legally liable, in accordance with the terms and conditions of such policies and certificates). It is understood that ABB and/or its Affiliates plan to maintain their current suppliers and transporters nuclear liability form, but that neither Purchaser nor any of its Affiliates will be covered in any way thereunder. (e) Neither party, nor any of its Affiliates, shall cancel, fail to renew, reduce or otherwise allow to lapse any insurance coverage afforded to the other party and/or its Affiliates pursuant to Paragraphs (c) or (d) above without providing such other party with at least ninety (90) days prior written notice and will make all reasonable efforts to secure from the insurer an undertaking to provide such prior notice; PROVIDED that, with respect to the nuclear property insurance coverage required to be maintained by Purchaser with respect to the Windsor Site pursuant to Paragraph (c) above, the policy shall be maintained at least throughout the short-term tenancy of NBUS pursuant to Section 7.2 1(c). Unless otherwise agreed between the parties, each party and/or its Affiliates shall have the right to be reimbursed for any additional premiums due under the nuclear property and nuclear liability insurances (including but not limited to facility form policies and worker certificates) maintained by them pursuant to Paragraphs (c) and (d) above to the extent such additional premiums arise from the inclusion of the other party and/or its Affiliates as additional insureds." 1.10. SECTION 7.21 (JV SERVICES AND LEASES) (a) Section 7.21(b) (IV Services and Leases) of the Purchase Agreement is hereby amended by inserting the following text at the end of the first sentence of such paragraph (b): "; PROVIDED THAT if ABB and/or its Affiliates, directly or indirectly, acquire ownership to the Windsor Site at any time after the Closing, the Windsor Lease shall, as from the date of such acquisition, be substantially in the form of ANNEX 10 hereto." -7- (b) Section 7.21(b) (IV Services and Leases) of the Purchase Agreement is hereby amended by inserting the following text at the end of such paragraph (b): "Subject to the provisions of Section 10.3 (b),(f) and (h), which shall apply mutatis mutandis to indemnification under this sentence, Purchaser agrees to indemnify ABB and its Affiliates, and their respective officers, directors, employees, agents and representatives, against, and agrees to hold them harmless from, (i) any and all Losses arising from personal injury or property damage to the extent caused by or resulting from the occupation and use of the Windsor Site by Purchaser and/or its Affiliates; and (ii) any and all Losses in respect of Windsor Site Environmental Liabilities if ABB proves that (A) such Windsor Site Environmental Liabilities were caused by the operation of Purchaser and/or its Affiliates of any facilities at the Windsor Site during their tenancy at the Windsor Site in accordance with Section 7.2 1(b) and (c); and (B) such Windsor Site Environmental Liabilities caused by Purchaser and/or its Affiliates will increase ABB's cost of Remedial Action or its Decontamination and Decommissioning Liabilities." (b) Section 7.21(c) (IV Services and Leases) of the Purchase Agreement is hereby amended by inserting the following text at the end of paragraph (c): "Notwithstanding the foregoing, ABB and Purchaser agree that, if NRC approval for the actions has then been obtained, at the Closing, Material License 06-00217-06 and Special Nuclear Materials License SNM-1067 currently held by NBUS with respect to operations at the Windsor Site shall be transferred to ABB Prospects Inc. and NBUS shall obtain a new broad scope radioactive materials license, which shall enable NBUS to conduct operations at the Windsor Site as currently conducted." 1.11. NEW SECTION 7.23 (TRANSFER OF TENDER) A new Section 7.23 is hereby added to the Purchase Agreement as follows: "7.23 TRANSFER OF TENDER At or prior to the Closing, the relevant Affiliate of ABB shall assign to a company in the NB Group all rights, and such company in the NB Group shall assume all obligations, under the tender for the supply of instrumentation and control equipment for a water treatment plant at Barsebaeck, Sweden disclosed to Purchaser prior to the Closing and any contract relating thereto shall be entered into by Purchaser and/or its Affiliates" -8- 1.12. NEW SECTION 7.24 (TRANSFER OF AECL COMMITMENTS) A new Section 7.24 is hereby added to the Purchase Agreement as follows: "7.24 TRANSFER OF AECL COMMITMENT As soon as reasonably possible after the Closing, ABB and Purchaser will jointly approach Atomic Energy of Canada Limited ("AECL") with a view to obtaining AECL's consent to transfer all obligations of ABB and/or its Affiliates under the documents attached as Appendix B to the Non-Competition Agreement and each of ABB and Purchaser will use all reasonable efforts (without expenditure, in the aggregate, of any material sum) to effect such transfer." 1.13. NEW SECTION 7.25 (TRANSFER OF HTR) A new Section 7.25 is hereby added to the Purchase Agreement as follows: "7.25 TRANSFER OF HTR ABB and Purchaser shall use all reasonable efforts to obtain, as soon as possible after the Closing, all third-party consents required for the relevant Affiliate of ABB to sell and transfer its participation in HTR GmbH to NBDE and, upon receipt of all such consents, promptly cause the sale and purchase to be completed in accordance with this Section 7.25. If such sale and purchase is completed prior to the delivery of the Final Audit Report, then the purchase price, payable at completion, shall be an amount equal to the book value of the shareholders' equity of HTR GmbH attributable to the participation being sold and purchased and the transaction shall be accounted for in the Final Audit Report as if it had been completed prior to the Closing. If such sale and purchase is not completed prior to the delivery of the Final Audit Report, but is consummated by December 31, 2001, then the purchase price, payable at completion, shall be an amount, if any, that would achieve the same economic result for ABB and Purchaser and their respective Affiliates as if the transaction had been completed prior to such delivery in accordance with the previous sentence. If such sale and purchase is not completed prior to December 31, 2001, then neither party shall have any further obligation to consummate such transaction. The sale and purchase referred to in this Section 7.25 shall be effected pursuant to a purchase agreement between the relevant Affiliate of ABB on the one hand and NBDE on the other hand, which agreement shall include a warranty by such Affiliate that it has taken all corporate action required to authorize the transaction and that it is the owner of the participation being sold and purchased, free and clear of all Encumbrances. No other warranties shall be given by such Affiliate of ABB." -9- 1.14. NEW SECTION 7.26 (TECHNOLOGY CUSTODY) A new Section 7.26 is hereby added to the Purchase Agreement as follows: "7.26 CUSTODY OF TECHNOLOGY It is understood that ABB and/or its Affiliates have used, or may need to use, certain pieces of Technology of the NB Group to produce certain hardware and software products for the NB Group and that ABB and/or its Affiliates therefore have had, or may need to have, possession of such Technology. ABB and/or its Affiliates shall maintain, or shall be given, possession of the relevant Technology of the NB Group that ABB and/or its Affiliates require solely for the production of products, parts or services for the NB Group ("NB Group Technology") for as long as they continue to produce any such products, parts or services and Purchaser hereby grants, and will cause the NB Group to grant, to ABB and/or its Affiliates a license to use the NB Group Technology for the limited purpose of producing products, parts and services for the NB Group as directed by the NB Group and only for so long as the NB Group deems it necessary. The NB Group shall at all times have access to the NB Group Technology and, upon the request in writing by Purchaser, ABB and/or its Affiliates shall deliver the NB Group Technology to the NB Group or, at the expense of the NB Group, otherwise dispose of the NB Group Technology as directed by the NB Group." 1.15. SECTION 1 0.2(iv) (ADDITIONAL INDEMNIFICATION BY ABB) Section 10.2(iv) (Additional Indemnification by ABB) to the Purchase Agreement is hereby amended by deleting the clause which begins "PROVIDED, HOWEVER" and replacing it with the following: "PROVIDED, HOWEVER, that ABB shall not have any Liability for (A) any and all Losses arising from personal injury or property damage to the extent caused by or resulting from the occupation and use of the Windsor Site by Purchaser and/or its Affiliates, or (B) any and all Losses in respect of Windsor Site Environmental Liabilities if ABB proves that such Windsor Site Environmental Liabilities were caused by the operation of Purchaser and/or its Affiliates of any facilities at the Windsor Site during their tenancy at the Windsor Site in accordance with Section 7.2 1(b) and (c);" -10- 1.16. NEW SECTION 12.13 (WAIVER OF IMMUNITY) A new Section 12.13 is hereby added to the Purchase Agreement as follows: "12.13 WAIVER OF IMMUNITY To the extent that Purchaser or any of its assets has or hereafter may acquire any right of immunity, whether characterized as sovereign immunity or otherwise, from any legal proceeding of any kind to enforce or collect upon any obligation of Purchaser under this Agreement or in connection with the transactions contemplated hereby, including, without limitation, immunity from service of process, immunity from execution of a judgment and immunity of any of its property from attachment prior to the entry of judgment, Purchaser hereby expressly and irrevocably waives all such immunity." 1.17. NEW ANNEX 9 (REVIEWING FIRM INSTRUCTIONS) Pursuant to the amendment herein of Section 7.1(c), a new Annex 9, in the form attached hereto, is hereby added to the Purchase Agreement. 1.18. NEW ANNEX 10 (WINDSOR LEASE) Pursuant to the amendment herein of Section 7.21(b), a new Annex 10, in the form attached hereto, is hereby added to the Purchase Agreement. 1.19. SCHEDULE 1.1(3) (ADDITIONAL BUSINESS EMPLOYEES) (a) Schedule 1.1(3) (Additional Business Employees) to the Purchase Agreement is hereby amended by adding the following new employee information: "China Li Zhao Hui ABB China Holding" (b) Schedule 1.1(3) (Additional Business Employees) to the Purchase Agreement is hereby amended by deleting the following reference: "France Gilbert Tomasino FRABB Holding 1.20. SCHEDULE 2.3 (ALLOCATION OF PURCHASE PRICE) Schedule 2.3 (Allocation of Purchase Price) to the Purchase Agreement is hereby amended by substituting "US $ 186,900,000" for "US $ 187,000,000" as the allocation for NBSE (including the Swedish Unit) and by adding "Additional Business Assets/Liabilities in Belgium - US $ 100,000" as the last item of that Schedule. -11- 1.21. SCHEDULE 3.101(i) (EXCLUDED ASSETS) (a) Schedule 3.1(b)(i) (Excluded Assets) to the Purchase Agreement is hereby amended by deleting the word "and" at the end of paragraph (iii) therein and by replacing the period at the end of paragraph (iv) therein with a semicolon. (b) Schedule 3.1(b)(i) (Excluded Assets) to the Purchase Agreement is hereby amended by inserting new paragraphs (v), (vi) and (vii) as follows: "(v) except for cash and cash equivalents actually transferred to the NB Group by ABB and/or its Affiliates, in their discretion, in connection with the Pre-Closing Reorganization, cash and cash equivalents; (vi) the loan from ABB Reaktor GmbH to Asea Brown Boveri AG in the outstanding principal amount of DEM 101.4 million, together with all interest, if any, accrued thereon; and (vii) all rights and benefits under all agreements and contracts referred to in Section 1 .2(b)(v) of the Non-Competition Agreement." 1.22. NEW SCHEDULE 3.4(a) (TRANSFER OF PERSONNEL TO SWEDISH UNIT) Pursuant to the addition herein of Section 3.4 (Transfer of Certain Personnel), a new Schedule 3.4(a) is hereby added to the Purchase Agreement as follows: " SCHEDULE 3.4(a) TRANSFER OF PERSONNEL TO SWEDISH UNIT EMPLOYEE NUMBER LAST NAME FIRST NAME 637696 ALFVEN MIKAEL 247553 EKLUND STIG 438111 HARVISALO RISTO 100773 HELM ANDERS 371238 HJQRT PIA 623946 HULTMAN KJELL 762431 KJELLBERG INGER 363839 KOPSELL ANN-CHRISTIN 999512 LADVALL ERLAND 637939 LARSSQN NICLAS 242438 PERSSON LARS -12- 242772 RAGNSATER LEIF 949183 RQGNE HANS 670952 ROSQVIST LARS 621455 SALONPAA PENTTI 101371 SJOBERG MAGNUS 338567 STRIDH BIRGITTA 904937 STAHLBERG JOHANNA 682845 SVANBACK ELIZABET 683329 SVENSSON GORAN 637513 THUDIN MICHAEL 100552 WIECHEL HENRIK G B 252077 WISEN ERIK 236781 AKERBLOM EVA 1.23. NEW SCHEDULE 3.4(b) (TRANSFER OF PERSONNEL TO NBDE) Pursuant to the addition herein of Section 3.4 (Transfer of Certain Personnel), a new Schedule 3.4(b) is hereby added to the Purchase Agreement as follows: " SCHEDULE 3.4(b) TRANSFER OF PERSONNEL TO NBDE France Gilbert Tomasino FRABB Holding France Cyril Fiaux France Roland Kuijer France Claude Bianchi 1.24. SCHEDULE 5.1(c) (SUBSIDIARIES OF NBDE) Schedule 5.1(c) (Subsidiaries of NBDE) to the Purchase Agreement is hereby amended by adding the following new entry: "Kontec Gessellschaft fur Technische Kommunikation GmbH (80% owned by Hansa Projekt Analgentechnik GmbH)" 1.25. SCHEDULE 5.11 (MATERIAL CONTRACTS) (a) Schedule 5.11 (Material Contracts) to the Purchase Agreement is hereby amended by replacing the entry "Contract related to the acquisition of Hansa Projekt Anlagentechnik, GmbH" with the following: -13- "Shareholders Agreement between ABB Reaktor GmbH and Hansa Projekt Anlagentechnik GmbH, Hamburg, dated January 31, 1996" (b) Schedule 5.11 (Material Contracts) to the Purchase Agreement is hereby amended by replacing the entry "Contract for the provision of Technology Transfer and License Agreement with ESKOM, South Africa" with the following: "Agreement between HTR-GmbH, ABB Reaktor GmbH and Siemens dated June 30, 1999 regarding the HTR-Technology Transfer and License Agreement, dated March 12, 1999, between HTR-GmbH and ESKOM, South Africa" (c) Schedule 5.11 (Material Contracts) to the Purchase Agreement is hereby amended by adding the following after the entry "Shareholders Agreement between ABB Reaktor GmbH and Hansa Projekt Anlagentechnik GmbH, Hamburg, dated January 31, 1996" introduced pursuant to Paragraph (a) above: "Addendum No. 1 of 17.4.1989 to agreement between ABB Hochtemperaturreaktorbau GmbH ("DEHRB"), subsequently merged into ABB Reaktor GmbH, and General Atomic. Right of the German Government to use and right of the German Government to be paid by DEHRB in relation to HTR know how subsidized by the Government. License of DEHRB to General Atomic for HTR know-how of January 11, 1973 [expired 1993, but with royalty-free right for General Atomic to use know-how after expiration]. License of General Atomic to DEHRB for HTR know-how of January 11, 1973 [expired 1993, but with royalty-free right for DEHRB to use know-how after expiration]. License of DEHRB to GHT (Siemens) for HTR know-how of 1976/1979 [expired 1996, but with royalty-free right for GHT to use know-how after expiration] Agreement of GHT, DEHRB, KFA (public research institute), Nukem and Sigri for the establishment of the association for the development of an HTR of 1979/1980 [expired 1997, but with royalty-free right of each party to use know-how after expiration]. Consortium Agreement of GHT, DEHRB and KFA regarding the exploitation of the HTR know-how (KVGH) of 2.9.1980 [expired 1994, but royalty-free right of each party to use know-how after expiration]. -14- 1.26. SCHEDULE 7.6(h) (STAY BONUSES) Schedule 7.6(h) (Stay Bonuses) to the Purchase Agreement is hereby amended by deleting it in its entirety and replacing it with the following: " SCHEDULE 7.6(h) STAY BONUSES The following people shall be the subject of the stay bonuses contemplated by Section 7.6(h): 1. Mike Barnoski 2. Per Brunzell 3. William Gill 4. Jim McConnell 5. Regis Matzie 6. Peter Wirtz 7. Gil Page 8. Robert Schumacher 9. Sigvard Junkrans 10. P.O. Waessman 11. Arnoud Houllemare 12. Al Spinnell 13. Sverre Haukeland 14. Jim Viers 15. Ken Scarola 16. Robert Bell 17. Lars Eriksson 18. Ernie Kennedy 19. D.H. Chung 20. Gavin Liu 21. Satya Pati 22. Anard Garde 23. Rick Maurer 24. Dave Stepnick 25. Darrell Weber 26. Johan Hallen -15- 27. Eva Hallden 28. Derek Ebeling-Koning 29. Rolondo Perez 30. Tom Rozek 31. Arno Vogelbacher 32. Franz Poetz" ARTICLE 2 MISCELLANEOUS 2.1. SCOPE OF AMENDMENTS This First Amendment is limited as specified and shall not constitute a modification or waiver of any of the other provisions of the Purchase Agreement which shall continue in full force and effect except as provided herein. 2.2. REFERENCES From and after the date hereof, all references to the Purchase Agreement shall be deemed to be references to the Purchase Agreement as amended hereby. 2.3. COUNTERPARTS This First Amendment may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this First Amendment. 2.4. GOVERNING LAW This First Amendment shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York (without regard to the laws that might otherwise govern under applicable principles of conflict of laws). 2.5. INCORPORATION BY REFERENCE Article 11 (Dispute Resolution) and Sections 12.4 (Severability), 12.6 (Assignment), 12.7 (Notices), 12.9 (Costs and Expenses) and 12.10 (Further Assurances) of the Purchase Agreement are hereby incorporated, mutatis mutandis, by reference. -16- IN WITNESS WHEREOF, each of the parties hereto has caused this First Amendment to be executed by its duly authorized representatives on the date first set forth above. ABB HANDELS-UND VERWALTUNGS AG BRITISH NUCLEAR FUELS plc By: /S/ HANS ENHORNING By: /S/ RAMSAY COATES Name: Hans Enhorning Name: Ramsay Coates Title: VP Title: By: /s/ G.K. PRIEST By: /s/ IAN DUNCAN Name: A.K. Priest Name: Ian Duncan Title: VP Title: -17- EXECUTION COPY SECOND AMENDMENT TO THE PURCHASE AGREEMENT THIS SECOND AMENDMENT (this `SECOND Amendment") is dated as of November 10,2000 between: ABB HANDELS- UND VERWALTUNGS AG, a company organized and existing under the laws of Switzerland with its principal office at CH-8050 Zurich ("ABB"), and BRITISH NUCLEAR FUELS plc, a company organized and existing under the laws of England with its principal office at Risley, Warrington, Cheshire WA3 6AS, England ("PURCHASER") Capitalized terms used herein arid not otherwise defined herein shall have the moaning as set forth in the Purchase Agreement (as defined below), unless the context otherwise requires. WITNESSETH: WHEREAS, ABB and Purchaser are parties to a Purchase Agreement dated December 21, 1999 (the "PURCHASE AGREEMENT"); and WHEREAS, the parties hereto desire to amend the Purchase Agreement as provided herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, it is hereby agreed as follows: ARTICLE 1 AMENDMENT SECTION 2.5 (CLOSING AUDIT REPORT; DISPUTES) The period of sixty (60) days referred to in Section 2.5. (d) is hereby replaced by a period of ninety (90) days. INCORPORATION BY REFERENCE Article 11 (Dispute Resolution) and Sections 12.4 (Severability). 12.6 (Assignment), 12.7 (Notices), 12.9 (Costs and Expenses) and 12.10 (Further Assurances) of the Purchase Agreement are hereby incorporated, mutatis mutandis, by reference. IN WITNESS WHEREOF, each of the parties hereto has caused this SECOND Amendment to be executed by its duly authorized representatives on the date first set forth above. ABB HANDELS-UND VERWALTUNGS AG BRITISH NUCLEAR FUELS plc By: /s/HANS ENHORNING By: /s/RAMSAY COATES Name: Hans Enhorning Name: Ramsay Coates Title: Vice President Title: Vice President and Chief Financial Officer By: By: Name: Name: Title: Title: -2- THIRD AMENDMENT TO THE PURCHASE AGREEMENT THIS THIRD AMENDMENT (this "THIRD AMENDMENT') is dated as of November 29, 2000 between: ABB HANDELS-UND VERWALTUNGS AG, a company organized and existing under the laws of Switzerland with its principal office at CH-8050 Zurich ("ABB"), and BRITISH NUCLEAR FUELS plc, a company organized and existing under the laws of England with its principal office at Risley, Wanington, Cheshire WA3 6AS, England ("PURCHASER"). Capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Purchase Agreement (as defined below), unless the context otherwise requires. WITNESSETH: WHEREAS, ABB and Purchaser are parties to a Purchase Agreement dated December 21, 1999 (the `Purchase Agreement'); and WHEREAS, the parties hereto desire to amend the Purchase Agreement as provided herein; NOW, THEREFORE, in consideration of the mutual covenants contaihed herein, It Is hereby agreed as follows: ARTICLE 1 AMENDMENT SECTION 2.5 (CLOSING AUDIT REPORT; DISPUTES) Annex 1 hereto Is hereby confirmed by both parties as the final and binding resolution to the dispute between them over Purchaser's Objection Notice to the Closing Audit Report. Annex 1 thus constitutes the Final Audit Report in accordance with Section 2.5 0) of the Purchase Agreement Pursuant to the Final Audit Report the Actual Deficiency Amount is USD29,330,000. MINDEN CONTRACTS It is hereby agreed that the Minden contracts specified in Annex 2 hereto shall be treated in all respects as contracts fisted on, and are hereby added to, the fist of contracts contained in Appendix A to the Non-Competition Agreement, and accordingly shall not form part of the assets transferred to Purchaser under the Purchase Agreement. Any obligations or liabilities under such Minden contracts shall constitute Non-Business Liabilities for purposes of the Purchase Agreement It is further agreed that the exclusion of such Minden contracts shall not affect the Actual Equity and Actual Working Capital, but are instead the subject of arrangements agreed in Germany by German Affiliates of the parties. ABB and the Purchaser further agree that the Agreement between them dated April 28,2000, to enter into a definitive agreement embodying the terms of the Memorandum of Understanding between ABB Reaktor GmbH and ABB Utility Automation GmbH is hereby rescinded effective as of April 28,2000. DISPUTED ITEM IN GERMANY Purchaser confirms that it has procured that full payment has been made by NBDE to ABB Utility Automation GmbH in respect of an amount of Euro 4'661'000 in satisfaction of NBDE's non-trade payable to ABB Utility Automation GmbH. OTHER ISSUES This THIRD Amendment shall not be construed as dealing with any issue or dispute between the parties or their respective Affiliates other than as explicitly set out herein. INCORPORATION BY REFERENCE Article 11 (Dispute Resolution) and Sections 12.4 (Severability), 12.6 (Assignment), 12.7 (Notices), 12.9 (Costs and Expenses) and 12.10 (Further Assurances) of the Purchase Agreement are hereby incorporated, mutatis mutandis, by reference. -2- IN WITNESS WHEREOF, each of the parties hereto has caused this THIRD Amendment to be executed by its duly authorized representatives on the date first set forth above. ABB HANDELS-UND VERWALTUNGS AG BRITISH NUCLEAR FUELS plc By: /s/ Hans Enhorning By: /s/ Ramsay Coates Name: Hans Enhorning Name: Ramsay Coates Title: Title: By: /s/ Grant Kenneth Priest By: Name: Grant Kenneth Priest Name: Title: Title: -3- EX-4.3 10 a2072395zex-4_3.txt EXHIBIT 4.3 EXHIBIT 4.3 [CLIFFORD CHANCE LOGO] LIMITED LIABILITY PARTNERSHIP Dated 25 April 2002 ABB LTD CERTAIN SUBSIDIARIES OF ABB LTD as Borrowers and Guarantors with BARCLAYS CAPITAL CREDIT SUISSE FIRST BOSTON SALOMON BROTHERS INTERNATIONAL LIMITED as Mandated Lead Arrangers and CREDIT SUISSE FIRST BOSTON acting as Facility Agent ----------------------------------------------------------- AMENDMENT AGREEMENT RELATING TO A MULTI-CURRENCY REVOLVING CREDIT AGREEMENT DATED 18 DECEMBER 2001 ----------------------------------------------------------- THIS AGREEMENT is dated 25 April 2002 and made between: (1) ABB LTD, a company incorporated in Switzerland whose registered office is at Affolternstrasse 44, CH-8050 Zurich, Switzerland ("ABB"); (2) THE SUBSIDIARIES OF ABB whose names are set out in the signature pages of this Agreement as Borrowers (the "BORROWERS"); (3) THE SUBSIDIARIES OF ABB whose names are set out in the signature pages of this Agreement as Guarantors (the "GUARANTORS"); (4) BARCLAYS CAPITAL, CREDIT SUISSE FIRST BOSTON and SALOMON BROTHERS INTERNATIONAL LIMITED in their respective capacities as mandated lead arrangers (the "MANDATED LEAD ARRANGERS"); (5) THE FINANCIAL INSTITUTIONS whose names are set out in the signature pages of this Agreement as lenders (the "LENDERS"); and (6) CREDIT SUISSE FIRST BOSTON in its capacity as facility agent (the "FACILITY AGENT"). RECITAL In response to a request from ABB, each of the financial institutions party to the Facility Agreement as Lenders have agreed, by a letter addressed to the Facility Agent dated severally between 11 and 17 April 2002, (i) that any Lender not continuing as a Lender under the Facility Agreement after the Effective Date shall retire as a Lender as from the Effective Date and thereafter cease to have any liability or obligations under the Facility Agreement, (ii) that the relevant Borrower shall be entitled to give notice of prepayment on or before 26 April 2002 and (iii) that all Advances, interest thereon and all other outstanding amounts owed under the Facility Agreement as at the date of this Agreement shall be prepaid in accordance with such notice on 30 April 2002. IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement (including the recital above): "AMENDMENT FEE LETTER" means the fee letter dated on or around the date hereof from the Mandated Lead Arrangers to ABB relating to the fee referred to in Clause 5.5. "EFFECTIVE DATE" means the later to occur of 30 April 2002 and the date on which the Facility Agent confirms to the Lenders and ABB that it has received each of the documents and evidence listed in Schedule 1 (CONDITIONS PRECEDENT) in a form and substance reasonably satisfactory to the Facility Agent. "FACILITY AGREEMENT" means the $3,000,000,000 revolving credit agreement dated 18 December 2001 between ABB and certain of its subsidiaries as borrowers, Credit Suisse First Boston and Salomon Brothers International Limited as mandated lead arrangers, Credit Suisse First Boston as facility agent and, on and from the Effective Date, the -1- revolving credit agreement as set out in Schedule 2 (RESTATED AGREEMENT) to this Agreement. "NEW BORROWERS" means ABB Finance Inc. and ABB Financial Services AB. "NEW INFORMATION MEMORANDUM" means the document in the form approved by ABB concerning the Group which, at ABB's request and on its behalf was prepared in relation to the Facility and distributed by the Mandated Lead Arrangers to selected banks during April 2002. 1.2 INCORPORATION OF DEFINED TERMS (a) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in this Agreement as in that Finance Document. (b) The principles of construction set out in the Facility Agreement shall have effect as if set out in this Agreement. 1.3 CLAUSES (a) In this Agreement any reference to a "Clause" or "Schedule" is, unless the context otherwise requires, a reference to a Clause or Schedule of this Agreement. (b) Clause and Schedule headings are for ease of reference only. 2. RESTATEMENT With effect from the Effective Date the Facility Agreement shall be amended and restated so that it shall be read and construed for all purposes as set out in Schedule 2 (RESTATED AGREEMENT). 