Report Regarding the Merger By and Between Tyco International Ltd. and Tyco International plc May 30, 2014
2 24 Table of Contents I. Introduction... 3 II. Background, Purpose And Consequences of the Merger... 5 A. Background and Effects of the Merger... 5 B. Reasons for the Merger... 6 C. Consequences of the Merger... 9 1. Material Corporate Law Considerations... 9 2. Material Securities Laws and Reporting Considerations... 9 3. Material Tax Considerations... 10 III. Merger Agreement... 12 A. Parties to the Merger Agreement... 12 1. Tyco Switzerland... 12 2. Tyco International plc... 12 B. The Merger Agreement... 12 C. Merger Balance Sheet... 13 D. Audit of the Agreement, the Merger Report and the Merger Balance Sheet... 13 E. Conditions to Completion of the Merger... 13 F. Termination... 15 G. Other Matters: Reserves Proposal... 15 H. Applicable Law... 16 IV. Exchange Ratio... 17 V. Capital Increase of Tyco Ireland and Exchange of Shares... 19 A. Capital Increase of Tyco Ireland... 19 B. Exchange of Shares... 19 VI. New Obligations Imposed on Shareholders as a Result of the Merger... 20 VII. Consequences of the Merger for Employees... 21 VIII. Consequences of the Merger for Creditors... 22 IX. Governmental Approvals... 23
3 24 I. Introduction On May 30, 2014, Tyco International Ltd. (Tyco Switzerland) and Tyco International plc (Tyco Ireland) entered into a merger agreement (the Merger Agreement) to effect a merger (the Merger), as a result of which: all assets and liabilities of Tyco Switzerland will be transferred to and assumed by Tyco Ireland by operation of law; each shareholder of Tyco Switzerland (i) will receive, as consideration in the Merger, one ordinary share of Tyco Ireland in exchange for each registered common share of Tyco Switzerland held immediately prior to the effectiveness of the Merger (excluding registered common shares held by Tyco Switzerland or any of its subsidiaries) and (ii) will become a shareholder of Tyco Ireland, with rights governed by Irish law and by Tyco Ireland s memorandum and articles of association; each registered common share of Tyco Switzerland (including common registered shares held by Tyco Switzerland or any of its subsidiaries, which will not be exchanged for ordinary shares of Tyco Ireland) will be cancelled and will cease to exist; the existing Irish founder shares, nominal value 1.00 per share, issued by Tyco Ireland prior to the Merger will be acquired and cancelled by Tyco Ireland for no consideration upon the completion of the Merger, ensuring that the share ownership of Tyco Ireland is identical to the share ownership of Tyco Switzerland immediately prior to the Merger (not considering the registered common shares held by Tyco Switzerland or any of its subsidiaries); Tyco Switzerland will be dissolved without liquidation; Tyco Ireland will assume certain employee benefit plans and agreements that had previously been sponsored by Tyco Switzerland and Tyco Ireland will amend such plans in order to permit the issuance or delivery of Tyco Ireland ordinary shares thereunder, rather than Tyco Switzerland registered common shares; Tyco Ireland and one or more of its subsidiaries will enter into indemnity agreements with those directors and executive officers who currently have indemnity agreements with Tyco Switzerland, upon terms substantially similar to the Tyco Switzerland agreements to the extent permitted by Irish law; and Tyco Ireland will assume guarantees as to payment with respect to certain indebtedness of subsidiaries of Tyco Switzerland that is, immediately prior to the completion of the Merger, also guaranteed as to payment by Tyco Switzerland, including guarantees of debt previously incurred by Tyco International Finance, S.A. (TIFSA), a Luxembourg company, under the indentures governing our outstanding notes. The Merger Agreement provides that the board of directors of Tyco Switzerland (the Board) shall establish and approve a merger report (the Merger Report) pursuant to Article 14 the Swiss Federal Act Regarding Mergers, Demergers, Transformations and Transfers of Assets (the Merger
4 24 Act). This document constitutes the Merger Report approved by the Board and includes the information required pursuant to Article 14 Merger Act. In this Merger Report, we sometimes refer to Tyco Switzerland as "we," "us," or "our." We refer to Tyco International plc, a newly-formed Irish public limited company and direct subsidiary of Tyco Switzerland as "Tyco Ireland." We also refer to Tyco Switzerland prior to the Merger and Tyco Ireland following the Merger as "Tyco."