3. REPRESENTATIONS 3.1 REPRESENTATIONS (a) ABB makes the representations and warranties set out in clause 18.1 (STATUS) to clause 18.8 (NO MISLEADING INFORMATION) and clause 18.11 (PARI PASSU RANKING) to clause 18.13 (ENVIRONMENTAL COMPLIANCE) of the Facility Agreement (in the form set out in Schedule 2 (RESTATED AGREEMENT)). For the avoidance of doubt, references to: (i) "Obligor" shall be construed as a reference to each Borrower and each Guarantor (as defined herein), as the context shall require; (ii) the "Finance Documents" shall be construed so as to include a reference to this Agreement and the Amendment Fee Letter; and (iii) the "Information Memorandum" shall be construed as a reference to the New Information Memorandum. (b) ABB makes the representation set out in paragraph (a) and (b) of clause 18.9 (FINANCIAL STATEMENTS) of the Facility Agreement (in the form set out in -2- Schedule 2 (RESTATED AGREEMENT)). For the avoidance of doubt, references to the "ORIGINAL FINANCIAL STATEMENTS" shall be construed as references to (1) the audited consolidated financial statements of the Group for the financial year ended 31 December 2001 and (2) in relation to each New Borrower and each Guarantor, its audited financial statements for its financial year ended 31 December 2000. 3.2 FURTHER REPRESENTATION ABB further represents and warrants that since 31 December 2001: (a) there has been no material adverse change in any of the business, condition (financial or otherwise), prospects, operations, performance or properties of the Group (taken as a whole); and (b) no event or circumstance has occurred which has a Material Adverse Effect, PROVIDED THAT the fact of any Credit Rating downgrade of ABB since 31 December 2001 shall not, for the purposes of this representation, constitute a "material adverse change" or "Material Adverse Effect" as contemplated by paragraphs (a) and (b) above. (For the avoidance of doubt, ABB acknowledges that the consequences of any such Credit Rating downgrade may qualify as being, or contribute towards, a "material adverse change" or "Material Adverse Effect" for the purposes of this representation). 4. CONTINUITY AND FURTHER ASSURANCE 4.1 CONTINUING OBLIGATIONS The provisions of the Facility Agreement shall, save as amended in this Agreement, continue in full force and effect. 4.2 FURTHER ASSURANCE Each of ABB, the Borrowers and the Guarantors shall, at the reasonable request of the Facility Agent and the expense of ABB or the relevant Borrower or, as the case may be, Guarantor, do all such acts and things necessary to give effect to the amendments effected or to be effected pursuant to this Agreement. 5. FEES, COSTS AND EXPENSES 5.1 TRANSACTION EXPENSES ABB shall promptly on demand pay the Facility Agent the amount of all costs and expenses (including legal fees) reasonably incurred by it in connection with the negotiation, preparation, printing and execution of this Agreement and any other documents referred to in this Agreement. 5.2 ENFORCEMENT COSTS ABB shall, within three Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under this Agreement. -3- 5.3 STAMP TAXES ABB shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of this Agreement. 5.4 FUNDING INDEMNITY ABB shall indemnify each Lender (as defined herein) upon presentation of duly documented evidence thereof against any cost, loss or liability directly incurred by that Lender as a result of funding, or making arrangements to fund, its participation in any Advance to be made on the date requested by a Borrower (as defined herein) in the Utilisation Requests referred to in clause 6.5 but not made by reason of (i) the Effective Date having not occurred on or by the date such Advance is due to be made or (ii) the operation of any one or more of the provisions of the Facility Agreement (other than, in each case, by reason of default, negligence or wilful misconduct by that Lender alone). 5.5 FEES On the date of this Agreement, ABB shall pay to the Facility Agent, on behalf of the Lenders, the fees in the amounts specified in the Amendment Fee Letter. 6. MISCELLANEOUS 6.1 INCORPORATION OF TERMS The provisions of clause 32 (REMEDIES AND WAIVERS), clause 31 (PARTIAL INVALIDITY), and clause 36 (ENFORCEMENT) of the Facility Agreement shall be incorporated into this Agreement as if set out in full in this Agreement and as if references in those clauses to "this Agreement" or "the Finance Documents" are references to this Agreement. 6.2 SERVICE OF PROCESS ABB and each Obligor incorporated in a jurisdiction other than England and Wales agrees that the documents which start any Proceedings in England and any other documents required to be served in relation to those Proceedings may be served on ABB Limited, at Orion House, 5 Upper St. Martin's Lane, London WC2 or, if different, its registered office, with a copy to ABB. If the appointment of the person mentioned in this Clause 6.2 ceases to be effective, such Obligor shall immediately appoint another person in England to accept service of process on its behalf in England. If any such Obligor fails to do so (and such failure continues for a period of not less than fourteen days), the Facility Agent shall be entitled to appoint such a person by notice to the relevant Obligor. Nothing contained herein shall restrict the right to serve process in any other manner allowed by law. 6.3 MARGIN, COMMITMENT FEE AND UTILISATION FEE The parties confirm that, for the purposes of calculating the Margin and the commitment and utilisation fees referred to in clause 12.1 (COMMITMENT FEE) and clause 12.2 (UTILISATION FEE) respectively of the Facility Agreement, (i) prior to the Effective Date, the relevant rates shall be those set out in the Facility Agreement prior to the amendments effected pursuant to this Agreement and (ii) on and after the Effective Date, the relevant rates shall be those set out in the Facility Agreement in the form set out in Schedule 2 (RESTATED AGREEMENT). -4- 6.4 FINANCE DOCUMENT The Facility Agent and ABB hereby confirm that this Agreement is a Finance Document. 6.5 UTILISATION REQUEST Each Lender (as defined herein) agrees that, in respect of any Advance to be made on 30 April 2002, (i) any Borrower may validly deliver a Utilisation Request on or before 11.00 a.m. (London time) on 26 April 2002 notwithstanding that the Effective Date has not occurred and (ii) the Initial Interest Period applicable to each such Advance shall be such period selected by the relevant Borrower in such Utilisation Request. For the avoidance of doubt, nothing in this Clause 6.5 shall oblige any such Lender to participate in any such Advance if the Effective Date has not occurred by the time such Advance is to be made and any such Advance shall only be made subject to the terms of the Facility Agreement (as amended and restated pursuant to this Agreement). 6.6 COUNTERPARTS This Agreement may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement. 6.7 GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, English law. THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement. -5- SCHEDULE 1 CONDITIONS PRECEDENT 1. ABB AND THE OBLIGORS (a) A copy of the constitutional documents of ABB Finance Inc. and ABB Financial Services AB. (b) Either: (i) a certificate of an authorised signatory of ABB and each Obligor (other than ABB Finance Inc. and ABB Financial Services AB) confirming that the constitutional documents previously delivered by it to the Facility Agent in connection with satisfaction of conditions precedent to the Facility Agreement are up-to-date and in full force and effect; or (ii) a copy of ABB or such Obligor's constitutional documents. (c) A copy of a resolution of the board of directors of each Obligor: (i) approving the terms of, and the transactions contemplated by, this Agreement and resolving that it execute this Agreement; (ii) authorising a specified person or persons to execute this Agreement on its behalf; and (iii) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices to be signed and/or despatched by it under or in connection with this Agreement. (d) A specimen of the signature of each person authorised by the resolution referred to in paragraph (c) above. (e) A certificate of an authorised signatory of ABB and each Obligor certifying that each copy document provided by it specified in this Schedule 1 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement. (f) A certificate of ABB (signed by two authorised signatories) confirming that borrowing or, as the case may be, guaranteeing the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on any Obligor to be exceeded. (g) A copy of a shareholders' resolution confirming the authority of the board of directors of ABB Capital B.V. to represent ABB Capital B.V in the event of a conflict of interest with one or more of its directors. 2. LEGAL OPINIONS (a) A legal opinion of Clifford Chance Limited Liability Partnership, legal advisers to the Mandated Lead Arrangers and the Facility Agent in England, -6- substantially in the form distributed to the Lenders prior to signing this Agreement. (b) In respect of ABB and each Obligor incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Mandated Lead Arrangers and the Facility Agent in each relevant jurisdiction, substantially in the form distributed to the Lenders prior to signing this Agreement. (c) A legal opinion of Homburger, Swiss legal advisers to ABB, relating to each Keep-Well Agreement, in the form approved by the Facility Agent. 3. OTHER DOCUMENTS AND EVIDENCE (a) A copy of any other Authorisation or other document, opinion or assurance which the Facility Agent considers to be necessary (if, prior to the date of this Agreement, it has notified ABB accordingly) in connection with the entry into and performance of the transaction contemplated by this Agreement or for the validity and enforceability of this Agreement. (b) In respect of each Borrower, the Keep-Well Agreement pertaining to it. (c) In respect of ABB Finance Inc. and ABB Financial Services AB, a copy of their audited financial statements for the financial year ended 31 December 2000. (d) The Amendment Fee Letter duly executed by ABB. (e) Evidence that the process agent referred to in Clause 6.2 (SERVICE OF PROCESS) has accepted its appointment. (f) Evidence that the Advances outstanding under the Facility Agreement have been, or will be, prepaid in full on the Effective Date together with interest and any other amounts owing in respect thereof. -7- SCHEDULE 2 RESTATED AGREEMENT -8- $3,000,000,000 MULTICURRENCY REVOLVING CREDIT AGREEMENT dated 18 December 2001 as amended and restated on 30 April 2002 pursuant to an amendment agreement dated 25 April 2002 for ABB LTD CERTAIN SUBSIDIARIES OF ABB LTD as Borrowers and Guarantors with BARCLAYS CAPITAL CREDIT SUISSE FIRST BOSTON and SALOMON BROTHERS INTERNATIONAL LIMITED as Mandated Lead Arrangers with CREDIT SUISSE FIRST BOSTON as Facility Agent CONTENTS
CLAUSE PAGE 1. Definitions and Interpretation...............................................2 2. The Facility................................................................15 3. Purpose.....................................................................16 4. Conditions of Utilisation...................................................16 5. Utilisation.................................................................17 6. Optional Currencies.........................................................18 7. Repayment of Advances.......................................................19 8. Prepayment and Cancellation.................................................19 9. Interest....................................................................25 10. Interest Periods............................................................25 11. Changes To The calculation of interest......................................26 12. Fees........................................................................27 13. Tax Gross Up And Indemnities................................................29 14. Increased Costs.............................................................32 15. Other Indemnities...........................................................33 16. Mitigation By The Lenders...................................................34 17. Costs And Expenses..........................................................35 18. Representations.............................................................37 19. Information Undertakings....................................................39 20. financial Covenants.........................................................40 21. General Undertakings........................................................43 22. Events Of Default...........................................................46 23. Changes To The Lenders......................................................50 24. Changes To The Obligors.....................................................52 25. Role Of The Facility Agent And The Mandated Lead Arrangers..................56 26. Conduct Of Business By The Finance Parties..................................60 27. Sharing Among The Lenders...................................................61 28. Payment Mechanics...........................................................63 29. Set-Off.....................................................................65 30. Notices.....................................................................66 31. Calculations and Certificates...............................................68
-i- 32. Partial Invalidity..........................................................68 33. Remedies And Waivers........................................................68 34. Amendments And Waivers......................................................69 35. Counterparts................................................................69 36. Guarantee and Indemnity.....................................................70 37. Governing Law...............................................................74 38. Enforcement.................................................................74 Schedule 1 The Original Parties..................................................75 Part 1 The Original Lenders........................................................75 Part 2 The Original Obligors.......................................................77 Schedule 2 Conditions Precedent..................................................79 Schedule 3 Utilisation Request...................................................81 Schedule 4 The Margin And Commitment Fee.........................................82 Schedule 5 Form Of Transfer Certificate..........................................83 Schedule 6 Timetables............................................................85 Schedule 7 Form Of Accession Letter..............................................87 Schedule 8 Form Of Resignation Letter............................................88 Schedule 9 Additional Cost Rate..................................................89 Schedule 10 Material Companies....................................................91 Schedule 11 Form of Compliance Certificate........................................92
THIS AGREEMENT is dated 18 December 2001 (as amended and restated on 30 April 2002 pursuant to an amendment agreement dated 25 April 2002) and made between: (1) ABB LTD, a company incorporated in Switzerland whose registered office is at Affolternstrasse 44, CH-8050 Zurich, Switzerland ("ABB"); (2) THE SUBSIDIARIES OF ABB listed in Part 2 of Schedule 1 (THE ORIGINAL PARTIES) as original borrowers (the "ORIGINAL BORROWERS"); (3) THE SUBSIDIARIES OF ABB listed in Part 2 of Schedule 1 (THE ORIGINAL PARTIES) as original guarantors (the "ORIGINAL GUARANTORS"); (4) BARCLAYS CAPITAL, CREDIT SUISSE FIRST BOSTON and SALOMON BROTHERS INTERNATIONAL LIMITED in their respective capacities as mandated lead arrangers (the "MANDATED LEAD ARRANGERS"); (5) THE FINANCIAL INSTITUTIONS listed in Part 1 of Schedule 1 (THE ORIGINAL LENDERS) in their respective capacities as original lenders (the "ORIGINAL LENDERS"); and (6) CREDIT SUISSE FIRST BOSTON in its capacity as facility agent (the "FACILITY AGENT"). -ii- IT IS AGREED as follows: SECTION 1 INTERPRETATION 1. DEFINITIONS AND INTERPRETATION 1.1 DEFINITIONS In this Agreement: "ACCESSION LETTER" means a letter substantially in the form set out in Schedule 7 (FORM OF ACCESSION LETTER). "ADDITIONAL BORROWER" means any Subsidiary of ABB which has become an Additional Borrower in accordance with Clause 24.2 (ADDITIONAL BORROWERS). "ADDITIONAL COST RATE" has the meaning given to such term in Schedule 9 (ADDITIONAL COST RATE). "ADDITIONAL GUARANTOR" means any Subsidiary of ABB which has become an Additional Guarantor in accordance with Clause 24.4 (ADDITIONAL GUARANTORS). "ADDITIONAL OBLIGOR" means an Additional Borrower or an Additional Guarantor. "ADVANCE" means an advance made or to be made under the Facility or the principal amount outstanding for the time being of that advance. "AFFILIATE" means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company. "AGREED JURISDICTION" means any of the United States of America, Switzerland, Guernsey, any country that is, at the Effective Date, a member of the European Union and any other country approved by all the Lenders. "AMENDMENT AGREEMENT" means the amendment agreement dated on or around 25 April 2002 pursuant to which this Agreement is amended and restated. "AMENDMENT FEE LETTER" means the fee letter referred to in clause 5.5 of the Amendment Agreement. "AUTHORISATION" means an authorisation, consent, approval, resolution, licence, exemption, filing or registration. "AVAILABILITY PERIOD" means the period from 18 December 2001 to and including the date falling 1 Business Day prior to the Termination Date. "AVAILABLE COMMITMENT" means a Lender's Commitment minus: (g) the Base Currency Amount of its participation in any outstanding Advances; and -2- (h) in relation to any proposed Utilisation, the Base Currency Amount of its participation in any Advances that are due to be made on or before the proposed Utilisation Date, other than, in either case, that Lender's participation in any Advances that are due to be repaid or prepaid on or before the proposed Utilisation Date. "AVAILABLE FACILITY" means the aggregate for the time being of each Lender's Available Commitment. "BASE CURRENCY" means Dollars. "BASE CURRENCY AMOUNT" means, in relation to an Advance, the amount specified in the Utilisation Request delivered by the relevant Borrower for that Advance (or, if the amount requested is not denominated in the Base Currency, that amount converted into the Base Currency at the Facility Agent's Spot Rate of Exchange on the date which is 3 Business Days before the Utilisation Date or, if later, on the date the Facility Agent receives the Utilisation Request) adjusted to reflect any repayment or prepayment of the Advance. "BORROWERS" means each Original Borrower and each Additional Borrower, PROVIDED THAT it has not been released from its rights and obligations under this Agreement in accordance with Clause 24.3 (RESIGNATION OF A BORROWER). "BREAK COSTS" means the amount (if any) by which: (a) the interest (excluding the Margin), which a Lender should have received for the period from the date of receipt of all or any part of its participation in an Advance or Unpaid Sum to the last day of the current Interest Period in respect of that Advance or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period; exceeds: (b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period. "BUSINESS DAY" means: (a) in relation to any Advance, a day (other than a Saturday or Sunday) on which banks are open for general business in London, and: (i) (in relation to any date for payment or purchase of a currency other than Euro) the principal financial centre of the country of that currency; or (ii) (in relation to any date for payment or purchase of Euro) any TARGET Day; and -3- (b) for all other purposes, a day (other than a Saturday or Sunday) on which banks are open for general business in London. "COMMITMENT" means: (a) in relation to an Original Lender, the amount in the Base Currency set opposite its name under the heading "COMMITMENT" in Part 1 of Schedule 1 (THE ORIGINAL LENDERS) and the amount of any other Commitment transferred to it under this Agreement; and (b) in relation to any other Lender, the amount of any Commitment transferred to it under this Agreement, to the extent not cancelled, reduced or transferred by it under this Agreement. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form set out in Schedule 11 (FORM OF COMPLIANCE CERTIFICATE). "CREDIT RATING" means a long term debt rating given by S&P or Moody's. "DEFAULT" means an Event of Default or any event or circumstance specified in Clause 22 (EVENTS OF DEFAULT) which (with the expiry of a grace period or the giving of any notice specified in Clause 22 (EVENTS OF DEFAULT)) would be an Event of Default. "DISPOSAL" means a sale, transfer or other disposal (including by way of lease or loan) by a person of all or part of its assets, whether by one transaction or a series of transactions and whether at the same time or over a period of time. "EFFECTIVE DATE" shall have the meaning ascribed to such term in the Amendment Agreement. "ENVIRONMENTAL LAW" means any applicable law in any jurisdiction in which any Group Company conducts business which relates to the pollution or protection of the environment or harm to or the protection of human health or the health of animals or plants. "ERISA" means the Employee Retirement Income Security Act of 1974 of the United States of America and the regulations promulgated and the rulings issued thereunder. "EURIBOR" means, in relation to any Advance in Euro: (a) the applicable Screen Rate; or (b) (if no Screen Rate is available for the period of that Advance) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request quoted by the Reference Banks to leading banks in the European interbank market, as of the Specified Time on the Quotation Day for the offering of deposits in Euro for a period comparable to the Interest Period of the relevant Advance. -4- "EVENT OF DEFAULT" means any event or circumstance specified as such in Clause 22 (EVENTS OF DEFAULT). "EXISTING SECURITISATIONS" means each of: (a) the securitisation programme established by the Group Companies and arranged by Bank One, N.A. (as Programme Administrator), such programme being initially established on 22 December 2000; and (b) the securitisation programme established by the Group Companies and arranged by Citibank, N.A. (as Operating Agent), such programme being initially established on or around 17 December 1999. "FACILITY" means the revolving loan facility made available under this Agreement as described in sub-clause 2.1(a) of Clause 2.1 (THE FACILITY). "FACILITY AGENT'S SPOT RATE OF EXCHANGE" means the Facility Agent's Spot Rate of Exchange for the purchase of the relevant currency with the Base Currency in the London foreign exchange market at or about 11:00 a.m. on a particular day. "FACILITY OFFICE" means, in relation to a Lender, the office identified as such opposite such Lender's name in Part 1 of Schedule 1 (THE ORIGINAL LENDERS) (or, in the case of a transferee, at the end of the Transfer Certificate to which it is a party as transferee) or such other office as it may from time to time select. "FINANCE DOCUMENT" means this Agreement, the Amendment Agreement, the Amendment Fee Letter, any Accession Letter, any Resignation Letter, any other document designated as such in writing by the Facility Agent and ABB and, for the purposes of each of Clauses 8.2 (BORROWER ILLEGALITY), 18 (REPRESENTATIONS), 21.1 (AUTHORISATIONS) to 21.7 (CHANGE OF BUSINESS) (inclusive) and 22.1 (NON-PAYMENT) to 22.10 (ACCELERATION) (inclusive), each Keep-Well Agreement. "FINANCE PARTY" means any of the Facility Agent, the Mandated Lead Arrangers and the Lenders. "GAAP" means, in relation to the consolidated financial statements of ABB, generally accepted accounting principles in the United States of America and, in relation to any other company, generally accepted accounting principles in its jurisdiction of incorporation or in the United States of America (as applicable). "GROUP" means ABB and its Subsidiaries and "GROUP COMPANY" means any one of them. "GUARANTORS" means each Original Guarantor and each Additional Guarantor, PROVIDED THAT it has not been released from its rights and obligations under this Agreement, in accordance with Clause 24.6 (RESIGNATION OF A GUARANTOR). "HOLDING COMPANY" means, in relation to a company or corporation, any other company or corporation in respect of which it is a Subsidiary. -5- "INDEBTEDNESS" means, in relation to a person, its obligations (whether present or future, actual or contingent, as principal or surety) for the payment or repayment of money (whether in respect of interest, principal or otherwise) incurred in respect of: (a) moneys borrowed; (b) any bond, note, loan stock, debenture or similar instrument; (c) any acceptance credit, bill discounting, note purchase, factoring or documentary credit facility; (d) any lease required under GAAP to be treated as a finance lease; (e) any guarantee, bond, stand-by letter of credit or other similar instrument issued in connection with the performance of payment obligations; (f) any interest rate or currency swap agreement or any other hedging or derivatives instrument or agreement; (g) any arrangement entered into primarily as a method of raising finance pursuant to which any asset sold or otherwise disposed of by that person is or may be leased to or re-acquired by a Group Company (whether following the exercise of an option or otherwise); or (h) any guarantee, indemnity or similar insurance against financial loss given in respect of the obligation of any person falling within any of paragraphs (a) to (g) above. "INFORMATION MEMORANDUM" means the document in the form approved by ABB concerning the Group which, at ABB's request and on its behalf, was prepared in relation to the Facility and distributed by the Mandated Lead Arrangers to selected banks during April 2002. "INTEREST PERIOD" means, in relation to an Advance, each period determined in accordance with Clause 10 (INTEREST PERIODS) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 9.3 (DEFAULT INTEREST). "KEEP-WELL AGREEMENT" means each keep-well agreement between ABB and one or more Subsidiaries of ABB (for so long as the relevant Subsidiary is an Obligor) substantially in the form delivered by ABB in satisfaction of the condition precedent set out in paragraph 3(b) of Schedule 1 (CONDITIONS PRECEDENT) of the Amendment Agreement or paragraph 12 of Schedule 2 (ADDITIONAL OBLIGOR CONDITIONS PRECEDENT). "LENDER" means: (a) any Original Lender; and (b) any bank which has become a Party as a Lender in accordance with Clause 23 (CHANGES TO THE LENDERS), which in each case has not ceased to be a Party in accordance with the terms of this Agreement. -6- "LIBOR" means, in relation to any Advance: (a) the applicable Screen Rate; or (b) (if no Screen Rate is available for the currency or period of that Advance) the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request quoted by the Reference Banks to leading banks in the London interbank market, as of the Specified Time on the Quotation Day for the offering of deposits in the currency of that Advance and for a period comparable to the Interest Period for that Advance. "MAJORITY LENDERS" means a Lender or Lenders whose Commitments aggregate more than 66 2/3% of the Total Commitments. "MARGIN" means, in relation to an Advance, for the relevant Interest Period, the average of the rates per annum for each day of such Interest Period computed in accordance with the table set out in Schedule 4 (THE MARGIN AND COMMITMENT FEE) PROVIDED THAT on any day that ABB has Credit Ratings from S&P and Moody's which are divergent from each other or has no Credit Rating from either S&P or Moody's, the applicable rate per annum for such day shall be the rate per annum for the lower Credit Rating or, in the latter case, the rate per annum for the remaining Credit Rating, in each case computed in accordance with the table set out in Schedule 4 (THE MARGIN AND COMMITMENT FEE). "MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the ability of any Obligor to perform its payment obligations under the Finance Documents, taking into account, for the avoidance of doubt, the obligations of ABB under each Keep-Well Agreement or (ii) the ability of ABB to perform its obligations under any Keep-Well Agreement. "MATERIAL COMPANY" shall mean ABB, each Obligor and each Subsidiary of ABB: (a) which is listed in Schedule 10 (MATERIAL COMPANIES); or (b) the proportion of whose total assets or turnover (or, where the Subsidiary in question prepares consolidated accounts, whose total consolidated assets or consolidated turnover, as the case may be) attributable to ABB represents not less than 10% of the total consolidated assets or consolidated turnover of ABB, all as calculated by reference to the then latest accounts of such Subsidiary and the then latest audited consolidated accounts of ABB and its consolidated Subsidiaries; or (c) to which is transferred all or substantially all the assets and undertakings of a Subsidiary which immediately prior to such a transfer is a Material Company (in which case the transferor shall, upon such transfer, cease to be a Material Company). -7- "MONTH" means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that: (a) (subject to paragraph (c) below) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; (b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month; and (c) if an Interest Period begins on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which that Interest Period is to end. The above rules will only apply to the last Month of any period. "MOODY'S" means Moody's Investor Services, Inc., or any successor thereto. "OBLIGOR" means a Borrower or a Guarantor. "OBLIGOR GROUP" means ABB, each Borrower and each Guarantor. "OPTIONAL CURRENCY" means a currency (other than the Base Currency) which complies with the conditions set out in Clause 4.2 (CONDITIONS RELATING TO OPTIONAL CURRENCIES). "ORIGINAL FINANCIAL STATEMENTS" means: (a) in relation to ABB, the audited consolidated financial statements of the Group for the financial year ended 31 December 2001; and (b) in relation to each Original Obligor, its audited financial statements for its financial year ended 31 December 2000. "ORIGINAL OBLIGOR" means an Original Borrower or an Original Guarantor. "OUTSTANDINGS" means the aggregate of the Base Currency Amount from time to time of each of the Advances. "PARTICIPATING MEMBER STATE" means any member state of the European Communities that adopts or has adopted the Euro as its lawful currency in accordance with legislation of the European Union relating to European Monetary Union. "PARTY" means a party to this Agreement and includes its successors in title, permitted assigns and permitted transferees. "PROJECT COMPANY" means any Subsidiary of ABB: (a) which is a single purpose company whose primary purpose is to invest in, lend to or carry out a specific project or portfolio of projects; and -8- (b) none of whose liabilities to repay Project Finance Indebtedness are the subject of security or a guarantee, indemnity or any similar form of assurance, undertaking or support by any Group Company save to the extent described in the definition of Project Finance Indebtedness. "PROJECT FINANCE INDEBTEDNESS" means: (a) any Indebtedness of a Project Company incurred to finance the project constituted by the assets and business of such Project Company or any Indebtedness of such Project Company incurred to refinance any such aforementioned Indebtedness; and (b) where neither the persons to whom such Indebtedness is owed (whether or not a Group Company) nor any other person shall have any recourse whatsoever to any Group Company (other than such Project Company) for the repayment or payment of any sum relating to such Indebtedness other than recourse directly or indirectly to any Group Company under any form of assurance or undertaking, which recourse (1) is limited to the enforcement of any share pledge granted by a Group Company over its shares in such Project Company or the enforcement of any security granted over a shareholder loan between a Group Company and such Project Company and/or (2) is limited to a claim for damages for breach of an obligation (not being a payment obligation) of the person against whom that recourse is available and/or (3) entitles the creditor for that Indebtedness or the relevant Project Company, upon default by the Project Company (or in other circumstances specified in the documentation relating to the project) to require a payment to be made (whether to or for the benefit of that creditor, the Project Company or another person), PROVIDED THAT, in the case of (3), where that payment is capable of being for an amount which is material either alone or as a percentage of the Indebtedness financing that project, such recourse is capable of being called on only during the period on or prior to practical completion of the project or of that portion of that project being financed by that Indebtedness; or (c) which the Majority Lenders shall have agreed to treat as Project Finance Indebtedness for the purposes of this Agreement. "QUALIFYING LENDER" has the meaning given to such term in Clause 13.1 (DEFINITIONS). "QUALIFYING SUBSIDIARY" means any Subsidiary of ABB that: (d) is incorporated in an Agreed Jurisdiction; and (e) is the subject of a Keep-Well Agreement. "QUOTATION DAY" means, in relation to any period for which an interest rate is to be determined: (a) (if the currency is Sterling) the first day of that period; -9- (b) (if the currency is Euro) two TARGET Days before the first day of that period; or (c) (for any other currency) two Business Days (which for these purposes only shall mean a day on which banks are open for general business in London) before the first day of that period, unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Day for that currency will be determined by the Facility Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days). -10- "REFERENCE BANKS" means, in relation to LIBOR, the principal London offices of Citibank, N.A., Credit Suisse First Boston and Barclays Bank PLC and, in relation to EURIBOR, the principal London offices of Citibank, N.A., Credit Suisse First Boston and Barclays Bank PLC, or such other banks as may be appointed by the Facility Agent in consultation with ABB. "RELEVANT INTERBANK MARKET" means in relation to Euro, the European interbank market and, in relation to any other currency, the London interbank market. "RESERVATIONS" has the meaning given to such term in Clause 18.2 (BINDING OBLIGATIONS). "RESIGNATION LETTER" means a letter substantially in the form set out in Schedule 8 (FORM OF RESIGNATION LETTER). "ROLLOVER ADVANCE" means one or more Advances: (a) made or to be made on the same day that a maturing Advance is due to be repaid; (b) the aggregate amount of which is equal to or less than the maturing Advance; (c) in the same currency as the maturing Advance (unless it arose as a result of the operation of Clause 6.2 (UNAVAILABILITY OF A CURRENCY)); and (d) made or to be made to a Borrower for the purpose of refinancing a maturing Advance made to such Borrower. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies or any successor thereto. "SCREEN RATE" means: (a) in relation to LIBOR, the British Bankers Association Interest Settlement Rate for the relevant currency and period; and (b) in relation to EURIBOR, the percentage rate per annum determined by the Banking Federation of the European Union for the relevant period, displayed on the appropriate page of the Telerate screen. If the agreed page is replaced or service ceases to be available, the Facility Agent may specify another page or service displaying the appropriate rate after consultation with ABB and the Lenders. "SECURITY" means any mortgage, charge, assignment by way of security, pledge, hypothecation, lien and any other security interest of any kind whatsoever. "SPECIFIED TIME" means a time determined in accordance with Schedule 6 (TIMETABLES). "SUBSIDIARY" means a subsidiary within the meaning of section 736 of the Companies Act 1985. -11- "TARGET" means Trans-European Automated Real-time Gross Settlement Express Transfer payment system. "TARGET DAY" means any day on which TARGET is open for the settlement of payments in Euro. "TAX" means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same). "TAXES ACT" means the Income and Corporation Taxes Act 1988. "TERMINATION DATE" means 17 December 2002. "TOTAL COMMITMENTS" means the aggregate Commitments of the Lenders, being $3,000,000,000 as at the Effective Date. "TOTAL OUTSTANDINGS" means the aggregate from time to time of the Outstandings. "TRANSFER CERTIFICATE" means a certificate substantially in the form set out in Schedule 5 (FORM OF TRANSFER CERTIFICATE) or any other form agreed between the Facility Agent and ABB. "TRANSFER DATE" means, in relation to a transfer, the later of: (a) the proposed Transfer Date specified in the Transfer Certificate; and (b) the date on which the Facility Agent executes the Transfer Certificate. "UNPAID SUM" means any sum due and payable but unpaid by an Obligor under the Finance Documents. "UTILISATION" means a utilisation of the Facility. "UTILISATION DATE" means the date of a Utilisation, being the date on which an Advance is to be made. "UTILISATION REQUEST" means a notice substantially in the form set out in Part 1 of Schedule 3 (UTILISATION REQUEST). "VAT" means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature. 1.2 CONSTRUCTION (a) Any reference in this Agreement to: (i) "ASSETS" includes present and future properties, revenues and rights of every description; (ii) "BARCLAYS CAPITAL" is a reference to Barclays Capital, the investment banking division of Barclays Bank PLC; -12- (iii) the "EUROPEAN INTERBANK MARKET" means the interbank market for Euro operating in Participating Member States; (iv) a "FINANCE DOCUMENT" or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended or novated; (v) a "PERSON" includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) or two or more of the foregoing; (vi) a "REGULATION" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law but, if not having the force of law, the compliance with which is customary) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation; (vii) a "FINANCIAL YEAR" in relation to ABB, means a period in respect of which it is required to produce annual audited financial statements; (viii) a provision of law is a reference to that provision as amended or re-enacted; and (ix) unless a contrary indication appears, a time of day is a reference to London time. (b) Where there is a reference in this Agreement to any amount, limit or threshold specified in Dollars, in ascertaining whether or not that amount, limit or threshold has been attained, broken or achieved, as the case may be, a non-Dollar amount shall, unless the context otherwise requires or the contrary is indicated, be counted on the basis of the equivalent in Dollars of that amount using the Facility Agent's Spot Rate of Exchange EXCEPT FOR the purposes of calculating the dollar equivalent of Total Gross Debt which is not denominated in dollars for the purposes of the covenants set out in paragraphs (b) and (d) of Clause 20.2 (FINANCIAL CONDITION), in which case the dollar exchange rate set out in the Financial Times on 31 March 2002 shall be used. (c) Section, Clause and Schedule headings are for ease of reference only. (d) Unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement. (e) A Default is "CONTINUING" if it has not been remedied or waived. (f) For the avoidance of doubt, if Moody's or S&P place a Credit Rating on credit watch, that shall not (regardless of outlook) constitute a change in such Credit Rating or be deemed to be no Credit Rating. 1.3 CURRENCY SYMBOLS AND DEFINITIONS "$" and "DOLLARS" denote the lawful currency of the United States of America, "L" and "STERLING" denote the lawful currency of the United Kingdom and "EURO" denotes the -13- single currency unit of the European Union as constituted by the Treaty of Rome (as amended). 1.4 THIRD PARTY RIGHTS A person who is not a Party has no right under the Contract (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. -14- SECTION 2 THE FACILITY 2. THE FACILITY 2.1 THE FACILITY (a) Subject to the terms of this Agreement, the Lenders make available to the Borrowers a committed 364 day multicurrency revolving credit facility (the "FACILITY") in a maximum aggregate amount of $3,000,000,000. (b) A Borrower shall only be entitled to utilise the Facility for so long as it is a Qualifying Subsidiary. 2.2 LENDERS' RIGHTS AND OBLIGATIONS (a) The obligations of each Lender under the Finance Documents are several. Failure by a Lender to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents. (b) The rights of each Lender under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Lender from any of the Borrowers shall be a separate and independent debt. (c) A Finance Party may, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents. 2.3 FACILITY OFFICES AND NOMINATED AFFILIATE (a) Subject to paragraph (b) below, a Lender may (i) change its Facility Office for the purpose of this Agreement and/or (ii) nominate a different Facility Office for the purposes of making a particular Advance to any Borrower, in which event such Facility Office shall for the purposes of this Agreement be its Facility Office for that Advance but not otherwise. (b) If a Lender changes its Facility Office or nominates a different Facility Office, (i) that Lender will notify the Facility Agent and ABB promptly (and, in any event, within 5 Business Days) of such change or, as the case may be, nomination, and until it does so, the Facility Agent and ABB will be entitled to assume that no such change has taken place and (ii) if the country of such Facility Office is not subject to the Financial Action Task Force any such change or, as the case may be, nomination shall be subject to the prior written consent of the Facility Agent. (c) Subject to the terms of this Agreement, the relevant portion of any Advance made to a Borrower incorporated in the United States of America in which The Bank of Tokyo-Mitsubishi, Ltd. ("BOT-M") participates shall be funded by BTM (Europe) Limited ("BTME"). The following facility office shall be deemed to be the Facility Office relevant to BOT-M, as Lender, for the purposes of such Advances only: BTM(Europe) Limited, Finsbury Circus House, 12-15 Finsbury Circus, London EC2M 7BT. -15- BOT-M and BTME shall be treated as a single Lender whose Commitment is the amount set out opposite BOT-M's name in Part 1 of Schedule 1 (ORIGINAL PARTIES), and BOT-M's Available Commitment shall be reduced to the extent of any amounts funded by BTME as contemplated by this sub-paragraph (c). If BOT-M assigns all of its rights or transfers all of its rights and obligations to a New Lender, BTME shall cease to have any obligations under this Agreement. 3. PURPOSE 3.1 PURPOSE Each Borrower shall apply all amounts borrowed by it under the Facility for the general corporate purposes of the Group, including, without limitation, back-stop financing for commercial paper facilities of the Group. 3.2 MONITORING No Finance Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement. 4. CONDITIONS OF UTILISATION 4.1 CONDITIONS PRECEDENT (a) The Lenders will only be obliged to comply with Clause 5.4 (LENDERS' PARTICIPATION) if on the date of the Utilisation Request and on the proposed Utilisation Date (in each case other than in the case of a Rollover Advance): (i) no Default is continuing or would result from the proposed Advance; and (ii) the representations to be made by ABB pursuant to Clause 18.14 (REPETITION) are true in all respects. (b) An Advance will not be made if it would result in the Base Currency Amount of all Advances exceeding the Total Commitments. 4.2 CONDITIONS RELATING TO OPTIONAL CURRENCIES A currency will constitute an Optional Currency in relation to an Advance if it is Sterling or Euro, or it is readily available in the amount required and freely convertible into the Base Currency in the Relevant Interbank Market on the Quotation Day and the Utilisation Date for that Advance PROVIDED THAT there may not at any time be Advances outstanding denominated in more than 5 Optional Currencies. 4.3 MAXIMUM NUMBER OF ADVANCES (a) No Borrower may deliver a Utilisation Request if as a result of the proposed Utilisation more than 10 Advances would be outstanding. (b) Any Advance made by a single Lender under Clause 6.2 (UNAVAILABILITY OF A CURRENCY) shall not be taken into account in this Clause 4.3. SECTION 3 UTILISATION -16- 5. UTILISATION 5.1 DELIVERY OF A UTILISATION REQUEST A Borrower may utilise the Facility by delivery to the Facility Agent of a duly completed Utilisation Request not later than the Specified Time. 5.2 COMPLETION OF A UTILISATION REQUEST (a) Each Utilisation Request delivered to the Facility Agent pursuant to Clause 5.1 (DELIVERY OF A UTILISATION REQUEST) is irrevocable and will not be regarded as having been duly completed unless: (i) the proposed Utilisation Date is a Business Day within the Availability Period; (ii) the currency and amount of the Utilisation comply with Clause 5.3 (CURRENCY AND AMOUNT); and (iii) the proposed Interest Period complies with Clause 10 (INTEREST PERIODS). (b) Only one Advance may be requested in each Utilisation Request delivered to the Facility Agent pursuant to Clause 5.1 (DELIVERY OF A UTILISATION REQUEST). 5.3 CURRENCY AND AMOUNT (a) The currency specified in a Utilisation Request delivered to the Facility Agent pursuant to Clause 5.1 (DELIVERY OF A UTILISATION REQUEST) must be the Base Currency or an Optional Currency. (b) The amount of the proposed Advance must be: (i) if the currency selected is the Base Currency, a minimum of $50,000,000 and an integral multiple of $10,000,000; or (ii) if the currency selected is Euro, a minimum of Euro50,000,000 and an integral multiple of Euro10,000,000; or (iii) if the currency selected is Sterling, a minimum amount of L25,000,000 and an integral multiple of L5,000,000; or (iv) if the currency selected is an Optional Currency (other than Euro or Sterling), in such minimum amount and multiple as the Facility Agent and ABB may agree, or, in any case, the amount of the Available Facility. 5.4 LENDERS' PARTICIPATION (a) Subject to the other terms of this Agreement, each Lender shall, on the relevant Utilisation Date, make its participation in each Advance available through its Facility Office. (b) Subject to Clause 6.2 (UNAVAILABILITY OF A CURRENCY), the amount of each Lender's participation in each Advance will be equal to the proportion borne by its Available Commitment to the Available Facility immediately prior to making the Advance. (c) The Facility Agent shall notify each relevant Lender of the amount, currency and the Base Currency Amount of each Advance at the Specified Time. -17- 6. OPTIONAL CURRENCIES 6.1 SELECTION OF CURRENCY The relevant Borrower shall select the currency of an Advance in a Utilisation Request. 6.2 UNAVAILABILITY OF A CURRENCY If before the Specified Time on any Quotation Day: (a) the Facility Agent has received notice from a Lender that the Optional Currency (other than Euro or Sterling) requested is not readily available to it in the amount required; or (b) a Lender notifies the Facility Agent that compliance with its obligation to participate in an Advance in the proposed Optional Currency (other than Euro or Sterling) would contravene a law or regulation applicable to it, the Facility Agent will give notice to the relevant Borrower to that effect by the Specified Time on that day. In this event, any Lender that gives notice pursuant to this Clause 6.2 will be required to participate in the Advance in the Base Currency (in an amount equal to that Lender's proportion of the Base Currency Amount or, in respect of a Rollover Advance, an amount equal to that Lender's proportion of the Base Currency Amount of the maturing Advance that is due to be repaid) and its participation will be treated as a separate Advance denominated in the Base Currency during that Interest Period. 6.3 NOTIFICATION The Facility Agent shall notify the Lenders and the relevant Borrower of Optional Currency amounts (and the applicable Facility Agent's Spot Rate of Exchange) promptly after they are ascertained. -18- SECTION 4 REPAYMENT, PREPAYMENT AND CANCELLATION 7. REPAYMENT OF ADVANCES Each Borrower shall repay each Advance made to it on the last day of its Interest Period. 8. PREPAYMENT AND CANCELLATION For the purposes of this Clause 8: "EXCLUDED PROCEEDS" means: (a) cash proceeds received in respect of a transaction within sub-paragraphs (1) (iii) and (1) (iv) of Clause 21.4 (DISPOSALS); (b) cash proceeds received in respect of individual Disposals with an individual value of up to $50,000,000 (or its equivalent in other currencies) except to the extent that such cash proceeds are cash proceeds contemplated by paragraph (c) below; (c) cash proceeds received in respect of Disposals with an individual value of more than $10,000,000 (or its equivalent in other currencies) where the amount of such cash proceeds, when aggregated with other such cash proceeds received by Group Companies, is $50,000,000 (or its equivalent in other currencies) or less; (d) cash proceeds received in respect of Disposals of receivables pursuant to the Existing Securitisations; (e) cash proceeds received in respect of Disposals of marketable securities in the ordinary course of treasury activities of the disposing Group Company or in the ordinary course of investment management activities in the case of a Group Company that is an insurance or re-insurance company; and (f) cash proceeds received in respect of Disposals by a Group Company (other than ABB) which is not an Obligor to other Group Companies. "NET CAPITAL MARKETS PROCEEDS" means the cash proceeds of the issue of any bonds, notes, debentures, loan stock, other similar instrument, securitisation or other financing (after deducting reasonable fees and expenses incurred by any Group Company in relation to such issues or financings) other than cash proceeds received pursuant to: (i) issues of commercial paper or medium term notes with a maturity of one year or less; (ii) the Existing Securitisations; -19- (iii) cash pooling arrangements made in the course of day-to-day cash management of the Group; (iv) Project Finance Indebtedness; (v) any single bank loan facility made available to a Group Company PROVIDED THAT the amount of such facility is less than $10,000,000 (or its equivalent) and is provided by the relevant bank on an uncommitted basis and the aggregate of such facilities of the Group does not exceed $100,000,000 (or its equivalent); and (vi) facilities made available to Group Companies for the purposes of refinancing a facility made available by a bank or a branch of a bank in the same jurisdiction of incorporation as the relevant Group Company (a "LOCAL BILATERAL FACILITY") to the extent of the amount of the Local Bilateral Facility actually repaid. "NET DISPOSAL PROCEEDS" means the cash proceeds (including any amount received in repayment of intercompany debt and excluding Excluded Proceeds) of any Disposal of any Group Company after deducting: (a) reasonable fees and expenses incurred by any Group Company due to such disposal; (b) VAT paid or payable by the seller or any other Group Company due to such Disposal; and (c) any tax incurred and required to be paid by the seller or any other Group Company in connection with such Disposal (as reasonably determined by the seller or such Group Company, acting in good faith, on the basis of existing rates and taking account of any available credit, deduction or allowance). "NET EQUITY PROCEEDS" means the cash proceeds of any issue of shares or stock of any Group Company after deducting: (a) reasonable fees and expenses incurred by any Group Company due to such issue of shares; (b) VAT paid or payable by any Group Company due to such issue; and (c) any tax incurred and required to be paid by a Group Company in connection with such issue. 8.1 LENDER ILLEGALITY If it becomes unlawful in any jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund its participation in any Advance: (a) that Lender shall promptly notify the Facility Agent upon becoming aware of that event; -20- (b) unless the repayment referred to in paragraph (c) below avoids such unlawfulness, upon the Facility Agent notifying ABB, the Commitment of that Lender will be immediately cancelled; and (c) each Borrower shall, to the extent necessary to avoid such unlawfulness, repay that Lender's participation in the Advances made to it on the last day of the Interest Period for each Advance occurring after the Facility Agent has notified ABB or, if earlier, the date specified by the Lender in the notice delivered to the Facility Agent (being no earlier than 5 Business Days after receipt of such notice or, if earlier, the last day of any applicable grace period permitted by law). 8.2 BORROWER ILLEGALITY If it is or becomes unlawful for a Borrower to perform any of its obligations under the Finance Documents, save where such obligations are not, or could reasonably be considered not to be, material to the interests of the Lenders under the Finance Documents, the Borrowers shall within 15 Business Days of being served with notice by the Facility Agent so to do, repay all Advances, together with accrued interest and all other amounts accrued under the Finance Documents. On the service of any such notice the Facility shall be cancelled and the Commitments will be reduced to zero. 8.3 MANDATORY PREPAYMENT ON CHANGE OF CONTROL (a) If any person (whether alone or together with any associated person) becomes the beneficial owner of shares in the issued share capital of ABB carrying the right to more than 50% of the votes exercisable at a general meeting of ABB: (i) ABB shall promptly notify the Facility Agent upon becoming aware of that event; and (ii) the Facility Agent shall, by not less than 15 Business Days' notice to ABB and having consulted with ABB, cancel the Facility and declare all Advances, together with accrued interest, and all other amounts accrued under the Finance Documents immediately due and payable, whereupon the Facility will be cancelled and all such outstanding amounts will become immediately due and payable. For the purposes of this Clause 8.3, "ASSOCIATED PERSON" means, in relation to any person, a person who is (i) "acting in concert" (as defined in the City Code on Takeovers and Mergers) with that person or (ii) a "connected person" (as defined in section 839 of the Income and Corporate Taxes Act 1988) of that person. (b) On any cancellation of the Facility pursuant to this Clause 8.3, the Commitments will be reduced to zero. 8.4 MANDATORY PREPAYMENT ON CEASING TO BE A QUALIFYING SUBSIDIARY If any Borrower ceases to be a Qualifying Subsidiary: (a) ABB and/or that Borrower shall promptly notify the Facility Agent upon becoming aware of that event; -21- (b) (i) if such circumstances occur before the end of the Availability Period, such Borrower shall within 5 Business Days of it so ceasing to be a Qualifying Subsidiary repay all Advances borrowed by it together with accrued interest thereon; or (ii) if such circumstances occur after the end of the Availability Period, any Advance drawn by the relevant Subsidiary shall forthwith be novated to another Borrower nominated by ABB and such other Borrower shall become the Borrower for such Advance; and (c) the Parties shall enter into such documentation necessary to give effect to the provisions of paragraph (b)(ii) above. 