5 24 II. Background, Purpose And Consequences of the Merger A. Background and Effects of the Merger Tyco Switzerland shareholders are asked at a special general meeting of shareholders (such meeting hereinafter referred to as the Special General Meeting) to approve the Merger Agreement according to which Tyco Switzerland, our current holding company which is incorporated under Swiss law, shall merge with and into Tyco Ireland, a newly formed Irish public limited company and direct subsidiary of Tyco Switzerland, which will become the new holding company of the Tyco group. We refer to this proposal as the Merger Agreement Proposal. The Merger, if approved, will result in Tyco Ireland serving as the publicly traded parent of the Tyco group of companies, thereby effectively changing the jurisdiction of organization of Tyco s publicly traded parent company from Switzerland to Ireland. As a result of the Merger: all assets and liabilities of Tyco Switzerland will be transferred to and assumed by Tyco Ireland by operation of law; each shareholder (i) will receive, as consideration in the Merger, one ordinary share of Tyco Ireland in exchange for each registered common share of Tyco Switzerland held immediately prior to the effectiveness of the Merger (excluding registered common shares held by Tyco Switzerland or any of its subsidiaries) and (ii) will become a shareholder of Tyco Ireland, with rights governed by Irish law and by Tyco Ireland s memorandum and articles of association; each registered common share of Tyco Switzerland will be cancelled and will cease to exist; the existing Irish founder shares, nominal value 1.00 per share, issued by Tyco Ireland prior to the Merger will be acquired and cancelled by Tyco Ireland for no consideration upon the completion of the Merger, ensuring that the share ownership of Tyco Ireland is identical to the share ownership of Tyco Switzerland immediately prior to the Merger (not considering the registered common shares held by Tyco Switzerland or any of its subsidiaries); Tyco Switzerland will be dissolved without liquidation; Tyco Ireland will assume certain employee benefit plans and agreements that had previously been sponsored by Tyco Switzerland and Tyco Ireland will amend such plans in order to permit the issuance or delivery of Tyco Ireland ordinary shares thereunder, rather than Tyco Switzerland registered common shares; Tyco Ireland and one or more of its subsidiaries will enter into indemnity agreements with those directors and executive officers who currently have indemnity agreements with Tyco Switzerland, upon terms substantially similar to the Tyco Switzerland agreements to the extent permitted by Irish law; and
6 24 Tyco Ireland will assume guarantees as to payment with respect to certain indebtedness of subsidiaries of Tyco Switzerland that is, immediately prior to the completion of the Merger, also guaranteed as to payment by Tyco Switzerland, including guarantees of debt previously incurred by TIFSA, under the indentures governing our outstanding notes. As of the Effective Time (as defined below) of the Merger, the directors and officers of Tyco Switzerland will be appointed as the directors and officers of Tyco Ireland. Tyco Ireland s articles of association will provide for the same declassified board of directors that Tyco Switzerland is expected to have at the time of the Merger, and Tyco Switzerland s directors will ultimately carry their terms of office over to the Tyco Ireland board of directors. Further, as of the Effective Time (as defined below) of the Merger, Tyco Ireland will procure that the officers of Tyco Switzerland immediately prior to the Effective Time (as defined below) of the Merger shall have been appointed as the officers of Tyco Ireland to hold the same or corresponding office after the Effective Time (as defined below) of the Merger, until their successors have been duly appointed and qualified. We plan to relocate Tyco's headquarters to Cork, Ireland. Tyco will, however, maintain a presence in Switzerland. While changing the incorporation of Tyco's publicly traded parent is expected to position Tyco to capture the benefits described below under II.B., we believe that the Merger should otherwise have no material impact on how Tyco conducts its day-to-day operations. Where Tyco conducts its future operations for its customers will depend on a variety of factors including the worldwide demand for its services and the overall needs of its business, independent of its legal domicile. B. Reasons for the Merger After careful consideration, the Board is recommending to shareholders that the company change its domicile to Ireland as a result of the Merger. We believe the move is in the best longterm interest of the company and its shareholders. The principal reason for recommending the change in domicile is the uncertainty created by the shifting regulatory environment in Switzerland, which is in part due to the ability of Swiss voters to sponsor and approve ballot initiatives and referendums in relation to, respectively, amendments to the Swiss Federal Constitution and federal statutes ratified by the Federal Parliament. In