8.5 MANDATORY PREPAYMENT OUT OF PROCEEDS 8.5.1 So long as the Total Commitments are more than $1,000,000,000, if a Group Company receives any Net Disposal Proceeds, Net Capital Market Proceeds or Net Equity Proceeds (the "RELEVANT PROCEEDS"), ABB shall promptly notify the Facility Agent upon becoming aware of the same. 8.5.2 Upon receipt of the notification referred to in sub-clause 8.5.1, the Total Commitments shall be reduced by the amount of the relevant proceeds (or, if less, such amount as is necessary to reduce the Total Commitments to $1,000,000,000) PROVIDED THAT nothing in this sub-paragraph shall prevent the Borrower from making Rollover Advances. 8.5.3 Without prejudice to sub-clause 8.5.2, ABB may, by notice to the Facility Agent delivered at the same time as the notice pursuant to sub-clause 8.5.1, elect to apply any relevant proceeds in repayment or prepayment of a Group Company's obligations under any commercial paper issued by such Group Company. 8.5.4 To the extent that ABB does not elect to apply relevant proceeds in repayment of Group Company obligations under commercial paper, as contemplated by sub-clause 8.5.3, ABB shall procure that such relevant proceeds are applied in prepayment of Advances as soon as reasonably practicable, and in any event within 10 Business Days of receipt by the relevant Group Company of the relevant proceeds PROVIDED THAT ABB's obligations pursuant to this sub-clause 8.5.4 to procure prepayment of the Advances from Net Disposal Proceeds or Net Capital Markets Proceeds shall only be to the extent that such Net Disposal Proceeds or Net Capital Markets Proceeds (as the case may be) can be transferred to a Borrower for the purpose of the relevant prepayment and cancellation without contravening any applicable laws or (in the case only of Net Disposal Proceeds in respect of Disposals OTHER THAN the Disposal of the Group's structured finance division ("RELEVANT NET DISPOSAL PROCEEDS")) without incurring any material costs on account of taxes PROVIDED FURTHER HOWEVER that each Group Company shall use its reasonable endeavours to effect such transfer of Net Disposal Proceeds or Net Capital Markets Proceeds (as the case may be) and if such transfer cannot be made without contravening applicable laws or (in the case of Net Disposal Proceeds other than Relevant -22- Net Disposal Proceeds) without incurring any material costs on account of taxes, ABB (so long as no Group Company would incur material expenditure as a result) shall use its reasonable endeavours to procure that the relevant prepayment is made from other available cash reserves of Group Companies. 8.5.5 No amounts prepaid pursuant to this Clause 8.5 may be reborrowed except to the extent that an amount reborrowed would not result in Outstandings being more than $1,000,000,000. 8.6 VOLUNTARY CANCELLATION ABB may, if it gives the Facility Agent not less than 5 Business Days' (or such shorter period as the Majority Lenders may agree) prior notice, cancel the whole or any part (being a minimum amount of $50,000,000 and an integral multiple of $10,000,000) of the Available Facility. Any cancellation under this Clause 8.6 shall reduce rateably the Commitments. 8.7 VOLUNTARY PREPAYMENT A Borrower may, if it gives the Facility Agent not less than 5 Business Days' (or such shorter period as the Majority Lenders may agree) prior notice, prepay the whole or any part of an Advance made to it (but if in part, being an amount that reduces the Base Currency Amount of the Advance by a minimum amount of $50,000,000 and rounded as the Facility Agent may reasonably require). 8.8 RIGHT OF REPAYMENT AND CANCELLATION IN RELATION TO A SINGLE LENDER (a) If: (i) any sum payable to any Lender by ABB or an Obligor is required to be increased under paragraph (c) of Clause 13.2 (TAX GROSS-UP); or (ii) any Lender claims indemnification from ABB or a Borrower under Clause 13.3 (TAX INDEMNITY) or Clause 14.1 (INCREASED COSTS), then ABB may, whilst the circumstance giving rise to the requirement or indemnification continues, give the Facility Agent notice of cancellation of the Commitment of that Lender and its intention to procure the repayment of that Lender's participation in the Advances. (b) On receipt of a notice referred to in paragraph (a) above, the Commitment of that Lender shall immediately be reduced to zero. -23- (c) On the last day of each Interest Period in respect of an Advance which ends after ABB has given notice under paragraph (a) above (or, if earlier, the date specified by ABB in that notice), each Borrower to which an Advance is outstanding shall repay that Lender's participation in that Advance. 8.9 RESTRICTIONS (a) Any notice of cancellation or prepayment given by any Party under this Clause 8 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant cancellation or prepayment is to be made and the amount of that cancellation or prepayment. (b) Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs, without premium or penalty. (c) Unless a contrary indication appears in this Agreement, any part of the Facility which is prepaid may be reborrowed in accordance with the terms of this Agreement. (d) No Borrower shall repay or prepay all or any part of the Advances or cancel all or any part of the Commitments except at the times and in the manner expressly provided for in this Agreement. (e) No amount of the Total Commitments cancelled under this Agreement may be subsequently reinstated. (f) If the Facility Agent receives a notice under this Clause 8 it shall promptly forward a copy of that notice to the affected Borrower or the affected Lender, as appropriate. -24- SECTION 5 COSTS OF UTILISATION 9. INTEREST 9.1 CALCULATION OF INTEREST The rate of interest on each Advance for each Interest Period is the percentage rate per annum which is the aggregate of the applicable: (i) Margin; (ii) LIBOR or, in relation to any Advance in Euro, EURIBOR; and (iii) the Additional Cost Rate (where applicable). 9.2 PAYMENT OF INTEREST (a) Each Borrower shall pay accrued interest on each Advance made to it on the last day of each Interest Period (and, if the Interest Period is longer than six Months, on the dates falling at six monthly intervals after the first day of the Interest Period). (b) If a Tax Deduction is required by law to be made by an Obligor in one of the circumstances set out in paragraph (c) of Clause 13.2 (TAX GROSS-UP), the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required. 9.3 DEFAULT INTEREST (a) If an Obligor fails to pay any amount payable by it under a Finance Document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment (both before and after judgment) at a rate 1.00 per cent higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted an Advance in the currency of the overdue amount for successive Interest Periods, each of a duration selected by the Facility Agent (acting reasonably). Any interest accruing under this Clause 9.3 shall be immediately payable by the relevant Obligor on demand by the Facility Agent. (b) Default interest (if unpaid) arising on an overdue amount will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable. 9.4 NOTIFICATION OF RATES OF INTEREST The Facility Agent shall promptly notify the Lenders, ABB and the relevant Borrowers of the determination of a rate of interest under this Agreement. 10. INTEREST PERIODS (a) The relevant Borrower may select an Interest Period for an Advance in the Utilisation Request for that Advance or (for Interest Periods other than the first) on 3 Business Days' written notice to the Facility Agent from the relevant Borrower. -25- (b) Subject to this Clause 10, a Borrower may select an Interest Period of 1, 2, 3 or 6 Months or any other period of less than 1 Month to end on the Termination Date or any other period agreed between the relevant Borrower and the Facility Agent (acting on the instructions of all the Lenders). (c) An Interest Period for an Advance shall not extend beyond the Termination Date. (d) Each Advance has one Interest Period only. 11. CHANGES TO THE CALCULATION OF INTEREST 11.1 ABSENCE OF QUOTATIONS Subject to Clause 11.2 (MARKET DISRUPTION), if LIBOR or EURIBOR is to be determined by reference to the Reference Banks but a Reference Bank does not supply a quotation by the Specified Time on the Quotation Day, the applicable LIBOR or EURIBOR shall be determined on the basis of the quotations of the remaining Reference Banks. 11.2 MARKET DISRUPTION (a) If a Market Disruption Event occurs in relation to an Advance for any Interest Period, then the rate of interest on each Lender's share of that Advance for the Interest Period shall be the rate per annum which is the sum of: (i) the Margin; (ii) the rate notified to the Facility Agent, ABB and the relevant Borrower by that Lender in a certificate (which sets out the details of the computation of the relevant rate and shall be prima facie non-binding evidence of the same) as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Lender of funding its participation in that Advance from whatever source it may reasonably select; and (iii) the Additional Cost Rate, if any, applicable to that Lender's participation in the Advance. (b) In this Agreement "MARKET DISRUPTION EVENT" means: (i) at or about noon on the Quotation Day for the relevant Interest Period the Screen Rate is not available and none or only one of the Reference Banks supplies a rate to the Facility Agent to determine LIBOR or, if applicable, EURIBOR for the relevant currency and period; or (ii) before close of business in London on the Quotation Day for the relevant Interest Period, the Facility Agent receives notifications from a Lender or Lenders (whose participations in an Advance exceed 50 per cent. of that Advance) that the cost to it or them of obtaining matching deposits in the Relevant Interbank Market would be in excess of LIBOR or, if applicable, EURIBOR. -26- 11.3 ALTERNATIVE BASIS OF INTEREST OR FUNDING (a) If a Market Disruption Event occurs and the Facility Agent or ABB so requires, the Facility Agent and ABB shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest. (b) Any alternative basis agreed pursuant to paragraph (a) above shall, with the prior consent of the Majority Lenders and ABB, be binding on all Parties. 11.4 BREAK COSTS (a) The relevant Borrower shall, within three Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of an Advance or Unpaid Sum being paid by that Borrower on a day other than the last day of an Interest Period for that Advance or Unpaid Sum. (b) Each Lender shall, as soon as reasonably practicable after a demand by the Facility Agent, provide to ABB and the relevant Borrower a certificate (which shall constitute prima facie non-binding evidence of the matters to which it refers) addressed to the Facility Agent, ABB and the relevant Borrower confirming the amount of its Break Costs for any Interest Period in which they accrue and setting out the manner of computing such Break Costs. 12. FEES 12.1 COMMITMENT FEE (a) ABB shall pay to the Facility Agent (for the account of each Lender) a commitment fee in the Base Currency computed at the rate per annum on that Lender's Available Commitment computed in accordance with the table set out in Schedule 4 (THE MARGIN AND COMMITMENT FEE), PROVIDED THAT on any day that ABB has Credit Ratings from S&P and Moody's which are divergent from each other or has no Credit Rating from either S&P or Moody's, the applicable rate per annum for such day shall be the rate per annum for the lower Credit Rating or, in the latter case, the rate per annum for the remaining Credit Rating, in each case computed in accordance with the table set out in Schedule 4 (THE MARGIN AND COMMITMENT FEE). (b) The accrued commitment fee is payable on the last day of each successive period of three Months commencing from the Effective Date and on the last day of the Availability Period. 12.2 UTILISATION FEE (a) ABB shall pay to the Facility Agent (for the account of the Lenders pro rata to their Commitments) a utilisation fee in respect of the Total Outstandings computed at the rate of: (i) 0.25 per cent. per annum for each day that the Total Outstandings are in an amount which is greater than 33 per cent. but is less than or equal to 66 per cent. of the Total Commitments; or (ii) 0.50 per cent. per annum for each day that the Total Outstandings are in an amount greater than 66 per cent. of the Total Commitments. -27- (b) The accrued utilisation fee is payable on the last day of each successive period of three Months commencing from the Effective Date and on the Termination Date. 12.3 AGENCY FEE ABB shall pay to the Facility Agent (for its own account) an agency fee in the amount and at the times agreed in a fee letter. -28- SECTION 6 ADDITIONAL PAYMENT OBLIGATIONS 13. TAX GROSS UP AND INDEMNITIES 13.1 DEFINITIONS (a) In this Clause 13: "INITIAL BORROWER JURISDICTION" means any of The Netherlands, the United States of America, Switzerland, Sweden or Guernsey. "PROTECTED PARTY" means a Finance Party which is or will be, for or on account of Tax, subject to any liability or required to make any payment in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document. "QUALIFYING LENDER" means: (a) in respect of a payment by a Borrower resident in Switzerland for the purposes of Swiss tax, a Lender which is a bank; (b) in respect of a payment by a Borrower incorporated in the United States of America, a Lender which is: (i) created or organised under the laws of the United States of America or of any state (including the District of Columbia) thereof; or (ii) resident in a jurisdiction having a double taxation agreement with the United States of America which makes provision for full exemption from tax imposed by the United States of America on interest and which does not carry on a business in the United States of America through a permanent establishment with which that Lender's participation in the Facility is effectively connected; or (iii) entitled to receive payments under the Finance Documents without deduction or withholding of any United States federal income taxes, and which has complied with any procedural requirements within its control necessary to receive such payment without the imposition of United States withholding tax; or (c) in respect of a payment by a Borrower incorporated in any jurisdiction except the United States of America or Switzerland, any Lender. "TAX CREDIT" means a credit against, relief or remission for, or repayment of any Tax. "TAX DEDUCTION" means a deduction or withholding for or on account of Tax from a payment under a Finance Document. "TAX PAYMENT" means an increased payment made by ABB or an Obligor to a Finance Party under Clause 13.2 (TAX GROSS-UP) or a payment made by ABB or an Obligor under Clause 13.3 (TAX INDEMNITY). -29- (b) In this Clause 13 a reference to "determines" or "determined" means, save where expressly stated to the contrary, a determination made in the absolute discretion of the person making the determination acting in good faith. 13.2 TAX GROSS-UP (a) ABB and each Obligor shall make all payments to be made by it without any Tax Deduction, unless a Tax Deduction is required by law. (b) ABB, an Obligor or a Lender shall promptly upon becoming aware that ABB or an Obligor (as the case may be) must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Facility Agent accordingly. If the Facility Agent receives such notification from a Lender it shall notify ABB and the relevant Obligor. (c) If a Tax Deduction is required by law to be made by ABB or an Obligor in one of the circumstances set out in paragraph (d) below, the amount of the payment due from ABB or that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required. (d) The circumstances referred to in paragraph (c) above are where a person entitled to the payment: (i) is the Facility Agent or a Mandated Lead Arranger (on its own behalf); (ii) is a Qualifying Lender; or (iii) is not or has ceased to be a Qualifying Lender to the extent that this altered status results from any change after the Effective Date in (or in the interpretation, administration, or application of) any law or double taxation agreement or any published practice or published concession of any relevant taxing authority. (e) If ABB or an Obligor is required to make a Tax Deduction, it shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed and in the minimum amount required by law. (f) Within 30 days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, ABB or the relevant Obligor (as the case may be) shall deliver to the Facility Agent for the Finance Party entitled to the payment original receipts or certified copies thereof or if not available, other evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority. (g) Each Finance Party, ABB and the Obligors shall co-operate in completing any procedural formalities necessary for ABB or an Obligor to make a payment to which the Finance Party is entitled without a Tax Deduction or with a reduced Tax Deduction. Each Finance Party shall on the reasonable written request of ABB or an Obligor complete and deliver to ABB or that Obligor all documentation reasonably required by ABB or that Obligor in order to enable it to make such payments without a Tax -30- Deduction or with a reduced Tax Deduction (so long as the completion or delivery of such documentation would not materially prejudice the legal or commercial position of the relevant Finance Party). 13.3 TAX INDEMNITY (a) ABB or the Borrowers shall (within three Business Days of written demand by the Facility Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party. (b) Paragraph (a) above shall not apply with respect to any Tax assessed on a Finance Party: (1) (i) under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; (ii) under the law of the jurisdiction in which that Finance Party's Facility Office is located in respect of amounts received or receivable in that jurisdiction; or (iii) arising by reason of the making of an Advance to a Borrower in an Initial Borrower Jurisdiction under the law of such jurisdiction, except to the extent arising by reason of a change in law or in any regulation occurring after the Effective Date, PROVIDED THAT this paragraph (b)(1)(iii) shall not apply to any Tax assessed or imposed on the Facility Agent, if that Tax is imposed on or calculated by reference to the net income received or receivable (including any sum deemed to be received or receivable) by that Finance Party; or (2) which is compensated for by Clause 13.2 (TAX GROSS UP) (or would have been so compensated but for an exception to that Clause). (c) A Protected Party making, or intending to make a claim pursuant to paragraph (a) above shall promptly notify the Facility Agent of the event which will give, or has given, rise to the claim, following which the Facility Agent shall notify ABB. (d) A Protected Party shall, on receiving a payment from ABB under this Clause 13.3, notify the Facility Agent. 13.4 TAX CREDIT If ABB or an Obligor makes a Tax Payment and the relevant Finance Party determines that: (a) a Tax Credit is attributable to that Tax Payment; and (b) that Finance Party has obtained, utilised and retained that Tax Credit, the Finance Party shall pay an amount to ABB or (as the case may be) that Obligor which that Finance Party determines, acting in good faith, will leave that Finance Party -31- (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been made by ABB or that Obligor (as the case may be). The relevant Finance Party shall endeavour, acting in good faith, to obtain, utilise and retain the Tax Credit save that it shall not be obliged to disclose any information relating to its tax or other affairs or any computations in respect thereof. 13.5 QUALIFYING LENDERS Any Lender which ceases, for any reason, to be a Qualifying Lender shall promptly notify ABB and the relevant Obligor(s) of its change of status. 13.6 STAMP TAXES The Borrowers shall pay and, within 3 Business Days of demand, indemnify each Finance Party against any cost, loss or liability such Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document, but not in respect of any assignment or transfer pursuant to Clause 23 (CHANGES TO THE LENDERS). 13.7 VALUE ADDED TAX (a) All consideration payable under a Finance Document by ABB or the Borrowers to a Finance Party shall be deemed to be exclusive of any VAT. If VAT is chargeable, ABB or the Borrowers (as the case may be) shall pay to the Finance Party (in addition to and at the same time as paying the consideration) an amount equal to the amount of the VAT. (b) Where a Finance Document requires ABB or the Borrowers to reimburse a Finance Party for any costs or expenses, ABB or the Borrowers (as the case may be) shall also at the same time pay and indemnify that Finance Party against all VAT directly incurred by that Finance Party in respect of the costs or expenses save to the extent that that Finance Party is entitled to repayment or credit in respect of the VAT. 14. INCREASED COSTS 14.1 INCREASED COSTS (a) Subject to Clause 14.3 (EXCEPTIONS) ABB or the Borrowers shall, within 3 Business Days of a demand by the Facility Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of (i) the introduction of or any change in (or in the interpretation or application of) any law or regulation or (ii) compliance with any law or regulation made after the Effective Date. (b) In this Agreement "INCREASED COSTS" means: (i) a reduction in the rate of return from the Facility or on a Finance Party's (or its Affiliate's) overall capital; (ii) an additional or increased cost; or (iii) a reduction of any amount due and payable under any Finance Document, which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document. -32- 14.2 INCREASED COST CLAIMS (a) A Finance Party intending to make a claim pursuant to Clause 14.1 (INCREASED COSTS) shall promptly notify the Facility Agent of the event giving rise to the claim, following which the Facility Agent shall promptly notify ABB. (b) Each Finance Party shall, as soon as practicable after a demand by the Facility Agent provide a certificate confirming the amount of its Increased Costs with (subject to any rights or duties of confidentiality the relevant Finance Party has in respect of such information) full supporting details (which certificate shall constitute prima facie non-binding evidence of the matters to which it relates). 14.3 EXCEPTIONS (a) Clause 14.1 (INCREASED COSTS) does not apply to the extent any Increased Cost is: (i) attributable to a Tax Deduction required by law to be made by ABB or an Obligor; (ii) compensated for by Clause 13.3 (TAX INDEMNITY) (or would have been compensated for under Clause 13.3 (TAX INDEMNITY) but was not so compensated solely because one of the exclusions in paragraph (b) of Clause 13.3 (TAX INDEMNITY) applied); (iii) not payable as provided in Clause 23.2 (CONDITIONS OF ASSIGNMENT OR TRANSFER); (iv) compensated for by the payment of the Additional Cost Rate; (v) attributable to the breach by the relevant Finance Party or its Affiliates of any law or regulation; or (vi) not notified to ABB within 3 months of being incurred. (b) In this Clause 14.3, a reference to a "TAX DEDUCTION" has the same meaning given to the term in Clause 13.1 (DEFINITIONS). 15. OTHER INDEMNITIES 15.1 CURRENCY INDEMNITY (a) If any sum due from ABB or an Obligor under the Finance Documents (a "SUM"), or any order, judgment or award given or made in relation to a Sum, has to be converted from the currency (the "FIRST CURRENCY") in which that Sum is payable into another currency (the "SECOND CURRENCY") for the purpose of: (i) making or filing a claim or proof against ABB or any of the Obligors; (ii) obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings, ABB or that Obligor (as the case may be) shall as an independent obligation, within 3 Business Days of demand, indemnify each Finance Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (A) the rate of exchange used to convert that Sum from the -33- First Currency into the Second Currency and (B) the rate or rates of exchange available to that person at the time of its receipt of that Sum. (b) ABB and each Obligor waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable. 15.2 OTHER INDEMNITIES ABB or the Borrowers shall indemnify each Lender upon presentation of duly documented evidence thereof against any cost, loss or liability directly incurred by that Lender as a result of: (a) the occurrence of any Event of Default (but excluding any costs of enforcement save as provided in Clause 17.3 (ENFORCEMENT COSTS)); (b) a failure by ABB or an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of Clause 27 (SHARING AMONG THE LENDERS); (c) funding, or making arrangements to fund, its participation in an Advance requested by a Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default, negligence or wilful misconduct by that Lender alone); or (d) an Advance (or part of an Advance) not being prepaid in accordance with a notice of prepayment given by a Borrower. 15.3 INDEMNITY TO THE FACILITY AGENT ABB or the Borrowers shall promptly indemnify the Facility Agent, upon presentation of duly documented evidence thereof, against any reasonable cost, loss or liability properly and directly incurred by the Facility Agent (acting reasonably) as a result of: (a) investigating any event which it reasonably believes is a Default; or (b) entering into or performing any foreign exchange contract for the purposes of Clause 6 (OPTIONAL CURRENCIES); or (c) acting or relying on any notice, request or instruction which it reasonably believes (after due enquiry) to be genuine, correct and appropriately authorised. 16. MITIGATION BY THE LENDERS 16.1 MITIGATION (a) Each Finance Party shall, in consultation with ABB, take all reasonable steps to mitigate any circumstances which arise and which would result in any amount becoming payable under or pursuant to, or cancelled pursuant to, any of Clause 8.1 (LENDER ILLEGALITY), Clause 13 (TAX GROSS-UP AND INDEMNITIES) or Clause 14 (INCREASED COSTS) or which would result in any increased amount being payable under this Agreement by reason of a change in the Additional Cost Rate after the Effective Date including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office and, in such circumstances a Lender will, at the request of ABB but -34- subject to ABB indemnifying it for the costs of so doing, transfer its rights and obligations under the Finance Documents to another Lender. (b) Paragraph (a) above does not in any way limit the obligations of the Obligors under the Finance Documents. 16.2 LIMITATION OF LIABILITY (a) ABB or the Borrowers shall indemnify each Finance Party, upon presentation of duly documented evidence thereof, for all costs and expenses reasonably and directly incurred by that Finance Party as a result of steps taken by it under Clause 16.1 (MITIGATION). (b) A Finance Party is not obliged to take any steps under Clause 16.1 (MITIGATION) (other than a transfer of its rights and obligations to another Lender where ABB or a Borrower indemnifies it for the cost of so doing) if, in the opinion of that Finance Party (acting reasonably), to do so could reasonably be expected to be prejudicial to it. 17. COSTS AND EXPENSES 17.1 TRANSACTION EXPENSES ABB or the Borrowers shall promptly on demand pay, upon presentation of duly documented evidence thereof, the Facility Agent and the Mandated Lead Arrangers the amount of all costs and expenses (including legal fees) reasonably and directly incurred by any of them in connection with the negotiation, preparation, printing, execution and syndication of: (a) this Agreement and any other documents referred to in this Agreement; and (b) any other Finance Documents executed after the Effective Date. 17.2 AMENDMENT COSTS If (a) ABB requests an amendment, waiver or consent or (b) an amendment is required pursuant to Clause 28.9 (CHANGE OF CURRENCY), ABB or the Borrowers shall, within 3 Business Days of demand, reimburse the Facility Agent, upon presentation of duly documented evidence thereof, for the amount of all costs and expenses (including legal fees) reasonably and directly incurred by the Facility Agent and which have previously been agreed with ABB in responding to, evaluating, negotiating or complying with that request or requirement. 