particular, in Switzerland, if a ballot initiative is approved by voters, it is adopted into the Swiss constitution without any preceding parliamentary process, which results in unpredictability in the Swiss legal system. During 2013, eleven public votes on initiatives and referendums were held at the federal level, with voters approving six proposals, including the initiative on executive compensation and other corporate governance matters (the Minder Initiative). More recently, Swiss voters approved an initiative imposing caps on immigration. As a result of the Minder Initiative, Swiss law now directly subjects our directors and members of executive management to potential criminal liability, including for certain compensation decisions considered routine in other jurisdictions, and imposes additional shareholder voting requirements
7 24 that are inconsistent with SEC requirements. Swiss law also prohibits certain incentive and severance compensation practices that we consider important in order to provide market-based compensation to current and prospective executives and directors in our industry, that are also competitive when compared to that provided by our peers. We believe these new laws, and the uncertainties about their application and enforcement, place Tyco at a competitive disadvantage. In addition, we believe the changes mandated by the Minder Initiative will impair the flexibility that our Board currently enjoys and could be confusing to shareholders. Our concern with the changes in Swiss law is the restrictive nature of the new regulations as well as ongoing uncertainty about how these new laws will be applied and enforced, and the impact some of the pending law changes will have. Tyco s current corporate governance structure, set forth in our Board Governance Principles, includes principles and practices that we believe represent best practices tailored to our unique circumstances. We are firmly committed to these principles and practices wherever the company is based. During 2013 and 2014, the Board and our management conducted a comprehensive review of jurisdictions due to these concerns, including at meetings of the Board and its committees held in May, July and December 2013 and in May 2014. Based upon such review, we believe that the legal and regulatory systems in Ireland will provide us certain advantages over the comparative systems in Switzerland. We anticipate that having our publicly-traded parent company incorporated in Ireland will provide us the following benefits: Swiss law provides that amendments to the Swiss federal constitution can be put to a vote by the people at the initiative of Swiss citizens who obtain a requisite number of signatures. If such an initiative is approved by the requisite majority, the proposed constitutional amendment becomes part of the Swiss federal constitution without further parliamentary process. The Swiss federal parliament is then mandated to implement the constitutional amendment approved by the Swiss people in a federal statute. On an interim basis, the Swiss federal council, Switzerland's government, may also be given the authority to implement the constitutional amendment through regulations until adoption of the definitive federal statute. We believe this process results in unpredictability in the Swiss legal system. As a result, we believe the legal and regulatory system in Ireland is more predictable than Switzerland. Incorporation of our publicly-traded parent company in Ireland would enable us to benefit by being subject to a legal and regulatory structure in a jurisdiction with a well-developed legal system and corporate law with established standards of corporate governance. Ireland is a common law jurisdiction, which is more consistent with the legal system in the United States and which we believe is less prescriptive and more flexible than civil law jurisdictions such as Switzerland. We believe that this flexibility could be beneficial to us in structuring acquisitions, paying dividends, administering corporate functions and other corporate governance matters. Ireland is a full member of the European Union and enjoys the benefits of its single market and single currency, which we believe will provide opportunities for conducting our business and hiring and retaining employees. Additionally, similar to Switzerland, Ireland has a developed, stable and internationally competitive tax regime and one of the most extensive double tax treaty networks in the world, including access to European Union treaties, which
8 24 we believe will allow us to conduct our operations and repatriate profits in a tax-efficient manner. The legal requirements we will be subject to as a company incorporated in Ireland, listed on the New York Stock Exchange (NYSE) and subject to U.S. Securities and Exchange Commission (SEC) disclosure and shareholder voting requirements strike the right balance between robust external governance oversight and regulation of our executive and director pay practices and the ability of our compensation committee consisting of independent directors to determine executive compensation to provide incentives to our executive management and to offer competitive salaries and benefits. We believe that this balance will be negatively impacted in Switzerland as a result of the Minder Initiative, which prohibits certain severance compensation practices, advance compensation practices and incentive commissions in connection with the sale and purchase of businesses that we believe puts us at a competitive disadvantage to attract and retain executive talent. The regulations that became effective January 1, 2014 also provide for potential criminal liability for directors and members of executive management. As a result, we believe our ability to attract and retain executive talent and directors will be enhanced as an Irish company. In addition, beginning with annual meetings in 2015, the changes to Swiss law will require shareholder votes on compensation for directors and executive management that have requirements different from the SEC as to which officers, the types of compensation and the compensation time periods that must be voted on. Operating under regulatory regimes relating to shareholder votes on compensation that differ from those established by the NYSE and the SEC, as may be the case in Switzerland, could be challenging. In Ireland, we will continue to be subject to the regulatory systems of the NYSE and the SEC, including annual shareholder advisory votes on executive compensation, but not be subject to additional regulatory requirements of Switzerland that may be complex and costly to comply with. Although we expect that the Merger should provide us the benefits described above, the Board has also considered that the Merger will expose Tyco and its shareholders to some risks: the risk that the potential benefits described above sought in the Merger may not be realized; the possibility of uncertainty created by the Merger, the change in our jurisdiction of organization, and being incorporated in a member state of the European Union; the fact that Irish corporate law imposes different and additional obligations on us and our shareholders; the fact that we expect to incur costs to complete the Merger; and the diversion of management s time and attention. The Board has considered both the potential advantages of, and the risks associated with, the Merger and has unanimously approved the Merger Agreement and recommends that shareholders vote to approve the Merger Agreement Proposal.
9 24 C. Consequences of the Merger 1. Material Corporate Law Considerations The Merger, if approved, will result in Tyco Ireland serving as the publicly traded parent of the Tyco group of companies, thereby effectively changing the place of incorporation of Tyco s publicly traded parent company from Switzerland to Ireland. After the Merger, current Tyco Switzerland shareholders will continue to own an interest in a parent company that will continue to conduct, through its beneficially wholly owned subsidiaries, the same businesses conducted by Tyco Switzerland prior to the Merger. The Merger will not dilute Tyco Switzerland shareholders' economic interest in Tyco. The number of ordinary shares a Tyco Switzerland shareholder will own in Tyco Ireland immediately after the Merger will be equal to the number of registered common shares a Tyco Switzerland shareholder will own in Tyco Switzerland immediately prior to the Merger. Further, the number of outstanding ordinary shares of Tyco Ireland immediately after the Merger will be equal to the number of outstanding registered common shares of Tyco Switzerland immediately prior to the Merger. Many of the principal attributes of Tyco Switzerland s registered common shares and Tyco Ireland s ordinary shares will be similar. However, if the Merger is completed, your future rights under Irish corporate law as a holder of Tyco Ireland ordinary shares will differ from your current rights under Swiss corporate law as a holder of Tyco Switzerland registered common shares. The legal system governing corporations organized under Irish law differs from the legal system governing corporations organized under Swiss law. As a result, we are unable to adopt governing documents for Tyco Ireland that are identical to the governing documents for Tyco Switzerland. Notwithstanding the differences in the governing documents between Tyco Ireland and Tyco Switzerland, we believe that Irish law and the proposed memorandum and articles of association of Tyco Ireland adequately safeguard the rights of shareholders. A copy of Tyco Ireland s proposed memorandum and articles of association is attached as Annex 1 to this Merger Report. We believe that these changes (1) either are required by Irish law or otherwise result from differences between the corporate laws of Ireland and the corporate laws of Switzerland, and (2) relate to the change of the jurisdiction of organization of the publicly-traded parent of Tyco from Switzerland to Ireland. The material differences between the governing documents for Tyco Switzerland and Tyco Ireland, and the changes in the rights of shareholders resulting from the Merger are summarized in the registration statement on Form S-4 (the U.S. Registration Statement) in the Section "Comparison of Rights of Shareholders." The U.S. Registration Statement is attached hereto as Annex 2. 2. Material Securities Laws and Reporting Considerations The Board expects Tyco Ireland s ordinary shares to be listed and traded on the NYSE under the symbol "TYC," the same symbol under which the registered common shares of Tyco Switzerland are currently listed and traded. The Board does not intend to seek a listing on the Irish Stock Exchange. Upon completion of the Merger, Tyco Ireland will remain subject to the SEC reporting requirements, the mandates of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and the applicable corporate governance rules of the NYSE, and