17.3 ENFORCEMENT COSTS ABB or the Borrowers shall, within 3 Business Days of demand, pay to each Finance Party the amount of all costs and expenses (including legal fees) directly incurred by that Finance Party at any time after the service of a notice by the Facility Agent under Clause 22.10 (ACCELERATION) in connection with the enforcement of, or the preservation of any rights under, any Finance Document. 17.4 FSA AND ECB COSTS (a) This Clause 17.4 applies if, whether now or in the future, either: (i) a requirement to pay fees is imposed by the Financial Services Authority under the Fees Rules; or -35- (ii) a reserve requirement is imposed by the European Central Bank; which, in either case, is applied to any Lender (and would be applied generally to banks or financial institutions of a similar nature to that Lender) as a consequence of its entering into and/or performing its obligations under this Agreement and/or assuming or maintaining its Commitment under this Agreement and/or making one or more Advances under this Agreement. If, as a result, that Lender's effective return on its overall capital is reduced, ABB and the Borrowers agree to reimburse that Lender for the amount claimed. (b) In the event that paragraph (a) above applies, each Lender may submit a certificate setting out a calculation of the amount claimed by it (and, in the case of an amount claimed as a result of a reserve requirement being imposed by the European Central Bank, certifying that such amount has been reasonably determined) to the Facility Agent within the period (the "CERTIFICATE PERIOD") of 10 Business Days after the end of each Relevant Period. The Facility Agent will notify ABB of the amount claimed by that Lender within 5 Business Days after the end of the relevant Certification Period and ABB or the Borrowers shall (absent manifest error in the relevant notice) reimburse that Lender for the amount claimed within 3 Business Days after the date of such notification. (c) In this Clause 17.4, a "RELEVANT PERIOD" is, as appropriate: (i) the period beginning on the Effective Date and ending on 30 June 2002; and (ii) the period which starts on 30 June 2002 and ends on the Termination Date, and "FEES RULES" means, as appropriate, either: (i) the rules on periodic fees contained in the FSA Supervision Manual; or (ii) such other law or regulations as may be in force from time to time relating to the payment of fees for the acceptance of deposits. -36- SECTION 7 REPRESENTATIONS, UNDERTAKINGS AND EVENTS OF DEFAULT 18. REPRESENTATIONS ABB makes the representations and warranties set out in this Clause 18 to each Finance Party on the date of this Agreement. 18.1 STATUS (a) ABB and each Obligor is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation. (b) Each Group Company has the power to own its assets and carry on its business as it is being conducted. 18.2 BINDING OBLIGATIONS The obligations expressed to be assumed by ABB and each Obligor in each Finance Document are (subject to any general principles of law ("RESERVATIONS") limiting its obligations which are specifically referred to in any legal opinion delivered pursuant to Schedule 1 (CONDITIONS PRECEDENT) of the Amendment Agreement, Clause 24.2 (ADDITIONAL BORROWERS), Clause 24.4 (ADDITIONAL GUARANTORS) or at any time in connection with the satisfaction of conditions precedent to availability of the Facility), legal, valid, binding and enforceable obligations. 18.3 NON-CONFLICT WITH OTHER OBLIGATIONS The entry into and performance by ABB and each Obligor of, and the transactions contemplated by, the Finance Documents do not and will not conflict with: (a) any law or regulation applicable to it; (b) its constitutional documents; or (c) any agreement or instrument binding upon it or any Group Company or any of their assets, and, in the case of paragraph (c) on any repetition after the date of this Agreement, in a manner that could reasonably be expected to have a Material Adverse Effect. 18.4 POWER AND AUTHORITY ABB and each Obligor has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents. 18.5 VALIDITY AND ADMISSIBILITY IN EVIDENCE All Authorisations required by ABB and each Obligor: (a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party; and (b) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation, -37- have been obtained or effected and are in full force and effect. 18.6 INSOLVENCY No Material Company has taken any action nor (so far as ABB is aware, having made all due enquiry) have any steps been taken or legal proceedings been started against it for winding-up, dissolution or re-organisation, the enforcement of any Security over its assets or for the appointment of a receiver, administrative receiver, or administrator, trustee or similar officer of it or any of its assets. 18.7 NO DEFAULT (a) No Default is continuing. (b) No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on a Group Company or to which their assets are subject which has had or could reasonably be expected to have a Material Adverse Effect. 18.8 NO MISLEADING INFORMATION (a) Any factual information provided by ABB or the Obligors for the purposes of the Information Memorandum was true and accurate in all material respects as at the date of the Information Memorandum. (b) Nothing has occurred or been omitted from the Information Memorandum and no information has been given or withheld that results in the information contained in the Information Memorandum being untrue or misleading in any material respect as at the date of the Information Memorandum. 18.9 FINANCIAL STATEMENTS (a) The Original Financial Statements were prepared in accordance with GAAP consistently applied. (b) The Original Financial Statements fairly present in all material respects the consolidated financial condition and operations of the Group during the relevant financial year. (c) Each of the latest audited consolidated financial statements required to be delivered under Clause 19.1(a) fairly presents in all material respects the financial position of the Group as at the date to which they were prepared and for the period then ended. (d) Each of the latest set of consolidated financial statements required to be delivered under Clause 19.1(b) fairly presents in all material respects the financial condition of the Group as at the date to which they were prepared and for the period then ended. 18.10 NO MATERIAL ADVERSE EFFECT Since 31 December 2001: (a) there has been no material adverse change in any of the business, condition (financial or otherwise), prospects, operations, performance or properties of the Group (taken as a whole); and -38- (b) no event or circumstance has occurred which has a Material Adverse Effect, PROVIDED THAT the fact of any Credit Rating downgrade of ABB since 31 December 2001 shall not, for the purposes of this representation, constitute a "material adverse change" or "Material Adverse Effect" as contemplated by paragraphs (a) and (b) above. (For the avoidance of doubt, ABB acknowledges that the consequences of any such Credit Rating downgrade may qualify as being, or contribute towards, a "material adverse change" or "Material Adverse Effect" for the purposes of this representation). 18.11 PARI PASSU RANKING The payment obligations of each Obligor under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally. 18.12 NO PROCEEDINGS PENDING OR THREATENED No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, could reasonably be expected to have a Material Adverse Effect have (to the best of its knowledge and belief) been started or threatened against any Group Company. 18.13 ENVIRONMENTAL COMPLIANCE Each Group Company has complied in all respects with all Environmental Law save to the extent that non-compliance could not reasonably be expected to have a Material Adverse Effect. 18.14 REPETITION The representations and warranties in Clause 18.1 (STATUS) to Clause 18.4 (POWER AND AUTHORITY) and paragraphs (c) and (d) of Clause 18.9 (FINANCIAL STATEMENTS) are deemed to be made by ABB by reference to the facts and circumstances then existing on the date of each Utilisation Request and the first day of each Interest Period. 19. INFORMATION UNDERTAKINGS The undertakings in this Clause 19 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force. 19.1 FINANCIAL STATEMENTS (a) ABB and each Obligor shall supply to the Facility Agent in sufficient copies for all the Lenders, as soon as the same become available, but in any event within 150 days after the end of each of its financial years its audited financial statements (which, in the case of ABB and any Obligor where such financial statements are prepared, shall be its audited consolidated financial statements) for that financial year. (b) ABB shall supply to the Facility Agent in sufficient copies for all the Lenders, as soon as the same become available, but in any event within 90 days after the end of each quarter of each of its financial years its consolidated financial statements for that quarter. -39- 19.2 REQUIREMENTS AS TO FINANCIAL STATEMENTS (a) ABB and each Obligor shall procure that each set of financial statements delivered by it pursuant to Clause 19.1 (FINANCIAL STATEMENTS) is prepared using GAAP. (b) ABB shall supply to the Facility Agent, with each set of financial statements delivered by ABB pursuant to paragraph (a) or (b) of Clause 19.1 (FINANCIAL STATEMENTS), a Compliance Certificate setting out (in reasonable detail) computations as to compliance with Clause 20.2 (FINANCIAL CONDITION) as at the date as at which those financial statements were drawn up. (c) Each Compliance Certificate shall be signed by two officers of ABB. 19.3 INFORMATION: MISCELLANEOUS ABB shall supply to the Facility Agent (in sufficient copies for all the Lenders, if the Facility Agent so requests): (a) all documents dispatched by it to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched; (b) promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are commenced against one or more Group Companies and which could reasonably be expected to have a Material Adverse Effect; and (c) promptly, such further information regarding the financial condition, business and operations of any Material Company as any Finance Party (acting through the Facility Agent) may reasonably request. 19.4 NOTIFICATION OF DEFAULT ABB and each Obligor shall notify the Facility Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence. 20. FINANCIAL COVENANTS 20.1 FINANCIAL DEFINITIONS In this Clause 20: "CONSOLIDATED NET WORTH" means total stockholders' equity, calculated disregarding total accumulated other comprehensive loss since 1 January 2002, in each case as stipulated in the consolidated statements of changes in stockholders' equity (part of the consolidated financial statements of ABB). "CONSOLIDATED PROFITS BEFORE INTEREST AND TAX" means, in respect of any Relevant Period, the earnings before interest and taxes, as stipulated in the consolidated income statements of the Group (part of the consolidated financial statements of ABB). "EBITDA" means, for any Relevant Period, Consolidated Profits Before Interest and Tax before any amount attributable to the amortisation of intangible assets and depreciation of tangible assets. -40- "RELEVANT PERIOD" means each period of twelve months ending on the last day of ABB's financial year and each period of twelve months ending on the last day of each quarter of ABB's financial year. "TOTAL GROSS DEBT" means the aggregate of short-term borrowings and long-term borrowings in each case as stipulated in the consolidated balance sheet of ABB (part of the consolidated financial statements of ABB). "TOTAL NET INTEREST" means, in respect of any Relevant Period, the difference between interest expense and interest income. For the purpose of this definition: (a) "INTEREST EXPENSE" means interest expense for financial liabilities and costs of the securitisation programmes of the Group (excluding any fees, taxes or commissions relating to this Agreement); (b) "INTEREST INCOME" means interest income on cash and cash equivalents, marketable securities and on financing receivables; and (c) for the avoidance of doubt, ABB's Financial Services Division reports interest income and interest expense as part of revenues and cost of sales and as such these should be excluded from (a) and (b) above. 20.2 FINANCIAL CONDITION ABB shall ensure that: (a) The ratio of EBITDA to Total Net Interest in respect of any Relevant Period shall be or shall exceed 4:1. (b) Total Gross Debt of the Group (excluding any amounts drawn down under the Facility prior to 15 May 2002, which amounts are held in an account with the Facility Agent) shall not at any time after the Effective Date exceed $10,500,000,000. -41- (c) Consolidated Net Worth shall not, as at the last day of any quarter of a financial year of ABB, be less than the relevant amount calculated in accordance with the following formula: A + B, where: A = $1,800,000,000; and B = in respect of a testing date for this paragraph (c) ending on the last day of any quarter of a financial year of ABB, 50 per cent. of the consolidated net income of the Group for the period from 1 January 2002 until such last day of such financial quarter, PROVIDED THAT if such amount is a negative amount, it will be deemed to be zero for the purposes of this paragraph (c). (d) The aggregate amount of Total Gross Debt (other than: (i) Project Finance Indebtedness; (ii) indebtedness owed by one Group Company to another Group Company; (iii) amounts borrowed by a finance company which is a Group Company and which are on-lent, and remain on-lent, to a member of the Obligor Group; (iv) amounts borrowed by a Group Company from a bank to which cash-collateral (in a substantially equivalent amount) has been granted by a Group Company in respect of the relevant Group Company's obligation to repay such amounts; and (v) any amounts borrowed by a Group Company which constitute Total Gross Debt to the extent such amounts are borrowed for the purposes of refinancing other borrowings constituting Total Gross Debt so long as amounts so borrowed are promptly applied in such manner), of Group Companies which are not members of the Obligor Group shall not at any time after the Effective Date exceed $1,000,000,000. 20.3 FINANCIAL TESTING The financial covenants set out in Clause 20.2 (FINANCIAL CONDITION) shall be tested by reference to each of the financial statements and/or each Compliance Certificate delivered pursuant to sub-paragraph (b) of Clause 19.2 (REQUIREMENTS AS TO FINANCIAL STATEMENTS) PROVIDED THAT the financial covenants set out in sub-paragraphs (b) and (d) of Clause 20.2 (FINANCIAL CONDITION) shall not be tested by reference to the financial statements for the financial quarter ending 31 March 2002 and/or any Compliance Certificate delivered with such financial statements. -42- 21. GENERAL UNDERTAKINGS The undertakings in this Clause 21 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents or any Commitment is in force. 21.1 AUTHORISATIONS Each Obligor shall promptly: (a) obtain, comply with and do all that is necessary to maintain in full force and effect; and (b) supply certified copies to the Facility Agent of, any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document. 21.2 COMPLIANCE WITH LAWS Each Obligor shall comply in all respects with all laws (including, without limitation, Environmental Law and ERISA) to which it may be subject, if failure so to comply would have a Material Adverse Effect. 21.3 NEGATIVE PLEDGE (a) Neither ABB nor any Obligor shall (and ABB shall procure that no other Group Company will) create or permit to subsist any Security over any of its assets. (b) Paragraph (a) above does not apply to: (i) any Security over any bank account in favour of the bank with which such account is held, in each case granted by any Group Company in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances; (ii) any Security arising by operation of law; (iii) any Security contained in a contract for sale or supply entered into in the ordinary course of trading, where such Security is granted to such seller or, as the case may be, supplier and is limited in recourse to the asset sold or, as the case may be, supplied; (iv) any Security over or affecting any asset acquired by a Group Company after the date of this Agreement if: (A) the Security was not created in contemplation of the acquisition of that asset by a Group Company; and (B) the principal amount secured has not been increased in contemplation of, or since the acquisition of that asset by a Group Company; -43- (v) any Security over or affecting any asset of a Group Company after the date of this Agreement, where the Security is created prior to the date on which that company becomes a Group Company, if: (A) the Security was not created in contemplation of the acquisition of that company; (B) the principal amount secured has not increased in contemplation of or since the acquisition of that company; (vi) any Security provided by one Group Company (not being ABB) to another Group Company which is an Obligor; (vii) any Security arising pursuant to the Existing Securitisations; (viii) any Security over the assets of a Project Company, any shareholder loan made to a Project Company or the shares in a Project Company where such Security was created for the purpose of securing Indebtedness incurred to acquire and/or develop the assets of such Project Company and where such Indebtedness constitutes Project Finance Indebtedness of such Project Company; (ix) any Security securing Indebtedness incurred by a Group Company to refinance Indebtedness secured by Security of the type referred to in paragraphs (iv) or (v) above where such first-mentioned Security is over the same asset and is of the same type as such second-mentioned Security and the conditions referred to in paragraph (iv) or, as the case may be, (v) above continue to be satisfied, mutatis mutandis; and (x) any Security provided by a Group Company which is an insurance or re-insurance company in the ordinary course of its business; (xi) any Security provided in connection with cash collateralised loans in the ordinary course of Group treasury activities; (xii) any Security arising under collateral arrangements entered into in the ordinary course of Group treasury activities in connection with interest rate and currency swaps and other derivative contracts; (xiii) any Security provided by a Group Company which is in the structured finance business area of the Group in the ordinary course of its business; (xiv) any Security over any assets with a market value of up to $300,000,000 provided in connection with the pensions arrangements of the Group in Sweden; (xv) any Security not falling within any of paragraphs (i) - (xiv) (inclusive) above provided that the total amount of Indebtedness secured pursuant to this paragraph (xv) shall at no time exceed $500,000,000 PROVIDED ALWAYS THAT no Security shall be permitted to be given by any Obligor or ABB over any of its loans which are made to other Group Companies. -44- 21.4 DISPOSALS ABB shall not (and shall ensure that no other Group Company will), enter into a Disposal other than a Disposal: (1) (i) made on arm's length terms; or (ii) to a Group Company; or (iii) of cash or cash equivalents where such disposal is not otherwise prohibited under this Agreement; or (iv) made in the ordinary course of the day to day business of the disposing Group Company; and (2) that, whether alone or together with any other Disposals by Group Companies, does not, and could reasonably be expected not to have, a Material Adverse Effect. 21.5 CLAIMS PARI PASSU ABB shall ensure that at all times the claims of the Finance Parties against each Obligor under the Finance Documents rank at least PARI PASSU with the claims of all its other unsecured and unsubordinated creditors save those of such Obligor's creditors whose claims are preferred by any bankruptcy, insolvency, liquidation or other similar laws of general application. 21.6 MERGERS Neither ABB nor any Obligor shall enter into any amalgamation, demerger, merger or corporate reconstruction, save where the Facility Agent is satisfied, acting reasonably, that ABB or the relevant Obligor's obligations under the Finance Documents will continue to be ABB's or such Obligor's legal, valid, binding and, subject to Reservations, enforceable obligations. For the avoidance of doubt, this Clause 21.6 shall not prevent a Disposal of shares in an Obligor to another Group Company if such Disposal does not affect the enforceability of the Keep-Well Agreement in respect of that Obligor. 21.7 CHANGE OF BUSINESS ABB shall procure that no change is made to the businesses of the Group which would result in the core businesses of the Group, taken as a whole, being other than the businesses of power and automation technologies. -45- 21.8 INSURANCE Each Obligor shall (and ABB shall ensure that each Group Company will) maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against those risks and to the extent as is usual for companies carrying on the same or substantially similar business in the relevant jurisdiction and taking into account the availability of insurance generally. 21.9 PREPAYMENT OF GROUP FACILITIES ABB shall not (and shall ensure that no other Group Company will) voluntarily prepay any banking facility of a Group Company, purchase or redeem prior to their stated maturity any bonds or other capital markets instruments issued by a Group Company and ABB shall not (and shall ensure that no other Group Company will) repurchase or redeem any shares or stock issued by ABB PROVIDED THAT this shall not restrict any of the following activities of the Group: (a) the operation of cash-pooling arrangements in the ordinary course of the Group's business; (b) the prepayment of banking facilities of Group Companies to the extent that such facilities are cash-collateralised and the cash collateral is released upon such prepayment; (c) the substitution of existing banking facilities of Group Companies with new banking facilities of a comparable amount; (d) the repayment of any overdraft facility of any Group Company; and (e) transactions in the ordinary course of treasury and investment activities of relevant Group Companies. 22. EVENTS OF DEFAULT Each of the events or circumstances set out in Clauses 22.1 (NON-PAYMENT) to 22.9 (MATERIAL ADVERSE EFFECT) inclusive is an Event of Default. 22.1 NON-PAYMENT An Obligor does not pay on the due date any amount payable pursuant to a Finance Document at the place, and in the currency, in which it is expressed to be payable unless payment is made within 3 Business Days of its due date or, where the failure to pay is due solely to administrative error or technical delays in the transmission of funds, 5 Business Days of its due date. 22.2 OTHER OBLIGATIONS ABB or an Obligor does not comply with any provision of the Finance Documents (other than those referred to in Clause 22.1 (NON-PAYMENT)) and, if the failure to comply is capable of remedy, it is not remedied within 30 days of the Facility Agent giving notice to ABB of the failure to comply. 22.3 MISREPRESENTATION Any representation or statement made or deemed (by virtue of Clause 18.14 (REPETITION)) to be made by ABB or an Obligor in this Agreement is or proves to have been incorrect -46- or misleading in any respect when made or deemed to be made and, where the circumstances making such representation or statement incorrect or misleading are capable of being altered so that such representation or statement is correct, such circumstances are not so altered within 30 days of the Facility Agent giving notice to ABB of such representation or statement being incorrect. 22.4 CROSS DEFAULT (a) Any Indebtedness of all or any of the Group Companies is not paid when due nor within any originally applicable grace period. (b) Any Indebtedness of all or any of the Group Companies has (i) become capable of being declared and is declared to be or (ii) otherwise becomes due and payable, in any case, prior to its specified maturity as a result of a default or an event of default (however described). (c) Any commitment for any Indebtedness of all or any of the Group Companies is cancelled or suspended by a creditor of all or any of the Group Companies as a result of a default or an event of default (however described). (d) Any creditor of all or any of the Group Companies becomes entitled to declare any Indebtedness of all or any of the Group Companies due and payable prior to its specified maturity as a result of a default or an event of default (however described). (e) No Event of Default will occur under this Clause 22.4 if (1) the Indebtedness falling within paragraphs (a) to (d) is Project Finance Indebtedness or intra-Group Indebtedness or (2) the aggregate amount of Indebtedness or commitment for Indebtedness falling within paragraphs (a) to (d) (excluding any described in (1) above) above is less than $50,000,000. 22.5 INSOLVENCY (a) Any Material Company is unable or admits in writing an inability to pay its debts as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness. (b) A moratorium is declared in respect of any indebtedness of any Material Company. -47- 22.6 INSOLVENCY PROCEEDINGS Any corporate action, legal proceedings or other procedure or step is taken in relation to: (a) the suspension of payments, a moratorium of any indebtedness, dissolution or reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any Material Company other than a solvent liquidation or reorganisation of any Material Company (other than ABB or an Obligor); (b) a composition, assignment or arrangement with any creditor of any Material Company; (c) the appointment of a liquidator (other than (i) a winding up petition which is frivolous or vexatious and which is, in any event, discharged within 30 days of its presentation or (ii) in respect of a solvent liquidation of any Material Company (other than ABB or an Obligor)), receiver, administrator, administrative receiver, compulsory manager or other similar officer in respect of any Material Company or any of its assets (having an aggregate value of at least $50,000,000); or (d) enforcement of any Security over any assets (having an aggregate value of at least $50,000,000) of any Material Company by reason of a default or event of default (howsoever described) occurring under the relevant agreement relating to the Indebtedness secured by such Security, or any analogous procedure or step is taken in any jurisdiction. 22.7 REPUDIATION ABB or an Obligor repudiates a Finance Document or evidences in writing an intention to repudiate a Finance Document. 22.8 CESSATION OF BUSINESS The Group, taken as a whole, ceases or threatens to cease to do business. 22.9 MATERIAL ADVERSE EFFECT Any event or circumstance occurs which has, or is reasonably likely to have, a Material Adverse Effect. 22.10 ACCELERATION On and at any time after the occurrence of an Event of Default which is continuing the Facility Agent may, and shall if so directed by the Majority Lenders, by notice to ABB: (a) cancel the Total Commitments whereupon they shall immediately be cancelled; (b) declare that all or part of the Advances, together with accrued interest, and all other amounts accrued under the Finance Documents be immediately due and payable, whereupon they shall become immediately due and payable; and/or (c) declare that all or part of the Advances be payable on demand, whereupon they shall immediately become payable on demand by the Facility Agent on the instructions of the Majority Lenders. -48- SECTION 8 CHANGES TO PARTIES 23. CHANGES TO THE LENDERS 23.1 ASSIGNMENTS AND TRANSFERS BY THE LENDERS Subject to this Clause 23 and after consultation with ABB, a Lender (the "EXISTING LENDER") may: (a) assign any of its rights; or (b) transfer by novation any of its rights and obligations, to another bank (the "NEW LENDER"). 23.2 CONDITIONS OF ASSIGNMENT OR TRANSFER (a) No consent of ABB is required for an assignment or transfer by a Lender. (b) An assignment or transfer shall be in respect of a Commitment of at least $10,000,000 or, if less, the whole of the Commitment of the relevant assignor or transferor. (c) An assignment will only be effective on receipt by the Facility Agent of written confirmation from the New Lender (in form and substance satisfactory to the Facility Agent) that the New Lender will assume the same obligations to the other Finance Parties and the Obligors as it would have been under if it was an Original Lender and that the New Lender is a Qualifying Bank. (d) A transfer will only be effective if the procedure set out in Clause 23.5 (PROCEDURE FOR TRANSFER) is complied with. (e) If: (i) a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and (ii) as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged, or at such date it is reasonably foreseeable that an Obligor would be obliged, to make a payment to the New Lender or Lender acting through its new Facility Office under Clause 13 (TAX GROSS-UP AND INDEMNITIES) or Clause 14 (INCREASED COSTS), then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those Clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred. 23.3 ASSIGNMENT OR TRANSFER FEE The New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Facility Agent (for its own account) a fee of $1,500. -49- 23.4 LIMITATION OF RESPONSIBILITY OF EXISTING LENDERS (a) Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for: (i) the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other documents; (ii) the financial condition of ABB or any Obligor; (iii) the performance and observance by ABB or any Obligor of its obligations under the Finance Documents or any other documents; or (iv) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document, and any representations or warranties implied by law are excluded. (b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it: (i) has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of ABB and each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document; and (ii) will continue to make its own independent appraisal of the creditworthiness of ABB and each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force. (c) Nothing in any Finance Document obliges an Existing Lender to: (i) accept a re-transfer from a New Lender of any of the rights and obligations assigned or transferred under this Clause 23; or (ii) support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by ABB or any Obligor of its obligations under the Finance Documents or otherwise. 23.5 PROCEDURE FOR TRANSFER (a) Subject to the conditions set out in Clause 23.2 (CONDITIONS OF ASSIGNMENT OR TRANSFER) a transfer is effected in accordance with paragraph (b) below when the Facility Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Facility Agent shall, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate. (b) On the Transfer Date: (i) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents each of ABB, the Obligors and the Existing Lender shall be released from further -50- obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (being the "DISCHARGED RIGHTS AND OBLIGATIONS"); (ii) each of ABB, the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as ABB, that Obligor and the New Lender have assumed and/or acquired the same in place of ABB, that Obligor and the Existing Lender; (iii) the Facility Agent, the Mandated Lead Arrangers, the New Lender and other Lenders shall acquire the same rights and assume the same obligations between themselves as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Facility Agent, the Mandated Lead Arrangers and the Existing Lender shall each be released from further obligations to each other under this Agreement; and (iv) the New Lender shall become a Party as a "Lender". 23.6 DISCLOSURE OF INFORMATION Any Lender may disclose to any of its Affiliates and any other person: (a) to (or through) whom that Lender assigns or transfers (or may potentially assign or transfer) all or any of its rights and obligations under this Agreement; (b) with (or through) whom that Lender enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or (c) to whom, and to the extent that, information is required to be disclosed by any applicable law or regulation, any information about ABB, any Obligor, the Group and the Finance Documents as that Lender shall consider appropriate if, in relation to paragraphs (a) and (b) above, the person to whom the information is to be given has entered into a confidentiality undertaking. 24. CHANGES TO THE OBLIGORS 24.1 ASSIGNMENTS AND TRANSFER BY OBLIGORS Neither ABB nor any Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents. 24.2 ADDITIONAL BORROWERS (a) ABB may request that any of its wholly-owned Subsidiaries become an Additional Borrower. That Subsidiary shall become an Additional Borrower if: (i) the Subsidiary is incorporated in an Agreed Jurisdiction or all the Lenders approve the addition of that Subsidiary; -51- (ii) that Subsidiary and ABB have executed a Keep-Well Agreement in respect of that Subsidiary; (iii) ABB delivers to the Facility Agent a duly completed and executed Accession Letter; (iv) ABB confirms that no Default is continuing or would occur as a result of that Subsidiary becoming an Additional Borrower; (v) the Facility Agent has received all of the documents and other evidence listed in Schedule 2 (ADDITIONAL OBLIGOR CONDITIONS PRECEDENT) in relation to that Additional Borrower, each in form and substance reasonably satisfactory to the Facility Agent; and (vi) (unless it would result in the contravention of any applicable law, taking into account the jurisdiction of incorporation of the relevant Subsidiary and subject to sub-paragraph (b) of Clause 24.4 (ADDITIONAL GUARANTORS)), the Subsidiary, prior to or at the same time as it becomes an Additional Borrower, becomes an Additional Guarantor in accordance with Clause 24.4 (ADDITIONAL GUARANTORS). (b) The Facility Agent shall notify ABB and the Lenders promptly upon receiving (in form and substance reasonably satisfactory to it) all the documents and other evidence listed in Schedule 2 (ADDITIONAL OBLIGOR CONDITIONS PRECEDENT). 24.3 RESIGNATION OF A BORROWER (a) ABB may request that a Borrower ceases to be a Borrower by delivering to the Facility Agent a Resignation Letter. (b) The Facility Agent shall accept a Resignation Letter and notify ABB and the Lenders of its acceptance if: (i) no Default would result from the acceptance of the Resignation Letter (and ABB has confirmed this to be the case); and (ii) the relevant Borrower is under no actual or contingent obligations under any Finance Documents, whereupon that company shall cease to be a Borrower and shall have no further rights or obligations under the Finance Documents. 24.4 ADDITIONAL GUARANTORS (a) ABB may request that any of its wholly-owned Subsidiaries become an Additional Guarantor. That Subsidiary shall become an Additional Guarantor if: (i) the Subsidiary is incorporated in an Agreed Jurisdiction or all the Lenders approve the addition of that Subsidiary; (ii) the Subsidiary and ABB have executed a Keep-Well Agreement in respect of that Subsidiary; (iii) ABB delivers to the Facility Agent a duly completed and executed Accession Letter; -52- (iv) ABB confirms that no Default is continuing or would occur as a result of that Subsidiary becoming an Additional Guarantor; and (v) the Facility Agent has received all of the documents and other evidence listed in Schedule 2 (ADDITIONAL OBLIGOR CONDITIONS PRECEDENT) in relation to that Additional Guarantor, each in form and substance reasonably satisfactory to the Facility Agent. (b) If legal counsel in the jurisdiction of incorporation of the relevant Subsidiary so advise, ABB and the Lenders shall enter into negotiations with a view to agreeing such amendments to Clause 36 (GUARANTEE AND INDEMNITY) as may be necessary to enable the Subsidiary to become an Additional Guarantor without contravening any applicable laws. (c) The Facility Agent shall notify ABB and the Lenders promptly upon receiving (in form and substance reasonably satisfactory to it) all the documents and other evidence listed in Schedule 2 (ADDITIONAL OBLIGOR CONDITIONS PRECEDENT). 24.5 REPETITION OF REPRESENTATION Delivery of an Accession Letter constitutes confirmation by the relevant Subsidiary that the representations and warranties in Clause 18.5 (VALIDITY AND ADMISSIBILITY IN EVIDENCE) and the representations and warranties deemed to be repeated pursuant to Clause 18.14 (REPETITION) are true and correct in relation to it as at the date of delivery as if made by reference to the facts and circumstances then existing. 24.6 RESIGNATION OF A GUARANTOR (a) ABB may request that a Guarantor ceases to be a Guarantor by delivering to the Facility Agent a Resignation Letter. (b) Subject (and without prejudice) to paragraph (c) below, the Facility Agent shall accept a Resignation Letter and notify ABB and the Lenders of its acceptance if: (i) no Default would result from the acceptance of the Resignation Letter (and ABB has confirmed this is the case); and -53- (ii) in the case of an Original Guarantor, all the Lenders have consented to ABB's request. (c) In the case of a Resignation Letter delivered by ABB with respect to a Guarantor which is incorporated in Sweden, the Facility Agent shall accept such Resignation Letter and notify ABB and the Lenders of its acceptance. -54- SECTION 9 THE FINANCE PARTIES 25. ROLE OF THE FACILITY AGENT AND THE MANDATED LEAD ARRANGERS 25.1 APPOINTMENT OF THE FACILITY AGENT (a) Each of the Mandated Lead Arrangers and the Lenders appoints the Facility Agent to act as its agent under and in connection with the Finance Documents. (b) Each of the Mandated Lead Arrangers and the Lenders authorises the Facility Agent to exercise the rights, powers, authorities and discretions specifically given to the Facility Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions. (c) The Facility Agent shall, unless ABB agrees otherwise, act out of an office in London. 25.2 DUTIES OF THE FACILITY AGENT (a) The Facility Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Facility Agent for that Party by any other Party. (b) If the Facility Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the Lenders. (c) The Facility Agent shall promptly notify the Lenders of any Default arising under Clause 22.1 (NON-PAYMENT). (d) The Facility Agent's duties under the Finance Documents are solely mechanical and administrative in nature. 25.3 ROLE OF THE MANDATED LEAD ARRANGERS Except as specifically provided in the Finance Documents, the Mandated Lead Arrangers have no obligations of any kind to any other Party under or in connection with any Finance Document. 25.4 NO FIDUCIARY DUTIES (a) Nothing in this Agreement constitutes the Facility Agent or a Mandated Lead Arranger as a trustee or fiduciary of any other person. (b) Neither the Facility Agent nor any of the Mandated Lead Arrangers shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account. 25.5 BUSINESS WITH THE GROUP The Facility Agent and each Mandated Lead Arranger may accept deposits from, lend money to and generally engage in any kind of banking or other business with any of the Group Companies. 25.6 RIGHTS AND DISCRETIONS OF THE FACILITY AGENT (a) The Facility Agent may rely on: -55- (i) any representation, notice or document believed by it to be genuine, correct and appropriately authorised; and (ii) any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify. (b) The Facility Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that: (i) no Default has occurred (unless it has actual knowledge of a Default arising under Clause 22.1 (NON-PAYMENT)); and (ii) any right, power, authority or discretion vested in any Party or the Majority Lenders has not been exercised. (c) The Facility Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts. (d) The Facility Agent may act in relation to the Finance Documents through its personnel and agents. 25.7 MAJORITY LENDERS' INSTRUCTIONS (a) Unless a contrary indication appears in a Finance Document, the Facility Agent shall (a) act in accordance with any instructions given to it by the Majority Lenders (or, if so instructed by the Majority Lenders, refrain from acting or exercising any right, power, authority or discretion vested in it as Facility Agent) and (b) not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with such an instruction of the Majority Lenders. (b) Unless a contrary indication appears in a Finance Document, any instructions given by the Majority Lenders will be binding on all the Finance Parties. (c) The Facility Agent may refrain from acting in accordance with the instructions of the Majority Lenders (or, if appropriate, the Lenders) until it has received such security as it may require for any cost, loss or liability (together with any associated VAT) which it may incur in complying with the instructions. (d) In the absence of instructions from the Majority Lenders, (or, if appropriate, the Lenders) the Facility Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders. (e) The Facility Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender's consent) in any legal or arbitration proceedings relating to any Finance Document. -56- 25.8 RESPONSIBILITY FOR DOCUMENTATION Neither the Facility Agent nor any of the Mandated Lead Arrangers: (a) is responsible for the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Facility Agent, a Mandated Lead Arranger, ABB, any Obligor or any other person given in or in connection with any Finance Document or the Information Memorandum; or (b) is responsible for the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document. 25.9 EXCLUSION OF LIABILITY (a) Without limiting paragraph (b) below, the Facility Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its negligence, wilful default or wilful misconduct. (b) No Party may take any proceedings against any officer, employee or agent of the Facility Agent in respect of any claim it might have against the Facility Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Facility Agent may rely on this Clause. (c) The Facility Agent will not (absent negligence, wilful default or wilful misconduct directly giving rise to such liability) be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Facility Agent if the Facility Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Facility Agent for that purpose. 25.10 LENDERS' INDEMNITY TO THE FACILITY AGENT The Lenders shall (in proportion to their Commitments or, if the Total Commitments are then zero, to their Commitments immediately prior to their reduction to zero) severally indemnify the Facility Agent, within three Business Days of demand, against any cost, loss or liability incurred by the Facility Agent (otherwise than by reason of the Facility Agent's negligence or wilful misconduct) in acting as Facility Agent under the Finance Documents (unless the Facility Agent has been reimbursed by ABB or the Obligors pursuant to a Finance Document). 25.11 RESIGNATION OF THE FACILITY AGENT (a) The Facility Agent may resign and appoint one of its Affiliates as successor by giving notice to the Lenders and ABB PROVIDED THAT such successor shall act out of an office in London. -57- (b) Alternatively the Facility Agent may resign by giving notice to the Lenders and ABB, in which case the Majority Lenders may appoint a successor Facility Agent which will act out of an office in London. (c) If the Majority Lenders have not appointed a successor Facility Agent in accordance with paragraph (b) above within 30 days after notice of resignation was given, the resigning Facility Agent may appoint a successor Facility Agent which will act out of an office in London. (d) A successor Facility Agent may only be appointed with the prior consent of ABB (such consent not to be unreasonably withheld or delayed). (e) The retiring Facility Agent shall, at its own cost, make available to the successor Facility Agent such documents and records and provide such assistance as the successor Facility Agent may reasonably request for the purposes of performing its functions as Facility Agent under the Finance Documents. (f) Such Facility Agent's resignation notice shall only take effect upon the appointment of a successor as contemplated in paragraphs (b) and (c) above. (g) Upon the appointment of a successor, the retiring Facility Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 25. Its successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party. (h) After consultation with ABB, the Majority Lenders may, by notice to the Facility Agent, require it to resign in accordance with paragraph (b) above. In this event, the Facility Agent shall resign in accordance with paragraph (b) above. 25.12 CONFIDENTIALITY (a) In acting as agent for the Finance Parties, the Facility Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments. (b) If information is received by another division or department of the Facility Agent, it may be treated as confidential to that division or department and the Facility Agent shall not be deemed to have notice of it. (c) Notwithstanding any other provision of any Finance Document to the contrary, neither the Facility Agent nor any Mandated Lead Arranger is obliged to disclose to any other person (i) any confidential information or (ii) any other information if the disclosure would or might in its reasonable opinion constitute a breach of any law or a breach of a fiduciary duty. 25.13 RELATIONSHIP WITH THE LENDERS (a) The Facility Agent may treat each Lender as a Lender, entitled to payments under this Agreement and acting through its Facility Office unless it has received not less than 5 Business Days' prior notice from that Lender to the contrary in accordance with the terms of this Agreement. -58- (b) Each Lender shall supply the Facility Agent with any information required by the Facility Agent in order to calculate the Additional Cost Rate. 25.14 CREDIT APPRAISAL BY THE LENDERS Without affecting the responsibility of each of ABB and the Obligors for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Facility Agent and each Mandated Lead Arranger that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to: (a) the financial condition, status and nature of each Group Company; (b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; (c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and (d) the adequacy, accuracy and/or completeness of the Information Memorandum and any other information provided by the Facility Agent, any other Party or by any other person under or in connection with any Finance Document, a Mandated Lead Arranger the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document. 25.15 REFERENCE BANKS If a Reference Bank (or, if a Reference Bank is not a Lender, the Lender of which it is an Affiliate) ceases to be a Lender, the Facility Agent shall (in consultation with ABB) appoint another Lender or an Affiliate of a Lender to replace that Reference Bank. 26. CONDUCT OF BUSINESS BY THE FINANCE PARTIES No provision of this Agreement will: (a) interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit; -59- (b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or (c) oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax. 27. SHARING AMONG THE LENDERS 27.1 PAYMENTS TO LENDERS If a Lender (a "RECOVERING LENDER") receives or recovers any amount from ABB or an Obligor other than in accordance with Clause 28 (PAYMENT MECHANICS) and applies that amount to a payment due under the Finance Documents then: (a) the Recovering Lender shall, within 3 Business Days, notify details of the receipt or recovery, to the Facility Agent; (b) the Facility Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Lender would have been paid had the receipt or recovery been received or made by the Facility Agent and distributed in accordance with Clause 28 (PAYMENT MECHANICS), without taking account of any Tax which would be imposed on the Facility Agent in relation to the receipt, recovery or distribution; and (c) the Recovering Lender shall, within three Business Days of demand by the Facility Agent, pay to the Facility Agent an amount (the "SHARING PAYMENT") equal to such receipt or recovery less any amount which the Facility Agent determines may be retained by the Recovering Lender as its share of any payment to be made, in accordance with Clause 28.5 (PARTIAL PAYMENTS). 27.2 REDISTRIBUTION OF PAYMENTS The Facility Agent shall treat the Sharing Payment as if it had been paid by ABB or the relevant Obligor (as the case may be) and distribute it between the Finance Parties (other than the Recovering Lender) in accordance with Clause 28.5 (PARTIAL PAYMENTS). 27.3 RECOVERING LENDER'S RIGHTS (a) On a distribution by the Facility Agent under Clause 27.2 (REDISTRIBUTION OF PAYMENTS), the Recovering Lender will be subrogated to the rights of the Finance Parties which have shared in the redistribution. (b) If and to the extent that the Recovering Lender is not able to rely on its rights under paragraph (a) above, ABB or the relevant Obligor (as the case may be) shall be liable to the Recovering Lender for a debt equal to the Sharing Payment which is immediately due and payable. 27.4 REVERSAL OF REDISTRIBUTION If any part of the Sharing Payment received or recovered by a Recovering Lender becomes repayable and is repaid by that Recovering Lender, then: (a) each Lender which has received a share of the relevant Sharing Payment pursuant to Clause 27.2 (REDISTRIBUTION OF PAYMENTS) shall, upon request of the Facility Agent, pay to the Facility Agent for the account of that Recovering -60- Lender an amount equal to its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Lender for its proportion of any interest on the Sharing Payment which that Recovering Lender is required to pay); and (b) that Recovering Lender's rights of subrogation in respect of any reimbursement shall be cancelled and ABB or the relevant Obligor (as the case may be) will be liable to the reimbursing Lender for the amount so reimbursed. 27.5 EXCEPTIONS (a) This Clause 27 shall not apply to the extent that the Recovering Lender would not, after making any payment pursuant to this Clause, have a valid and enforceable claim against ABB or the relevant Obligor (as the case may be). (b) A Recovering Lender is not obliged to share with any other Lender any amount which the Recovering Lender has received or recovered as a result of taking legal or arbitration proceedings, if: (i) it notified the other Lenders of the legal or arbitration proceedings; and (ii) the other Lender had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice or did not take separate legal or arbitration proceedings. -61- SECTION 10 ADMINISTRATION 28. PAYMENT MECHANICS 28.1 PAYMENTS TO THE FACILITY AGENT (a) On each date on which ABB, an Obligor or a Lender is required to make a payment under a Finance Document, ABB, such Obligor or, as the case may be, such Lender shall make the same available to the Facility Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Facility Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment. (b) Payment shall be made to such account in the principal financial centre of the country of that currency (or, in relation to Euro, in a principal financial centre in a Participating Member State or London) with such bank as the Facility Agent specifies. 28.2 DISTRIBUTIONS BY THE FACILITY AGENT Each payment received by the Facility Agent under the Finance Documents for another Party shall, subject to Clause 28.3 (DISTRIBUTIONS TO THE OBLIGORS) and Clause 28.4 (CLAWBACK) be made available by the Facility Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Facility Agent by not less than 5 Business Days' notice with a bank in the principal financial centre of the country of that currency (or, in relation to Euro, in the principal financial centre of a Participating Member State or London). 28.3 DISTRIBUTIONS TO THE OBLIGORS The Facility Agent may (with the consent of ABB or the relevant Obligor (as the case may be) or in accordance with Clause 29 (SET-OFF)) apply any amount received by it for ABB or that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from ABB or that Obligor (as the case may be) under the Finance Documents or in or towards purchase of any amount of any currency to be so applied. 28.4 CLAWBACK (a) Where a sum is to be paid to the Facility Agent under the Finance Documents for another Party, the Facility Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its absolute satisfaction that it has actually received that sum (and the Facility Agent shall make such due enquiry as a diligent agent would make in so establishing). (b) If the Facility Agent pays an amount to another Party and it proves to be the case that the Facility Agent had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Facility Agent shall on demand refund the same to the Facility Agent together with interest on that amount from the date of payment to the date of receipt by the Facility Agent, calculated by the Facility Agent to reflect its cost of funds. -62- (c) In the event that a Lender fails to make its participation in an Advance available to the Facility Agent (as defined in Clause 28.1 (PAYMENTS TO THE FACILITY AGENT)) in accordance with the terms of this Agreement, such Lender hereby indemnifies the Facility Agent on demand against all costs, losses and expenses that the Facility Agent may incur as a result of such failure (including, without limitation, where the Facility Agent, at its sole option, makes arrangements to make available to the relevant Borrower an amount equal to said participation). (d) For the purposes of paragraph (c) of this Clause 28.4, if a Lender makes its participation available to the Facility Agent after 3.00 p.m. (London time) on the due date, such participation shall be deemed to have been made available on the Business Day immediately succeeding the said due date. 28.5 PARTIAL PAYMENTS (a) If the Facility Agent receives a payment that is insufficient to discharge all the amounts then due and payable by ABB or the Obligors under the Finance Documents, the Facility Agent shall apply that payment towards the obligations of the Obligors under the Finance Documents in the following order: (i) FIRST, in or towards payment pro rata of any unpaid fees, costs and expenses of the Facility Agent under the Finance Documents; (ii) SECONDLY, in or towards payment pro rata of any accrued interest or commission due but unpaid under this Agreement; (iii) THIRDLY, in or towards payment pro rata of any principal due but unpaid under this Agreement; and (iv) FOURTHLY, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents. (b) The Facility Agent shall, if so directed by the Majority Lenders, vary the order set out in paragraphs (a)(ii) to (iv) above. (c) Paragraphs (a) and (b) above will override any appropriation made by ABB or any Obligor. 