10 24 Tyco Ireland will continue to report Tyco s consolidated financial results in U.S. dollars and under U.S. GAAP. Upon the completion of the Merger, Tyco Ireland must also comply with any additional reporting and governance requirements of Irish law. 3. Material Tax Considerations a) Swiss Taxes For Swiss tax resident individual shareholders holding their registered common shares of Tyco Switzerland as private assets (Privatvermögen) the Merger will be tax neutral for Swiss federal, cantonal and communal income tax purposes provided that Tyco Ireland s equity that can be distributed to Swiss individual shareholders without Swiss income tax consequences does not exceed Tyco Switzerland s income tax free distributable equity (i.e., the sum of the nominal capital plus qualifying reserves from capital contributions) at the time of the exit. b) U.S. Federal Income Taxes Under U.S. federal income tax law, holders of Tyco Switzerland registered common shares generally will not recognize gain or loss as a result of the exchange of their registered common shares for ordinary shares of Tyco Ireland in the Merger. c) Irish Taxes Under Irish tax law, holders of Tyco Switzerland registered common shares who are not tax resident in Ireland and who do not carry on a trade in Ireland through a branch or agency to which the holding of such shares is attributable will not be subject to tax as a result of the Merger. Irish Stamp Duty Under Irish law, stamp duty is levied on transfers of shares in an Irish incorporated company at 1% of the price paid (or the market value of the acquired shares if higher). For the majority of transfers of Tyco Ireland ordinary shares, there will not be any Irish stamp duty. Irish stamp duty, if any, becomes payable in respect of share transfers occurring after completion of the Merger. A transfer of Tyco Ireland ordinary shares from a seller who holds shares beneficially (i.e., through DTC) to a buyer who holds the acquired shares beneficially will not be subject to Irish stamp duty (unless the transfer involves a change in the nominee that is the record holder of the transferred shares). A transfer of Tyco Ireland ordinary shares by a seller who holds shares directly (i.e. not through DTC) to any buyer, or by a seller who holds the shares beneficially to a buyer who holds the acquired shares directly, may be subject to Irish stamp duty. A shareholder who directly holds shares may transfer those shares into his or her own broker account to be held through the DTC (or vice versa) without giving rise to Irish stamp duty provided that the shareholder has confirmed to Tyco Ireland s transfer agent that there is no change in the ultimate beneficial ownership of the shares as a result of the transfer and the transfer is not in contemplation of a sale of the shares. Because of the potential Irish stamp duty on transfers of Tyco Ireland shares, we strongly recommend that all shareholders of record of Tyco Switzerland transfer their Tyco Switzerland shares into brokerage accounts as soon as possible and in any event prior to completion of the Merger. We also strongly recommend that any person who wishes to acquire Tyco Ireland shares after comple-
11 24 tion of the Merger acquire such shares beneficially. We currently intend to pay (or cause one of our affiliates to pay) the stamp duty in connection with share transfers made in the ordinary course of trading by a seller who holds shares directly to a buyer who holds the acquired shares beneficially. In other cases Tyco Ireland may, in its absolute discretion, pay (or cause one of its affiliates to pay) any stamp duty. Tyco Ireland s articles of association as they will be in effect after the Merger provide that in the event of any such payment, Tyco Ireland shall be entitled to (i) seek reimbursement from the buyer, (ii) set-off the amount of the stamp duty against future dividends on such shares, and (iii) claim a first and permanent lien on the Tyco Ireland shares acquired by such buyer and any dividends paid on such shares. Parties to a share transfer may assume that any stamp duty arising in respect of a transaction in Tyco Ireland shares has been paid unless one or both of such parties is otherwise notified by Tyco Ireland. For a more detailed description of the material tax consequences, please refer to the section "Material Tax Considerations" contained in the U.S. Registration Statement. The U.S. Registration Statement is attached hereto as Annex 2.