28.6 NO SET-OFF BY OBLIGORS All payments to be made by ABB or the Obligors under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim. 28.7 BUSINESS DAYS (a) Any payment which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not). (b) During any extension of the due date for payment of any principal or an Unpaid Sum under this Agreement interest is payable on the principal at the rate payable on the original due date. -63- 28.8 CURRENCY OF ACCOUNT (a) Subject to paragraphs (b) to (e) below, the Base Currency is the currency of account and payment for any sum due from ABB or the Obligors under any Finance Document. (b) A repayment of an Advance or Unpaid Sum or a part of an Advance or Unpaid Sum shall be made in the currency in which that Advance or Unpaid Sum is denominated on its due date. (c) Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated when that interest accrued. (d) Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred. (e) Any amount expressed to be payable in a currency other than the Base Currency shall be paid in that other currency. 28.9 CHANGE OF CURRENCY (a) Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then: (i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Facility Agent (after consultation with ABB); and (ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Facility Agent (acting reasonably). (b) If a change in any currency of a country occurs, this Agreement will, to the extent the Facility Agent (acting reasonably and after consultation with ABB) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Interbank Market and otherwise to reflect the change in currency. 29. SET-OFF Without prejudice to the rights at law of each Finance Party, while an Event of Default is continuing, a Finance Party may set off any matured obligation due from ABB or an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured obligation owed by that Finance Party to ABB or that Obligor (as the case may be), regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off. -64- 30. NOTICES 30.1 COMMUNICATIONS IN WRITING (a) Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax or letter. (b) With the consent of the relevant Lender, the Facility Agent may serve notices and other information on a Lender by way of electronic mail. 30.2 ADDRESSES (a) The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is: (i) in the case of the Original Obligors, that identified in Part 2 of Schedule 1 (THE ORIGINAL OBLIGORS), with a copy to ABB and ABB Capital B.V., Zurich Branch; (ii) in the case of ABB, that identified in Clause 30.2(b); (iii) in the case of an Additional Obligor, that identified in the Accession Letter relating to that Additional Obligor, with a copy to ABB and ABB Capital B.V., Zurich Branch; (iv) in the case of ABB Capital B.V., Zurich Branch, that identified in Clause 30.2(b); (v) in the case of each Lender, that notified in writing to the Facility Agent on or prior to the date on which it becomes a Party; and (vi) in the case of the Facility Agent, that identified in Clause 30.2(b), or any substitute address, fax number or department or officer as the Party may notify to the Facility Agent (or the Facility Agent may notify to the other Parties, if a change is made by the Facility Agent) by not less than 5 Business Days' notice. (b) (i) the Facility Agent: -65- Credit Suisse First Boston 1 Cabot Square Canary Wharf London E14 4LB Attn: Loans Agency Tel: 020 7888 8361 Fax: 020 7458 8204 / 020 7888 8398 (ii) ABB Capital B.V., Zurich Branch Thurgauerstrasse 54 CH-8050 Zurich Switzerland Attn: President's Office Fax: +41 1 318 5252 (iii) ABB Ltd Affolternstrasse 44 CH-8050 Zurich Switzerland Attn: Senior Group Officer - Group Financing and Taxes Fax: +41 43 317 7992 +41 43 317 7982 30.3 DELIVERY (a) Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective: (i) if by way of fax, when received in legible form; or (ii) if by way of letter, when it has been left at the relevant address or 5 (in the case of domestic mail) or 10 (in the case of air mail) Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or (iii) if by way of electronic mail, when received. and, if a particular department or officer is specified as part of its address details provided under Clause 30.2 (ADDRESSES), if addressed to that department or officer, PROVIDED THAT if receipt is on a day that is not a working day in the country of receipt or is at a time outside normal business hours, such communication shall be effective on the next succeeding working day. (b) Any communication or document to be made or delivered to the Facility Agent will be effective only when actually received by the Facility Agent and then only if it is expressly marked for the attention of the department or officer identified in Clause 30.2 -66- (ADDRESSES) (or any substitute department or officer as the Facility Agent shall specify for this purpose). (c) All notices from or to ABB or an Obligor shall be sent through the Facility Agent. 30.4 NOTIFICATION OF ADDRESS AND FAX NUMBER Promptly upon receipt of notification of an address, fax number or change of address or fax number pursuant to Clause 30.2 (ADDRESSES) or changing its own address or fax number, the Facility Agent shall notify the other Parties. 30.5 ENGLISH LANGUAGE (a) Any notice given under or in connection with any Finance Document must be in English. (b) All other documents provided under or in connection with any Finance Document must be: (i) in English; or (ii) if not in English, and if so required by the Facility Agent, accompanied by a certified English translation. 31. CALCULATIONS AND CERTIFICATES 31.1 ACCOUNTS In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are PRIMA FACIE evidence of the matters to which they relate. 31.2 CERTIFICATES AND DETERMINATIONS Except where otherwise indicated, any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates. 31.3 DAY COUNT CONVENTION Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Interbank Market differs, in accordance with that market practice. 32. PARTIAL INVALIDITY If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired. 33. REMEDIES AND WAIVERS No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy under the Finance Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or -67- the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 34. AMENDMENTS AND WAIVERS 34.1 REQUIRED CONSENTS (a) Subject to Clause 34.2 (EXCEPTIONS) any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and ABB and any such amendment or waiver will be binding on all Parties. (b) The Facility Agent may effect (and is hereby so authorised by each Finance Party), on behalf of any Finance Party, any amendment or waiver permitted by this Clause. 34.2 EXCEPTIONS (a) An amendment or waiver that has the effect of changing or which relates to: (i) the definition of "Majority Lenders" in Clause 1.1 (DEFINITIONS); (ii) an extension to the date of payment of any amount under the Finance Documents; (iii) a reduction in the Margin or the amount of any payment of principal, interest, fees or commission payable; (iv) an increase in any Commitment; (v) any provision which expressly requires the consent of all the Lenders; (vi) Clause 2.2 (LENDERS' RIGHTS AND OBLIGATIONS), Clause 4.1 (CONDITIONS PRECEDENT), Clause 23 (CHANGES TO THE LENDERS), Clause 24 (CHANGES TO THE OBLIGORS), Clause 27 (SHARING AMONG THE LENDERS) or this Clause 34; or (vii) any change to the Obligors other than in accordance with Clause 24 (CHANGES TO THE OBLIGORS), shall not be made without the prior consent of all the Lenders. (b) An amendment or waiver which relates to the rights or obligations of the Facility Agent or any Mandated Lead Arranger may not be effected without the consent of the Facility Agent or such Mandated Lead Arranger. 35. COUNTERPARTS Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document. -68- SECTION 11 GUARANTEE 36. GUARANTEE AND INDEMNITY 36.1 GUARANTEE AND INDEMNITY Subject to the provisos and confirmations contained in Clause 36.9 (CONFIRMATIONS AND RESTRICTIONS), each Guarantor irrevocably and unconditionally jointly and severally: (a) guarantees to each Finance Party punctual performance by each Borrower of all that Borrower's obligations under the Finance Documents; (b) undertakes with each Finance Party that whenever a Borrower does not pay any amount when due under or in connection with any Finance Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and (c) indemnifies each Finance Party immediately on demand against any cost, loss or liability suffered by that Finance Party if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal. The amount of the cost, loss or liability shall be equal to the amount which that Finance Party would otherwise have been entitled to recover. 36.2 CONTINUING GUARANTEE This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by any Obligor under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part. 36.3 REINSTATEMENT If any payment by an Obligor or any discharge given by a Finance Party (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is avoided or reduced as a result of insolvency or any similar event: (a) the liability of each Obligor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and (b) each Finance Party shall be entitled to recover the value or amount of that security or payment from each Obligor, as if the payment, discharge, avoidance or reduction had not occurred. 36.4 WAIVER OF DEFENCES The obligations of each Guarantor under this Clause 36 will not be affected by an act, omission, matter or thing which, but for this Clause, would reduce, release or prejudice any of its obligations under this Clause 36 (without limitation and whether or not known to it or any Finance Party) including: (a) any time, waiver or consent granted to, or composition with, any Obligor or other person; (b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group; -69- (c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; (d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person; (e) any amendment (however fundamental) or replacement of a Finance Document or any other document or security; (f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or (g) any insolvency or similar proceedings. 36.5 IMMEDIATE RECOURSE Each Guarantor waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from that Guarantor under this Clause 36. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary. 36.6 APPROPRIATIONS Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may: (a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and no Guarantor shall be entitled to the benefit of the same; and (b) hold in an interest-bearing suspense account any moneys received from any Guarantor or on account of any Guarantor's liability under this Clause 36. 36.7 DEFERRAL OF GUARANTORS' RIGHTS Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full or the Facility Agent otherwise directs, no Guarantor will exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents: (a) to be indemnified by an Obligor; (b) to claim any contribution from any other guarantor of any Obligor's obligations under the Finance Documents; and/or (c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or -70- of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party. 36.8 ADDITIONAL SECURITY This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party. 36.9 CONFIRMATIONS AND RESTRICTIONS (a) ABB Capital B.V. and each other Guarantor which is incorporated in the Netherlands confirms that the execution of the Finance Documents (including the guarantee granted by it hereunder) and the performance of the transactions contemplated thereby are in the best corporate interest of ABB Capital B.V. or, as the case may be, such other Dutch Guarantor and are not prejudicial to their respective creditors (present and future) and all requisite corporate action has been taken to approve and to authorise the same. (b) The obligations and liabilities of ABB Financial Services AB, or any other Guarantor which is incorporated in Sweden, under this Clause 36 shall be limited if required by an application of the provisions of the Swedish Companies Act (Sw: AKTIEBOLAGSLAGEN) (SFS 1975:1385)) in force from time to time regulating prohibited loans and guarantees and distribution of assets (including profits/dividends) and it is understood that the liability of any such Swedish Obligor under this Clause 36 only applies to the extent permitted by the above mentioned provisions of the Swedish Companies Act. The obligations and liabilities of ABB Financial Services AB, or any other Guarantor which is incorporated in Sweden, under this Clause 36 shall terminate if, and when, (i) it ceases to be a Qualifying Subsidiary and is required to prepay Advances borrowed by it pursuant to Clause 8.4 (MANDATORY PREPAYMENT ON CEASING TO BE A QUALIFYING SUBSIDIARY), PROVIDED HOWEVER THAT at such time no claim has been made against it under this Clause 36 or (ii) it ceases to be a Borrower pursuant to Clause 24.3 (RESIGNATION OF A BORROWER). (c) Any term or provision of this Clause 36 or any other term in this Agreement or any Finance Document notwithstanding, the maximum aggregate amount of the obligations for which any Guarantor which is incorporated in any state of the United States of America (a "US GUARANTOR") shall be liable shall not exceed the maximum amount for which such US Guarantor can be liable without rendering this Agreement or any other Finance Document, as it relates to the US Guarantor, subject to avoidance under applicable law relating to fraudulent conveyance or fraudulent transfer (including section 548 of the Bankruptcy Code of the United States or any applicable provisions of comparable state law) (collectively "Fraudulent Transfer Laws", in each case after giving effect (a) to all other liabilities of the US Guarantor, contingent or otherwise, that are relevant under such Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor in respect of intercompany indebtedness to any Borrower to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the US Guarantor hereunder) and (b) to the -71- value as assets of the US Guarantor (as determined under the applicable provisions of such Fraudulent Transfer Laws) of any rights to subrogation, contribution, reimbursement, indemnity or similar rights held by such US Guarantor pursuant to (i) applicable law or (ii) any other agreement providing for an equitable allocation among the US Guarantor and other Subsidiaries or affiliates of any Borrower of obligations arising under this Agreement or any guarantees of the obligations by such parties. (d) Each Obligor incorporated in Guernsey waives any right which that Obligor may have under the existing or future law of the island of Guernsey: (i) whether by virtue of the "DROIT DE DIVISION" or otherwise to require that any liability under this Agreement be divided or apportioned with any other person or reduced in any manner whatsoever; and (ii) whether by virtue of the "DROIT DE DISCUSSION" or otherwise to require that recourse be had to the assets of any other person before any claim is enforced against that Obligor in respect of any liability hereby assumed by that Obligor. -72- SECTION 12 GOVERNING LAW AND ENFORCEMENT 37. GOVERNING LAW This Agreement is governed by English law. 38. ENFORCEMENT (a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a "DISPUTE"). (b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary. (c) This Clause 38 is for the benefit of the Finance Parties only. As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute ("PROCEEDINGS") in any other courts with jurisdiction. (d) If ABB Capital B.V. is represented by an attorney or attorneys in connection with the signing and/or execution and/or delivery of this Agreement or any agreement or document referred to herein or made pursuant hereto and the relevant power or powers of attorney is or are expressed to be governed by the laws of a particular jurisdiction, it is hereby expressly acknowledged and accepted by the other parties hereto that such laws shall govern the existence and extent of such attorney's or attorneys' authority and the effects of the exercise thereof. (e) SERVICE OF PROCESS ABB and each Obligor incorporated in a jurisdiction other than England and Wales agree that the documents which start any Proceedings in England and any other documents required to be served in relation to those Proceedings may be served on ABB Limited, at Orion House, 5 Upper St. Martin's Lane, London WC2 or, if different, its registered office, with a copy to ABB. If the appointment of the person mentioned in this Clause 38(e) ceases to be effective, ABB and each Obligor shall immediately appoint another person in England to accept service of process on its behalf in England. If ABB or any Obligor fails to do so (and such failure continues for a period of not less than fourteen days), the Facility Agent shall be entitled to appoint such a person by notice to ABB or the relevant Obligor (as the case may be). Nothing contained herein shall restrict the right to serve process in any other manner allowed by law. THIS AGREEMENT HAS BEEN ENTERED INTO ON THE DATE STATED AT THE BEGINNING OF THIS AGREEMENT. -73- SCHEDULE 1 THE ORIGINAL PARTIES PART 1 THE ORIGINAL LENDERS
NAME FACILITY OFFICE COMMITMENT ($) Credit Suisse First Boston London Branch 315,666,666.67 Barclays Bank PLC London Branch 315,666,666.67 Citibank, N.A. London Branch 315,666,666.66 Bayerische Hypo-und Vereinsbank Munich Branch 200,000,000 Deutsche Bank Luxembourg S.A. Deutsche Bank Luxembourg S.A. 200,000,000 Commerzbank Aktiengesellschaft, Mannheim Branch 155,000,000 Mannheim Branch HSBC Bank plc London Branch 155,000,000 Skandinaviska Enskilda Banken AB (publ) LondonBranch 155,000,000 (1)The Bank of Tokyo-Mitsubishi, Ltd. London Branch 155,000,000 Mizuho Corporate Bank, Ltd. London Branch 155,000,000 Bank Brussels Lambert SA, Brussels, Geneva Branch 98,000,000 Geneva Branch Banco Bilbao Vizcaya Argentaria S.A. London Branch 93,000,000 BNP Paribas SA Puteaux Branch 93,000,000 CDC IXIS Paris Branch 93,000,000 Nordea Bank Sweden AB (publ) Stockholm Branch 93,000,000 Svenska Handelsbanken AB (publ) Stockholm Branch 93,000,000 Saudi American Bank Riyadh Branch 75,000,000 Den norske Bank ASA Oslo Branch 70,000,000 KBC Bank Nederland N.V. Netherlands Branch 70,000,000
- ---------- (1) Pursuant to Clause 2.3(c), BTM (Europe) Limited for Advances to US Borrowers only. -74-
NAME FACILITY OFFICE COMMITMENT ($) BHF-BANK Aktiengesellschaft BHF-BANK Aktiengesellschaft, 50,000,000 Frankfurt (Head Office) Standard Chartered Bank London Branch 50,000,000 ------------------------- TOTAL 3,000,000,000 -------------------------
-75- PART 2 THE ORIGINAL OBLIGORS
NAME OF BORROWER ADDRESS JURISDICTION OF INCORPORATION ABB Finance Inc. One Stamford Plaza Delaware, USA P.O. Box 120071 Stamford CT 06912-0071 USA Attention: Controller Fax: +1 203 961 78 60 ABB Treasury Center (USA), Inc. One Stamford Plaza Delaware, USA PO Box 120071 Stamford CT 06912-0071 USA Attention: Controller Fax: +1 203 961 78 60 ABB International Finance Limited Suite 3 Guernsey Weighbridge House The Pollet St. Peter Port GY1 1WL Guernsey Attention: Controller Fax: +44 1481 729 016 ABB Capital B.V. Burgemeester Haspelslaan 65, 5/F Netherlands PO Box 74690 Amstelveen NL-1181 NB Netherlands Attention: Controller Fax: + 31 20 445 9844 ABB Financial Services AB Birger Jarlsgatan 57B Sweden 113 96 Stockholm Attention: Controller Fax: +46 8 458 5099
-76-
NAME OF GUARANTOR ADDRESS JURISDICTION OF INCORPORATION ABB Finance Inc. One Stamford Plaza Delaware, USA P.O. Box 120071 Stamford CT 06912-0071 USA Attention: Controller Fax: +1 203 961 78 60 ABB Treasury Center (USA), Inc. One Stamford Plaza Delaware, USA PO Box 120071 Stamford CT 06912-0071 USA Attention: Controller Fax: +1 203 961 78 60 ABB International Finance Limited Suite 3 Guernsey Weighbridge House The Pollet St. Peter Port GY1 1WL Guernsey Attention: Controller Fax: +44 1481 729 016 ABB Capital B.V. Burgemeester Haspelslaan 65, 5/F Netherlands PO Box 74690 Amstelveen NL-1181 NB Netherlands Attention: Controller Fax: + 31 20 445 9844 ABB Financial Services AB Birger Jarlsgatan 57B Sweden 113 96 Stockholm Attention: Controller Fax: +46 8 458 5099
-77- SCHEDULE 2 CONDITIONS PRECEDENT ADDITIONAL OBLIGOR CONDITIONS PRECEDENT 1. An Accession Letter, duly executed by the Additional Obligor and ABB. 2. A copy of the constitutional documents of the Additional Obligor. 3. A copy of a resolution of the board of directors, or other suitable authority, of the Additional Obligor: (a) approving the terms of, and the transactions contemplated by, the Accession Letter and the Finance Documents and resolving that it execute the Accession Letter; (b) authorising a specified person or persons to execute the Accession Letter on its behalf; and (c) authorising a specified person or persons, on its behalf, to sign and/or despatch all other documents and notices (including any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents. 4. A specimen of the signature of each person authorised by the resolution referred to in paragraph 3 above. 5. A certificate of the Additional Obligor (signed by two duly authorised signatories) confirming that borrowing or guaranteeing (as the case may be) the Total Commitments would not cause any borrowing, guaranteeing or similar limit binding on it to be exceeded. 6. A certificate of an authorised signatory of the Additional Obligor certifying that each copy document listed in this Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of the Accession Letter. 7. A copy of any other Authorisation or other document, opinion or assurance which the Facility Agent reasonably considers to be necessary in connection with the entry into and performance of the transactions contemplated by the Accession Letter or for the validity and enforceability of any Finance Document. 8. If available, the latest audited financial statements of the Additional Obligor. 9. A legal opinion of Clifford Chance Limited Liability Partnership, legal advisers to the Mandated Lead Arrangers and the Facility Agent in England. 10. If the Additional Obligor is incorporated in a jurisdiction other than England and Wales, a legal opinion of the legal advisers to the Mandated Lead Arrangers and the Facility Agent in the jurisdiction in which the Additional Obligor is incorporated. 11. If the proposed Additional Obligor is incorporated in a jurisdiction other than England and Wales, evidence that the process agent specified in Clause 38(e) (SERVICE OF PROCESS), -78- if not an Obligor, has accepted its appointment in relation to the proposed Additional Obligor. 12. A copy of the Keep-Well Agreement in respect of the Additional Obligor. -79- SCHEDULE 3 UTILISATION REQUEST From: [NAME OF BORROWER] To: Credit Suisse First Boston as Facility Agent Dated: [-] Dear Sirs ABB LTD - $3,000,000,000 CREDIT AGREEMENT DATED 18 DECEMBER 2001 AS AMENDED AND RESTATED ON 30 APRIL 2002 (THE "CREDIT AGREEMENT") 13. Words and expressions defined in the Credit Agreement have the same meaning when used herein. 14. We wish to borrow an Advance on the following terms: Proposed Utilisation Date: [-] (or, if that is not a Business Day, the next Business Day) Currency of Advance: [-] Amount: [-] Interest Period: [-] 15. We confirm that each condition specified in Clause 4.1 (CONDITIONS PRECEDENT) is satisfied on the date of this Utilisation Request. 16. The proceeds of this Advance should be credited to [ACCOUNT]. 17. This Utilisation Request is irrevocable. Yours faithfully ..................................... authorised signatory for [NAME OF BORROWER] -80- SCHEDULE 4 THE MARGIN AND COMMITMENT FEE
- ------------------------------------------------------------------------------------------------------------ MARGIN AND COMMITMENT FEE CREDIT RATING (PER CENT. PER ANNUM) ----------------------------------------------------------------------------- A-/A3 BBB+/ Baa1 BBB/ Baa2 BBB-/ Baa3 LOWER THAN OR HIGHER BBB-/ Baa3 OR UNRATED - ------------------------------------------------------------------------------------------------------------ Margin 0.60 0.85 1.25 1.75 2.50 - ------------------------------------------------------------------------------------------------------------ Commitment Fee 0.18 0.255 0.375 0.525 0.75 - ------------------------------------------------------------------------------------------------------------
-81- SCHEDULE 5 FORM OF TRANSFER CERTIFICATE To: Credit Suisse First Boston as Facility Agent From: [THE EXISTING LENDER] (the "EXISTING LENDER") and [THE NEW LENDER] (the "NEW LENDER") Dated: ABB LTD - $3,000,000,000 CREDIT AGREEMENT DATED 18 DECEMBER 2001 AS AMENDED AND RESTATED ON 30 APRIL 2002 (THE "CREDIT AGREEMENT") 18. Words and expressions defined in the Credit Agreement have the same meaning when used herein. 19. We refer to Clause 23.5 (PROCEDURE FOR TRANSFER) of the Credit Agreement: (a) The Existing Lender and the New Lender agree to the Existing Lender and the New Lender transferring by novation all or part of the Existing Lender's Commitment, rights and obligations referred to in the Schedule in accordance with Clause 23.5 (PROCEDURE FOR TRANSFER). (b) The proposed Transfer Date is [ ]. (c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of Clause 30.2 (ADDRESSES) are set out in the Schedule. 20. The New Lender expressly acknowledges the limitations on the Existing Lender's obligations set out in paragraph (c) of Clause 23.4 (LIMITATION OF RESPONSIBILITY OF EXISTING LENDERS). 21. This Transfer Certificate is governed by English law. THE SCHEDULE COMMITMENT/RIGHTS AND OBLIGATIONS TO BE TRANSFERRED [INSERT RELEVANT DETAILS] [FACILITY OFFICE ADDRESS, FAX NUMBER AND ATTENTION DETAILS FOR NOTICES AND ACCOUNT DETAILS FOR PAYMENTS,] [Existing Lender] [New Lender] By: By: This Transfer Certificate is accepted by the Facility Agent and the Transfer Date is confirmed as [ ]. -82- [Facility Agent] By: -83- SCHEDULE 6 TIMETABLES
ADVANCES IN EURO ADVANCES IN DOLLARS ADVANCES IN STERLING ADVANCES IN OTHER CURRENCIES Delivery of a duly 10 a.m. London time, 11 a.m. London 11 a.m. London time, 11 a.m. London completed Utilisation 3 Business Days time, 3 Business 1 Business Day prior time, 3 Business Request in accordance prior to the Days prior to the to the proposed Days prior to the with Clause 5.1 proposed Utilisation proposed Utilisation Date proposed (DELIVERY OF A Date Utilisation Date Utilisation Date UTILISATION REQUEST) Facility Agent 11 a.m. London time, N/A 11 a.m. London time, 11 a.m. London determines (in relation 3 Business Days 1 Business Day prior time, 3 Business to a Utilisation) the prior to the to the proposed Days prior to the Base Currency Amount of proposed Utilisation Utilisation Date proposed the Advance, if Date Utilisation Date required under Clause 5.4 (LENDERS' PARTICIPATION) Facility Agent notifies Promptly upon Promptly upon Promptly upon Promptly upon the Lenders of the receipt from the receipt from the receipt from the receipt from the Advance in accordance relevant Borrower relevant Borrower relevant Borrower relevant Borrower with Clause 5.4 (LENDERS' PARTICIPATION) Facility Agent receives N/A N/A N/A Quotation Day as a notification from a of 9 a.m. London Lender under Clause 6.2 time (UNAVAILABILITY OF A CURRENCY)
-84-
ADVANCES IN EURO ADVANCES IN DOLLARS ADVANCES IN STERLING ADVANCES IN OTHER CURRENCIES Facility Agent gives N/A N/A N/A Upon receipt of notice in accordance notification from with Clause 6.2 the Lenders (UNAVAILABILITY OF A CURRENCY) LIBOR or EURIBOR is Quotation Day as of Quotation Day as Quotation Day as of Quotation Day as fixed 11.00 a.m. Brussels of 11.00 a.m. 11.00 a.m. London of 11.00 a.m. time London time time London time
-85- SCHEDULE 7 FORM OF ACCESSION LETTER To: Credit Suisse First Boston as Facility Agent From: [SUBSIDIARY] and ABB Ltd Dated: [-] Dear Sirs ABB LTD - $3,000,000,000 REVOLVING CREDIT AGREEMENT DATED 18 DECEMBER 2001 AS AMENDED AND RESTATED ON 30 APRIL 2002 (THE "AGREEMENT") 22. We refer to the Agreement. This is an Accession Letter. Terms defined in the Agreement have the same meaning in this Accession Letter unless given a different meaning in this Accession Letter. 23. [SUBSIDIARY] agrees to become an [Additional Borrower]/[Additional Guarantor] and to be bound by the terms of the Agreement as an [Additional Borrower]/[ Additional Guarantor] pursuant to [Clause 24.2 (ADDITIONAL BORROWERS)]/[Clause 24.4 (ADDITIONAL GUARANTORS)] of the Agreement. 24. [SUBSIDIARY] is a company duly incorporated under the laws of [NAME OF RELEVANT JURISDICTION]. 25. [SUBSIDIARY] is a Subsidiary of ABB Ltd and is the subject of a Keep-Well Agreement, a copy of which is attached to this Accession Letter. 26. [SUBSIDIARY'S] administrative details are as follows: Address: Fax No: Attention: 27. This Accession Letter is governed by English law. [This Guarantor Accession Letter is entered into by deed]. - -------------------------------------------------------------------------------- ABB Ltd [SUBSIDIARY] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- By: By: - -------------------------------------------------------------------------------- -86- SCHEDULE 8 FORM OF RESIGNATION LETTER To: Credit Suisse First Boston as Facility Agent From: [RESIGNING OBLIGOR] and ABB Ltd Dated: [-] Dear Sirs ABB LTD - $3,000,000,000 REVOLVING CREDIT AGREEMENT DATED 18 DECEMBER 2001 AS AMENDED AND RESTATED ON 30 APRIL 2002 (THE "AGREEMENT") 28. We refer to the Agreement. This is a Resignation Letter. Terms defined in the Agreement have the same meaning in this Resignation Letter unless given a different meaning in this Resignation Letter. 29. Pursuant to [Clause 24.3 (RESIGNATION OF A BORROWER)]/[Clause 24.6 (RESIGNATION OF A GUARANTOR)], we request that [RESIGNING OBLIGOR] be released from its obligations as a [Borrower]/[Guarantor] under the Agreement. 30. We confirm that: (d) no Default would result from the acceptance of this request; and (e) [RESIGNING OBLIGOR] is under no actual or contingent liability under the Agreement. 31. This Resignation Letter is governed by English law. ABB Ltd [SUBSIDIARY] By: By: -87- SCHEDULE 9 ADDITIONAL COST RATE The Additional Cost Rate is an addition to the interest rate on an Advance denominated in Sterling to compensate the Lenders for the cost attributable to such Advance resulting from the imposition from time to time under or pursuant to the Bank of England Act 1998 (the "BOE ACT") of a requirement to place non-interest-bearing or Special Deposits (whether interest bearing or not) with the Bank of England calculated by reference to liabilities used to fund the Advance. The Additional Cost Rate shall be the rate determined by the Facility Agent to be equal to the arithmetic mean (rounded upward, if necessary, to 4 decimal places) of the respective rates notified by each Reference Bank to the Facility Agent as the rate resulting from the application (as appropriate) of the following formulae: XL + S(L - D) ------------- 100 - (X + S) where on the day of application of a formula: X is the percentage of Eligible Liabilities (in excess of any stated minimum) by reference to which that Reference Bank is required under or pursuant to the BoE Act to maintain cash ratio deposits with the Bank of England; L is LIBOR applicable to the relevant Advance; S is the level of interest bearing Special Deposits, expressed as a percentage of Eligible Liabilities, which that Reference Bank is required to maintain by the Bank of England (or other United Kingdom governmental authorities or agencies); and D is the percentage rate per annum payable by the Bank of England to that Reference Bank on Special Deposits. (X, L, S and D shall be expressed in the formula as numbers and not as percentages, e.g. if X = 0.15% and L = 7%, XL will be calculated as 0.15 X 7 and not as 0.15% X 7%. A negative result obtained from subtracting D from L shall be counted as zero.) If any Reference Bank fails to notify any such rate to the Facility Agent, the Additional Cost Rate shall be determined on the basis of the rate(s) notified to the Facility Agent by the remaining Reference Bank(s). The Additional Cost Rate attributable to an Advance or other sum for any period shall be calculated at or about 11.00 a.m. on the first day of that period for the duration of that period. The determination of the Additional Cost Rate in relation to any period shall, in the absence of manifest error, be conclusive and binding on the Parties. If there is any change in circumstance (including the imposition of alternative or additional requirements) which in the reasonable opinion of the Facility Agent renders or will render the above formula (or any element of the formula, or any defined term used in the formula) -88- inappropriate or inapplicable, the Facility Agent (following consultation with ABB and the Majority Lenders) shall be entitled to vary the same by giving notice to the Parties. Any such variation shall, in the absence of manifest error, be conclusive and binding on the Parties and shall apply from the date specified in such notice. For the purposes of this Schedule, Eligible Liabilities and Special Deposits have the meanings given to those terms under or pursuant to the BoE Act or by the Bank of England (as may be appropriate), on the day of the application of the formula. -89- SCHEDULE 10 MATERIAL COMPANIES Asea Brown Boveri Inc., Delaware, U.S.A. Asea Brown Boveri AG, Germany ABB AB, Sweden ABB Holdings Limited, United Kingdom ABB S.p.A., Italy ABB BV, The Netherlands ABB (Schweiz) AG, Switzerland ABB Holding AS, Norway ABB Oy, Finland ABB S.A., France -90- SCHEDULE 11 FORM OF COMPLIANCE CERTIFICATE To: Credit Suisse First Boston as Facility Agent From: ABB Ltd Dated: Dear Sirs ABB LTD $3,000,000,000 MULTICURRENCY REVOLVING CREDIT AGREEMENT DATED 18 DECEMBER 2001 (AS AMENDED AND RESTATED ON 30 APRIL 2002) (THE "AGREEMENT") We refer to the Agreement. This is a Compliance Certificate delivered with the consolidated accounts of ABB dated [31 March, 30 June, 30 September] 2002 (the "REFERENCE DATE"). Terms defined in the Agreement have the same meaning when used in this Compliance Certificate unless given a different meaning. We confirm that: (f) EBITDA: TOTAL NET INTEREST In respect of the Relevant Period ending on the Reference Date: (viii) EBITDA was [ ]. (ix) Interest income was [ ]. (x) Interest expense was [ ]. Therefore the ratio of EBITDA to Total Net Interest in respect of such period was [ ]:[ ] and the covenant contained in paragraph 20.2(a) of Clause 20 (Financial Covenants) [has/has not] been complied with. Note: ABB's Financial Services Division reports interest income and interest expense as part of revenues and cost of sales respectively. Accordingly interest income and interest expense in respect of ABB's Financial Services Division are excluded from (ii) and (iii) above. (g) TOTAL GROSS DEBT OF THE GROUP(2) (xi) Short-term borrowings of the Group on the Reference Date were [ ]. (xii) Long Term Borrowings of the Group on the Reference Date were [ ]. (xiii) Amounts drawn down under the Facility prior to 15 May 2002 and held on account with the Facility Agent on the Reference Date were [ ] ("EXCLUDED AMOUNTS"). - ---------- (2) Do not include in compliance certificate relating to 31 March 2002 results. -91- The Total Gross Debt of the Group (excluding Excluded Amounts) on the Reference Date therefore did not exceed $10,500,000,000 and has not exceeded such figure at any time after the Effective Date. Accordingly the covenant contained in paragraph 20.2(b) of Clause 20 (Financial Covenants) [has/has not] been complied with. (h) CONSOLIDATED NET WORTH (xiv) Consolidated Net Worth on the Reference Date was [ ]. (xv) Consolidated net income of the Group from 1 January 2002 to the Reference Date was [ ]. Accordingly the calculation set out in clause 20.2(c) is as follows: $1,800,000,000 + [INSERT 50% OF CONSOLIDATED NET INCOME FIGURE OR 0 IF THAT FIGURE IS NEGATIVE] = [ ] Therefore Consolidated Net Worth on the Reference Date was at least [ ] and the covenant contained in paragraph 20.2(c) of Clause 20 (Financial Covenants) [has/has not] been complied with. (i) TOTAL GROSS DEBT OF THE GROUP EXCLUDING THE OBLIGOR GROUP(3) The aggregate amount of Total Gross Debt of Group Companies that are not members of the Obligor Group (excluding items set out in paragraphs (i) to (v) of paragraph 20.2(d) of Clause 20 (Financial Covenants)) [has/has not] since the Effective Date exceeded $1,000,000,000. - -------------------------- -------------------------- Officer of ABB Ltd Officer of ABB Ltd (without personal liability) (without personal liability) - ---------- (3) Do not include in compliance certificate relating to 31 March 2002 results. -92- SIGNATURES ABB LTD By: /s/ HANS ENHORNING /s/ ALFRED STORCK THE BORROWERS ABB TREASURY CENTER (USA), INC. By: /s/ LARS HEKTOEN /s/ JEFFREY KURNENTZ ABB FINANCE INC. By: /s/ LARS HEKTOEN /s/ JEFFREY KURNENTZ ABB CAPITAL B.V. By: /s/ THOMAS MEYER /s/ BRIAN VAN REIJN ABB FINANCIAL SERVICES AB By: /s/ PETRA HEDENGRAN /s/ HENRIK HOLMBERG ABB INTERNATIONAL FINANCE LIMITED By: /s/ THOMAS MEYER /s/ BRIAN VAN REIJN THE GUARANTORS ABB TREASURY CENTER (USA), INC. By: /s/ LARS HEKTOEN /s/ JEFFREY KURNENTZ ABB FINANCE INC. By: /s/ LARS HEKTOEN /s/ JEFFREY KURNENTZ -93- ABB CAPITAL B.V. By: /s/ THOMAS MEYER /s/ BRIAN VAN REIJN ABB FINANCIAL SERVICES AB By: /s/ PETRA HEDENGRAN /s/ HENRIK HOLMBERG ABB INTERNATIONAL FINANCE LIMITED By: /s/ THOMAS MEYER /s/ BRIAN VAN REIJN THE MANDATED LEAD ARRANGERS BARCLAYS CAPITAL By: /s/ TIM AUSTRUP CREDIT SUISSE FIRST BOSTON By: /s/ COLIN HELY-HUTCHINSON /s/ PEDER OIEN SALOMON BROTHERS INTERNATIONAL LIMITED By: /s/ JEFFREY KNOWLES THE FACILITY AGENT CREDIT SUISSE FIRST BOSTON By: /s/ COLIN HELY-HUTCHINSON /s/ PEDER OIEN -94- THE LENDERS BANCO BILBAO VIZCAYA ARGENTARIA S.A. By: /s/ JEFFREY KNOWLES (by Power of Attorney) BANK BRUSSELS LAMBERT SA, BRUSSELS, GENEVA BRANCH By: /s/ JEFFREY KNOWLES (by Power of Attorney) BARCLAYS BANK PLC By: /s/ TIM AUSTRUP BAYERISCHE HYPO-UND VEREINSBANK AG NEW YORK BRANCH By: /s/ JEFFREY KNOWLES (by Power of Attorney) BHF-BANK AKTIENGESELLSCHAFT By: /s/ JEFFREY KNOWLES (by Power of Attorney) BNP PARIBAS SA By: /s/ JEFFREY KNOWLES (by Power of Attorney) BTM (EUROPE) LIMITED By: /s/ AVRIL LANGMAN CDC IXIS By: /s/ JEFFREY KNOWLES (by Power of Attorney) CITIBANK, N.A. By: /s/ JEFFREY KNOWLES (by Power of Attorney) -95- COMMERZBANK AKTIENGESELLSCHAFT, MANNHEIM BRANCH By: /s/ JEFFREY KNOWLES (by Power of Attorney) CREDIT SUISSE FIRST BOSTON By: /s/ COLIN HELY-HUTCHINSON s/ PEDER OIEN DEN NORSKE BANK ASA By: /s/ JEFFREY KNOWLES (by Power of Attorney) DEUTSCHE BANK LUXEMBOURG S.A. By: /s/ JEFFREY KNOWLES (by Power of Attorney) HSBC BANK PLC By: /s/ JEFFREY KNOWLES (by Power of Attorney) KBC BANK NEDERLAND N.V. By: /s/ JEFFREY KNOWLES (by Power of Attorney) MIZUHO CORPORATE BANK, LTD. By: /s/ JEFFREY KNOWLES (by Power of Attorney) NORDEA BANK SWEDEN AB (PUBL) By: /s/ JEFFREY KNOWLES (by Power of Attorney) SAUDI AMERICAN BANK By: /s/ JEFFREY KNOWLES (by Power of Attorney) -96- SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) By: /s/ JEFFREY KNOWLES (by Power of Attorney) STANDARD CHARTERED BANK By: /s/ PAUL TOSSWILL /s/ GRAHAME SMITH SVENSKA HANDELSBANKEN AB (PUBL) By: /s/ JEFFREY KNOWLES (by Power of Attorney) THE BANK OF TOKYO-MITSUBISHI, LTD. By: /s/ AVRIL LANGMAN -97- EX-8.1 11 a2072395zex-8_1.txt EXHIBIT 8.1 Exhibit 8.1
CompanyLegalName COUNTRYNAM - ------------------------------------------------------------------------------------------ ------------------------------ ABB Electrical Service Company Spa, Hydra ALGERIA SARPI - Societe Algerienne pour la realisation de projets industriels, Alger ALGERIA SpA ABB Lummus Global Algeria, Hydra ALGERIA ABB Electrica SGPS, Lda., Luanda ANGOLA EAM - Empresa Angolana de Metalomecanica SARL, Luanda ANGOLA ABB Elster S.A., Buenos Aires ARGENTINA ABB Medidores S.A., Buenos Aires ARGENTINA ABB Vetco Gray Argentina S.A., Pcia. de Buenos Aires ARGENTINA Asea Brown Boveri S.A., Buenos Aires ARGENTINA Galileo La Rioja S.A., La Rioja ARGENTINA Modulec S.A., San Luis ARGENTINA ABB Import & Export Services Ltd. AVV, Oranjestad/Aruba (NA) ARUBA (NL) ABB Administrative Services Pty. Ltd., Regents Park, NSW AUSTRALIA ABB Australia Pty Limited, Sydney AUSTRALIA ABB Elsag Bailey Pty Ltd., Regents Park AUSTRALIA ABB EPT Management Ltd., Sydney, NSW AUSTRALIA ABB EPT Pty Ltd., Sydney, NSW AUSTRALIA ABB Euro Pacific Technologies Pty Ltd., Sydney, NSW AUSTRALIA ABB Financial Services Australia Ltd., Sydney AUSTRALIA ABB Fischer & Porter Pty Ltd., Regents Park, NSW AUSTRALIA ABB Group Holdings Pty. Ltd., Sydney AUSTRALIA ABB Group Investment LLP, Sydney AUSTRALIA ABB Group Investment Management Pty. Ltd., Sydney AUSTRALIA ABB Industry Pty Ltd., Regents Park, NSW AUSTRALIA ABB Investments Pty Ltd., Sydney, NSW AUSTRALIA ABB Metering Pty Ltd., Melbourne, VIC AUSTRALIA ABB Net SA Pty Limited, Sydney NSW AUSTRALIA ABB Networks Pty Ltd., Sydney, NSW AUSTRALIA ABB Redbank Investments Pty Ltd., Sydney AUSTRALIA ABB Service Pty Ltd., Sydney, NSW AUSTRALIA ABB T&D Administrative Services Pty Ltd., Moorebank, NSW AUSTRALIA ABB Transmission & Distribution Ltd., Moorebank, NSW AUSTRALIA ABB Vetco Gray Australia Pty Ltd., Melbourne, VIC AUSTRALIA Allco Limited, Tomago, NSW AUSTRALIA Ascom Equipment Pty. Ltd., Melbourne, VIC AUSTRALIA Ascom Holdings Pty. Ltd., Melbourne, VIC AUSTRALIA Babcock Australia Pty Limited, Sydney, NSW AUSTRALIA Trasor Pty. Ltd., Sydney, NSW AUSTRALIA Westralian Transformers Pty Ltd., Osborne Park, WA AUSTRALIA ABB AG, Vienna AUSTRIA ABB Montage GmbH, Innsbruck AUSTRIA Kraft & Warme Gebaudesysteme GmbH, Vienna AUSTRIA ABB Automation E.C., Bahrain BAHRAIN ABB Definit, Bazel BELGIUM ABB Industrial IT n.v., Brussels BELGIUM ABB Maintenance, Naninne/Namur BELGIUM ABB Metering S.A./N.V., Brussels BELGIUM ABB Zantingh Energie Systemen NV, Mechelen BELGIUM Asea Brown Boveri ALVI S.A., Queue-du-Bois BELGIUM Asea Brown Boveri Colasse N.V., Kuurne BELGIUM Asea Brown Boveri Electro NV/SA, Zaventem BELGIUM Asea Brown Boveri Elve N.V., Opwijk BELGIUM Asea Brown Boveri Europe Ltd., Brussels BELGIUM Asea Brown Boveri Jumet S.A., Jumet BELGIUM Asea Brown Boveri S.A., Brussels BELGIUM Asea Brown Boveri Service NV, Antwerpen BELGIUM Entrelec NV, Bruxelles BELGIUM Maintenance TV, Zaventem BELGIUM S.A. Helvimo N.V., Brussels BELGIUM Sirius Belgium Reassurances S.A., Liege BELGIUM Scandinavian Reinsurance Company Ltd., Bermuda BERMUDA (GB) Asea Brown Boveri Ltda., La Paz-Bolivia BOLIVIA ABB (Pty) Ltd., Gabarone BOTSWANA ABB Kent Participacoes Ltda., Osasco BRAZIL ABB Ltda., Osasco BRAZIL ABB Medicao de Agua S/A., Belo Horizonta, MG BRAZIL ABB Participacoes Ltda., Sao Paulo BRAZIL Banco ABB S/A, Sao Paulo BRAZIL Entrelec Produtos Eletricos, Sao Paulo BRAZIL ABB Avangard Ltd., Sevlievo BULGARIA ABB Bulgaria Eood (Sole Ltd.), Sofia BULGARIA ABB Control Ltd., Petrich BULGARIA Asea Brown Boveri S.A., Douala CAMEROON ABB Bomem Inc., Quebec CANADA ABB Inc., St. Laurent, Quebec CANADA ABB International Projects Inc., St.Laurent, QC CANADA ABB Offshore Systems Canada Inc., Nisku CANADA ABB Vetco Gray Canada Inc., Edmonton, Alberta CANADA Combustion Engineering Technology Investment Corp., St.Laurent, Quebec CANADA Entrelec Inc., Brossard CANADA ABB Medicion, Santiago CHILE Asea Brown Boveri S.A., Santiago CHILE ABB (China) Engineering Co. Ltd. Xiamen CHINA ABB (China) Ltd., Beijing CHINA ABB Automation Ltd., Hong Kong CHINA ABB Automation System (Beijing) Limited, Beijing CHINA ABB Bailey Beijing Controls Co. Ltd., Beijing CHINA ABB Beijing Drive Systems Co. Ltd., Beijing CHINA ABB China Ltd., Hong Kong CHINA ABB Distribution Transformer (Hefei) Limited, Anhui CHINA ABB Engineering (Shanghai) Ltd., Shanghai CHINA ABB Hefei Transformer Co. Ltd., Hefei CHINA ABB High Voltage Switchgear Co. Ltd., Beijing CHINA ABB Holding Ltd., Hong Kong CHINA ABB Huadian High Voltage Switchgear (Xiamen) Company Ltd., Xiamen CHINA ABB Industrial and Building Systems Ltd., Hong Kong CHINA ABB LV Installation Materials Co. Ltd., Beijing CHINA ABB Power System Communication & Automation Co. Ltd., Guangzhou CHINA ABB Shanghai Transformer Co. Ltd., Shanghai CHINA ABB Transmission and Distribution Ltd., Hong Kong CHINA ABB Xi'an Power Capacitor Company Limited, Xi'an CHINA ABB Xiamen Electrical Controlgear Co. Ltd., Fujian Province CHINA ABB Xiamen Low Voltage Equipment Co. Ltd., Xiamen CHINA ABB Xiamen Switchgear Co. Ltd., Xiamen CHINA ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui (Guangdong) CHINA ABB Yuejin Motors (Shanghai) Co. Ltd., Shanghai CHINA ABB Zhongshan Transformer Company Ltd., Zhongshan City CHINA Beijing Huakangda Computer Application Technology Co. Ltd., Beijing CHINA Vetco Gray Petroleum Equipment (Shanghai) Co. Ltd., Shanghai CHINA Asea Brown Boveri Ltda., Bogota COLOMBIA Compania Colombiana de Medidores Tavira SA, Bogota COLOMBIA ABB Technology SA, Abidjan COTE D'IVOIRE/IVORY COAST ABB Ltd., Zagreb CROATIA ABB Lummus Global s.r.o., Brno CZECH REPUBLIC ABB s.r.o., Prague CZECH REPUBLIC Entrelec Ceska Sro, Brno CZECH REPUBLIC ABB A/S, Skovlunde DENMARK ABB Offshore Danmark A/S, Kolding DENMARK Asea Brown Boveri S.A., Quito ECUADOR ABB Arab Contractors for Construction, Heliopolis EGYPT ABB Arab S.A.E., Cairo EGYPT ABB Automation S.A.E., Heliopolis EGYPT ABB Group Process Center S.A.E., Cairo EGYPT ABB High Voltage Co. S.A.E., Heliopolis/Cairo EGYPT ABB Metals & Plastics Manufact. Co. SAE, 10th of Ramadan City EGYPT ABB Petroleum Technology, Cairo EGYPT ABB Transformers S.A.E., El-Nozha El-Gedida EGYPT ABB Turbochargers S.A.E., Suez EGYPT Asea Brown Boveri S.A.E., Cairo EGYPT Egyptian Maintenance Company, Cairo EGYPT ABB S.A. de CV, San Salvador EL SALVADOR CIDECA SA de CV, El Salvador EL SALVADOR ABB AS, Tallinn ESTONIA ABB EE Service Eesti AS, Tallinn ESTONIA ABB Elekter AS, Keila ESTONIA ABB Kunda Service AS, Kunda ESTONIA ABB-Midroc Industrial Services Pvt. Ltd. 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Technology AG, Zurich SWITZERLAND ABB Automation Technology Products Management Ltd., Zurich SWITZERLAND ABB Business Services Ltd., Baden SWITZERLAND ABB CMC Carl Maier AG, Schaffhausen SWITZERLAND ABB Corporate Management Services AG, Zurich SWITZERLAND ABB Corporate Research Ltd., Baden-Dattwil SWITZERLAND ABB Credit, Baden SWITZERLAND ABB Elettro Impianti S.A., Lugano SWITZERLAND ABB Energie Services Schweiz, Zurich SWITZERLAND ABB Energy Engineering AG, Zurich SWITZERLAND ABB Energy Services International Ltd., Zurich SWITZERLAND ABB Equity AG, Zurich SWITZERLAND ABB Export Bank, Zurich SWITZERLAND ABB Financial Services Investments Ltd., Zurich SWITZERLAND ABB Financial Services Ltd., Zurich SWITZERLAND ABB Flexible Automation AG, Zurich SWITZERLAND ABB Future AG, Zurich SWITZERLAND ABB Group Processes Ltd., Zurich SWITZERLAND ABB Handels- und Verwaltungs AG, Zurich SWITZERLAND ABB Hochspannungstechnik AG, Zurich SWITZERLAND ABB Immobilien AG, Baden SWITZERLAND ABB Industrie AG, Baden SWITZERLAND ABB Installationen AG, Volketswil SWITZERLAND ABB Insurance Brokers AG, Baden SWITZERLAND ABB International Marketing Ltd., Zurich SWITZERLAND ABB International Services AG, Zurich SWITZERLAND ABB KeyCom AG, Zurich SWITZERLAND ABB Low Voltage Power Ltd., Baden SWITZERLAND ABB Ltd, Zurich SWITZERLAND ABB Manufacturing and Consumer Industries Management Ltd., Zurich SWITZERLAND ABB MEA Participation Ltd., Zurich SWITZERLAND ABB New Ventures Ltd., Zurich SWITZERLAND ABB Normelec AG, Zurich SWITZERLAND ABB Oil, Gas and Petrochemicals Management Ltd., Zurich SWITZERLAND ABB Participation AG, Baden SWITZERLAND ABB Power Automation Ltd., Turgi SWITZERLAND ABB Power Technology Products Management Ltd., Zurich SWITZERLAND ABB Process Industries Management Ltd., Zurich SWITZERLAND ABB Projects and Services Ltd., Zurich SWITZERLAND ABB Research Ltd., Zurich SWITZERLAND ABB Schweiz Holding AG, Baden SWITZERLAND ABB Secheron S.A., Satigny SWITZERLAND ABB Semiconductors AG, Baden SWITZERLAND ABB Structured Finance AG, Baden SWITZERLAND ABB T&D Technology Ltd., Zurich SWITZERLAND ABB Turbo-Systems AG, Baden SWITZERLAND ABB Turbo-Systems Holding Ltd., Baden SWITZERLAND ABB Unifer AG, Baden SWITZERLAND ABB Utilities Management Ltd., Zurich SWITZERLAND ABB Venture Capital Ltd., Baden SWITZERLAND Arnold AG, Bern SWITZERLAND Broger AG, Mullheim SWITZERLAND Entrelec International Dicoesa, Belfaux SWITZERLAND Entrelec Swiss, Belfaux SWITZERLAND Grossenbacher Installationen AG, St. Gallen SWITZERLAND Group Adjustments SWITZERLAND Hollenstein & Partner Insurance Brokers AG, Rapperswil SWITZERLAND ISV Adjustments SWITZERLAND JAG Jakob Installationen AG, Biel SWITZERLAND Kriegel & Co. Inh. Th. Muller AG, Muttenz SWITZERLAND Kriegel & Schaffner AG, Basel SWITZERLAND Micafil AG, Zurich SWITZERLAND Other company corrections SWITZERLAND Skyva Switzerland AG, Haegendorf SWITZERLAND ABB Ltd., Taipei TAIWAN ABB Tanelec Ltd., Arusha TANZANIA, UNITED REPUBLIC Asea Brown Boveri Ltd., Dar Es Salaam TANZANIA, UNITED REPUBLIC ABB Capacitors Ltd., Samutprakarn THAILAND ABB Distribution Ltd., Samutprakarn THAILAND ABB Engineering & Construction Ltd., Samutprakarn THAILAND ABB Industry Ltd., Samutprakarn THAILAND ABB LIMITED, Samutprakarn THAILAND ABB Power Ltd., Samutprakarn THAILAND Asea Brown Boveri Holding Ltd., Samutprakarn THAILAND Asea Brown Boveri Ltd., Samutprakarn THAILAND Thephalai Company Ltd., Samutprakarn THAILAND ABB Maghreb Services S.A., Tunis TUNISIA ABB Elektrik Sanayi A.S., Istanbul TURKEY ABB Holding A.S., Istanbul TURKEY Asea Brown Boveri, Kampala UGANDA ABB Ltd., Kiev UKRAINE ABB Monolit, Kharkov-664 UKRAINE ABB Energy Automation S.p.A., Abu Dhabi UNITED ARAB EMIRATES ABB Industries (L.L.C), Dubai UNITED ARAB EMIRATES ABB Transmission & Distribution Ltd., Abu Dhabi UNITED ARAB EMIRATES ABB Automation Ltd., Stevenage UNITED KINGDOM ABB Building Technologies, Solihull UNITED KINGDOM ABB Consultancy Services Ltd., Hants UNITED KINGDOM ABB Control Ltd., Exhall, Coventry UNITED KINGDOM ABB Energy Services Ltd., Cheltenham UNITED KINGDOM ABB Equity Development Company Ltd., London UNITED KINGDOM ABB Equity Limited, Guernsey UNITED KINGDOM ABB Equity Ventures (Jersey) Ltd., Jersey UNITED KINGDOM ABB Equity Ventures (UK) Ltd., London UNITED KINGDOM ABB ESOP Limited, Guernsey UNITED KINGDOM ABB Eurofin Limited, Guernsey UNITED KINGDOM ABB Eutech Limited, Warrington UNITED KINGDOM ABB Holdings Company Limited, St. Helier/Jersey UNITED KINGDOM ABB Holdings Ltd., London UNITED KINGDOM ABB Instrumentation Ltd., St. Neots UNITED KINGDOM ABB Insurance Limited, Guernsey UNITED KINGDOM ABB International Finance Limited, Guernsey UNITED KINGDOM ABB Investments Ltd., London UNITED KINGDOM ABB IOP Services Ltd., Sutton UNITED KINGDOM ABB Kent Investments Ltd., Luton UNITED KINGDOM ABB Low Voltage Systems Ltd., Sunderland UNITED KINGDOM ABB Ltd., London UNITED KINGDOM ABB Lummus Crest Ltd., Sutton UNITED KINGDOM ABB Lummus Global Ltd., Sutton UNITED KINGDOM ABB Lutech Resources Ltd., London UNITED KINGDOM ABB Metering Holdings Ltd., Luton UNITED KINGDOM ABB Metering International Ltd., Stone UNITED KINGDOM ABB Metering Ltd., Luton UNITED KINGDOM ABB Offshore Systems Ltd., Bristol UNITED KINGDOM ABB Power T&D Ltd, Stone UNITED KINGDOM ABB Real Estate, London UNITED KINGDOM ABB Structured Finance Limited, Guernsey UNITED KINGDOM ABB Transinvest Limited, St. Helier, Jersey UNITED KINGDOM ABB Treasury & Energy Services (UK) PLC, London UNITED KINGDOM ABB Vetco Gray U.K. Ltd., Aberdeen UNITED KINGDOM ABB Zantingh Ltd., Cheltenham UNITED KINGDOM Architron Steward Ltd., London UNITED KINGDOM Durham Control Systems Ltd., London UNITED KINGDOM Durham Switchgear International Ltd., London UNITED KINGDOM Durham Switchgear Ltd., London UNITED KINGDOM Elsag Bailey Ltd., Telford UNITED KINGDOM Entrelec MTE, Essex UNITED KINGDOM Entrelec UK Ltd., West Sussex UNITED KINGDOM European Field Development Technology Ltd., Sutton UNITED KINGDOM GN Novinvest Ltd., St. Helier UNITED KINGDOM Sirius (UK) Insurance Ltd., London UNITED KINGDOM West Africa Completion Services Ltd., London UNITED KINGDOM William Steward (Holdings) Ltd., London UNITED KINGDOM William Steward International Ltd., London UNITED KINGDOM William Steward Overseas Ltd., London UNITED KINGDOM ABB Automation Inc., Columbus, OH UNITED STATES ABB Barranquilla Inc., Princeton, NJ UNITED STATES ABB Body in White Inc., Auburn Hills, MI UNITED STATES ABB Capital (USA) LLC, Delaware UNITED STATES ABB Control Inc., Wichita Falls, TX UNITED STATES ABB Credit Inc., Stamford, CT UNITED STATES ABB Development Corporation, Stamford UNITED STATES ABB DTC Inc., Bloomfield, NJ UNITED STATES ABB Energy Capital LLC, Boston UNITED STATES ABB Energy Interactive Inc., Oakland UNITED STATES ABB Equity Ventures Inc., Princeton, NJ UNITED STATES ABB Finance Inc., Stamford, CT UNITED STATES ABB Financial Services Inc., Stamford, CT UNITED STATES ABB Garden City Fan, Niles, MI UNITED STATES ABB Harnco Inc., New Berlin, WI UNITED STATES ABB Holdings Inc., Norwalk UNITED STATES ABB Inc., Systems Control, Santa Clara UNITED STATES ABB Industrial Products Inc., Norwalk, CT UNITED STATES ABB International Power T&D Company Inc., Raleigh, NC UNITED STATES ABB Kent Inc., Ocala, FL UNITED STATES ABB Lummus Global Inc., Bloomfield, NJ UNITED STATES ABB Lummus Global Overseas Corporation, Bloomfield, NJ UNITED STATES ABB Offshore Systems Inc., Houston UNITED STATES ABB Oil & Gas USA Inc., Houston, TX UNITED STATES ABB Power T&D Company Inc., Raleigh, NC UNITED STATES ABB Prospects Inc., Norwalk UNITED STATES ABB Semiconductors Inc., Norwalk, CT UNITED STATES ABB Special Finance Corp., Stamford, CT UNITED STATES ABB Structured Finance (Americas) Inc. Westborough UNITED STATES ABB Structured Finance (USA) Inc., Stamford UNITED STATES ABB Susa Inc., North Brunswick, NJ UNITED STATES ABB Susa International Inc., North Brunswick, NJ UNITED STATES ABB Susa/Brown & Root, North Brunswick UNITED STATES ABB Susa/Cegaz, North Brunswick UNITED STATES ABB Susa/Dillingham, North Brunswick UNITED STATES ABB Susa/El Concorde, North Brunswick UNITED STATES ABB Susa/KDL, North Brunswick UNITED STATES ABB Treasury Center USA Inc., Stamford, CT UNITED STATES ABB Vetco Gray Inc., Houston, TX UNITED STATES ABB Water Meters Inc., Ocala, FL UNITED STATES Asea Brown Boveri Inc., Norwalk, CT UNITED STATES Bailey Fischer & Porter, Warminster UNITED STATES Bailey Network Management, Sugar Land UNITED STATES Camelot IS-2 International, Inc. D/B/A Skyva International, Medford UNITED STATES Catalyst Power, Carlsbad CA UNITED STATES Electronic Technology Systems Inc., Natrona Heights UNITED STATES Elsag Bailey Automation, Wickliffe UNITED STATES Entrelec Inc., Texas UNITED STATES Gross up Adjustments UNITED STATES Integrated Communications Systems Inc., Suyrna UNITED STATES Lummus Catalyst Company, Bloomfield, NJ UNITED STATES Offshore Production Systems, Inc., Houston, TX UNITED STATES Sirius America Insurance Company, New York, NY UNITED STATES SSAC, Baldwinsville - NY UNITED STATES ABB CL Logistic S.A., Montevideo URUGUAY ABBSF Trading S.A., Montevideo URUGUAY SBE Uruguay S.A., Montevideo URUGUAY ABB CHTZ Closed Joint Stock Company, Chirchik UZBEKISTAN ABB Tamir Ltd., Nurabad UZBEKISTAN (The) Lummus Company Venezuela C.A. Caracas VENEZUELA ABB Servicios Vetco Gray de Venezuela C.A., Las Morochas VENEZUELA ABB Vetco Gray de Venezuela, C.A., Maracaibo VENEZUELA Asea Brown Boveri S.A., Caracas VENEZUELA Inversiones ABB-SABA, C.A., Caracas VENEZUELA Tavira SA, La Victoria VENEZUELA ABB Industry Ltd., Ho Chi Minh City VIET NAM ABB Transformers Ltd., Hanoi VIET NAM ABB Ltd., Lusaka ZAMBIA ABB (Private) Ltd., Harare ZIMBABWE ABB Botton Armature Winding (Private) Ltd., Harare ZIMBABWE ABB Water Meters Ltd., Luton/Harare ZIMBABWE (819 row(s) affected)
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