12 24 III. Merger Agreement A. Parties to the Merger Agreement 1. Tyco Switzerland Tyco Switzerland is a company organized under the laws of Switzerland, with its registered and principal office located at Victor von Bruns-Strasse 21, CH-8212 Neuhausen am Rheinfall, Switzerland. Its management office in the United States is located at 9 Roszel Road, Princeton, New Jersey 08540. Tyco Switzerland is a leading global provider of security products and services, fire detection and suppression products and services and life safety products. Its broad portfolio of products and services, sold under well-known brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, Grinnell, Scott and ADT (in jurisdictions outside of North America) serve security, fire detection and suppression and life safety needs across commercial, industrial, retail, institutional and governmental markets, as well as non-u.s. residential and small business markets. 2. Tyco International plc Tyco Ireland is a newly-formed Irish public limited company and is currently wholly owned by Tyco Switzerland through seven nominee shareholders that hold the entire issued share capital in trust for Tyco Switzerland to satisfy Irish legal requirements with respect to the shareholding structure of an Irish public limited company. Tyco Ireland has only nominal assets and capitalization, has no financial or operating history of its own and has not engaged in any business or other activities other than in connection with its formation, entry into the Merger Agreement and related transactions. Pursuant to the Merger Agreement, Tyco Switzerland will merge with and into Tyco Ireland, with Tyco Ireland surviving the Merger and Tyco Switzerland being dissolved without liquidation. The principal executive offices of Tyco Ireland are located at Melbourn Road, Bishopstown, Co. Cork, Ireland, and the company number is 543654. B. The Merger Agreement The parties adopted a Merger Agreement according to which Tyco Switzerland shall merge with and into Tyco Ireland, in accordance with the provisions of this Agreement and as stipulated by Article 3 et seq. of the Merger Act (to the extent applicable to a cross-border merger), Articles 163b, 163c and 164 of the Swiss Federal Private International Law Act (PILA) and applicable laws of Ireland. The parties have agreed that Tyco Ireland shall be the surviving and Tyco Switzerland the absorbed entity, the latter being dissolved without liquidation. Further, the parties have agreed that Tyco Ireland shall (i) accept all the assets of Tyco Switzerland, (ii) assume all of the liabilities of Tyco Switzerland (with the effect that the respective obligees have a right to enforce such liabilities directly against Tyco Ireland), (iii) reconstitute its board of directors to match that of Tyco Switzerland and (iv) issue shares to the shareholders of Tyco Switzerland in consideration and acceptance
13 24 of all the assets and liabilities of Tyco Switzerland. Tyco Ireland will further assume the employee benefit plans previously sponsored by Tyco Switzerland. At the Effective Time (as defined below), each holder of a Tyco Switzerland registered common share, excluding Tyco Switzerland and any of its subsidiaries, will by virtue of the Merger receive one Tyco Ireland ordinary share in exchange for each Tyco Switzerland registered common share held by such shareholder, and each Tyco Switzerland registered common share (including Tyco Switzerland registered common shares held by Tyco Switzerland and any of its subsidiaries) will cease to be issued, be cancelled and cease to exist, and each holder of Tyco Switzerland registered common shares (including Tyco Switzerland and any of its subsidiaries) will thereafter cease to have any rights with respect to such Tyco Switzerland registered common shares. The term "Effective Time" refers to the date and time as of which the Merger becomes legally effective. Pursuant to the Merger Agreement, the Merger becomes legally effective on the date of the entry of the Merger in the daily ledger of the commercial register of the Canton of Schaffhausen, Switzerland (the Commercial Register), subject to the approval by the Swiss Federal Commercial Register Office (EHRA). If the Merger Agreement Proposal is approved by the requisite vote of our shareholders (see below Conditions to Completion of the Merger), and the other conditions to closing are satisfied or waived, the Board will submit an application to effect the Merger with the Commercial Register as soon as practicable following approval of the Merger Agreement Proposal by the Special General Meeting. We currently anticipate completing the Merger by the end of 2014. A copy of the Merger Agreement is attached as Annex 3 to and forms part of this Merger Report. C. Merger Balance Sheet According to the Merger Agreement, the Merger will take place on the basis of the audited nonconsolidated interim stand-alone balance sheet of Tyco Switzerland as of March 28, 2014, which is attached hereto as Annex 4 (such date the Balance Sheet Date, and such balance sheet the Merger Balance Sheet). As from the balance sheet date, all acts and operations of Tyco Switzerland shall be deemed to be conducted for Tyco Ireland's account. D. Audit of the Agreement, the Merger Report and the Merger Balance Sheet The Board has appointed PricewaterhouseCoopers AG, Zurich (PWC), a licensed audit expert, to conduct the audit of the Merger Agreement, this Merger Report and the Merger Balance Sheet pursuant to Article 15 Merger Act. The audit report of PWC, together with the Merger Agreement, this Merger Report and the Merger Balance Sheet, will be available for inspection by the shareholders as stipulated in Article 16 Merger Act. Shareholders may request copies of these documents free of charge. E. Conditions to Completion of the Merger The Merger will not be completed unless the following conditions, among others, are satisfied:
14 24 the Merger Agreement is approved by the affirmative vote of at least two-thirds of the Tyco Switzerland registered common shares represented in person or by proxy at the Special General Meeting (which will also satisfy the Swiss statutory requirement to obtain the affirmative vote of the absolute majority of the par value of such shares). Tyco Switzerland has completed the creditors' calls pursuant to Article 163b para. 3 PILA and received a confirmatory report from a licensed audit expert Article 164 para. 1 PILA according to which: the claims of creditors of Tyco Switzerland who have given notice of their claims have been paid or security has been provided for such claims; the creditors who have given notice of their claims have consented to the deletion of Tyco Switzerland from the Commercial Register; the claims of the creditors of Tyco Switzerland are not compromised by the Merger; or there were no creditors' notices in response to the creditors' calls; any statutory, court or official prohibition to complete the Merger shall have expired or been terminated; all consents and/or waivers of any third party required of Tyco Switzerland to complete the Merger shall have been obtained; the SEC has declared the U.S. Registration Statement effective, and no stop order with respect thereto shall be in effect; the Tyco Ireland ordinary shares to be issued pursuant to the Merger are authorized for listing on the NYSE, subject to official notice of issuance; Tyco Ireland shall have entered into all agreements required by the DTC for the Tyco Ireland ordinary shares to be eligible for deposit, book-entry and clearance services; Tyco receives an opinion from McDermott Will & Emery LLP, in form and substance reasonably satisfactory to Tyco, dated as of the Effective Time of the Merger, confirming the matters discussed in the Section "Material Tax Considerations U.S. Federal Income Tax Considerations" of the U.S. Registration Statements; Tyco Switzerland receives an opinion from Arthur Cox, in form and substance reasonably satisfactory to it, dated as of the Effective Time of the Merger, confirming the matters discussed in the Section "Material Tax Considerations Irish Tax Considerations" of the U.S. Registration Statement; Tyco Switzerland receives an opinion from PWC, in form and substance reasonably satisfactory to it, dated as of the Effective Time of the Merger, confirming the matters discussed
15 24 in the Section "Material Tax Considerations Swiss Tax Considerations" of the U.S. Registration Statement; all Swiss legal preconditions necessary for the submission of the application for the entry of the Merger in the Commercial Register shall have been satisfied, including, the receipt from the Schaffhausen land registry of a confirmation (the Lex Koller Ruling) that Tyco Switzerland does not own any real property, is not subject to the Swiss Federal Act on the Acquisition of Real Property by Persons Abroad, and may be deregistered from the Commercial Register of the Canton of Schaffhausen; and there shall be a confirmation from the appropriate Swiss tax authorities that no exit withholding tax is payable under Swiss law as a result of the Merger. The Merger Agreement provides that we may decide to abandon the Merger at any time prior to the Special General Meeting, and in some circumstances, after obtaining shareholder approval at the Special General Meeting. After the Merger Agreement is approved by our shareholders at the Special General Meeting, we anticipate submitting the application to effect the Merger, unless one of the conditions to completing the Merger fails to be satisfied. F. Termination Pursuant to the Merger Agreement, the parties are entitled to terminate the Merger Agreement by mutual consent at any time prior to the Special General Meeting. Further, the Merger Agreement will be automatically terminated if the Special General Meeting does not approve the Merger Agreement. The Merger Agreement may further be terminated by the Board by delivery of a written notice to Tyco Ireland if the Board determines, in its reasonable discretion, that (i) one or several of the conditions to completion of the Merger are not satisfied or are not expected to be satisfied, (ii) the Merger is no longer in Tyco Switzerland s or its shareholders best interests, (iii) the Merger may not result in the benefits that Tyco Switzerland expected, or (iv) the cost of the Merger significantly increase. G. Other Matters: Reserves Proposal At the Special General Meeting, the Board is further seeking approval by shareholders of a proposal to reduce the share premium account of Tyco Ireland to allow the creation of distributable reserves of Tyco Ireland which are required under Irish law to allow Tyco Ireland to make distributions, to pay dividends or to repurchase or redeem Tyco Ireland ordinary shares following completion of the Merger. We refer to this proposal as the Reserves Proposal. Under Irish law, dividends may only be paid (and share repurchases and redemptions must generally be funded) out of "distributable reserves," which Tyco Ireland will not have immediately following the completion of the Merger. Shareholders are therefore being asked to approve the creation of distributable reserves of Tyco Ireland (through the reduction of the share premium account of Tyco Ireland) to facilitate Tyco Ireland to be able to make distributions, to pay dividends or repurchase or redeem its ordinary shares after the Merger.
16 24 The approval of the Reserves Proposal is not a condition to the completion of the Merger. Accordingly, if shareholders of Tyco Switzerland approve the Merger Agreement, but do not approve the Reserves Proposal, and the Merger is completed, Tyco Ireland may not have sufficient distributable reserves to make distributions, to pay dividends or repurchase or redeem its ordinary shares after the Merger. In addition, the creation of distributable reserves of Tyco Ireland by way of a capital reduction of Tyco Ireland requires the approval of the Irish High Court. Although we are not aware of any reason why the Irish High Court would not approve the creation of distributable reserves, the issuance of the required order is a matter for the discretion of the Irish High Court. H. Applicable Law The parties to the Merger Agreement have agreed that Swiss law shall apply to the Merger Agreement.
17 24 IV. Exchange Ratio As the Merger results in Tyco Ireland absorbing Tyco Switzerland, the shareholders of Tyco Switzerland will receive, as merger consideration for each registered share (par value CHF 0.50) of Tyco Switzerland issued immediately prior to the Effective Time, excluding each share held in treasury by Tyco Switzerland or any of its subsidiaries, one ordinary share (par value US$ 0.01) of Tyco Ireland, credited as fully paid. No additional compensation payment to shareholders of Tyco Switzerland will be made. The Merger will not dilute the shareholders' economic interest in Tyco. Immediately after the consummation of the Merger, Tyco Ireland will beneficially wholly own, directly or indirectly, all of Tyco Switzerland s subsidiaries. Further, shareholders will own the same number of ordinary shares of Tyco Ireland as the number of shares they owned of Tyco Switzerland. Finally, the number of outstanding ordinary shares of Tyco Ireland will be the same as the number of outstanding shares of Tyco Switzerland immediately before consummation of the Merger. The parties to the Merger Agreement have acknowledged and agreed that as of the Effective Time the Tyco Ireland shares issued to the holders of Tyco Switzerland shares shall all rank equally and have the same entitlement to dividend and any other shareholders' rights, all in accordance with Irish law. The Merger will take place between two companies of the Tyco group. As Tyco Ireland is a wholly owned subsidiary of Tyco Switzerland, and the Merger is a reorganization subject to a 1:1 exchange ratio, there are no special factors regarding the valuation of the determination of the exchange ratio. Any Tyco Switzerland shareholder who is considering bringing an appraisal suit under Article 105 of the Swiss Merger Act is strongly urged to read the Swiss Merger Act, the Swiss Code of Obligations and applicable procedural laws and to consult their own Swiss or Irish legal advisors. In this summary, certain Swiss legal concepts are expressed in English and not in their original German, French or Italian terms. The concepts used in Swiss law may not be identical to the concepts described by the same English terms as they exist under the laws of other jurisdictions. Under Swiss law, Tyco Switzerland shareholders whose common shares are registered in their names can exercise appraisal rights under Article 105 of the Swiss Merger Act and request the examination of the equity and membership interest in connection with the Merger by filing suit. Because Tyco Ireland will be the surviving entity after the Merger, an appraisal suit would likely be filed in a court in Ireland. The suit must be filed within two months after the registration of the Merger is published in the Swiss Official Gazette of Commerce (SHAB). An appraisal suit can be filed by shareholders who vote against the Merger Agreement Proposal, who abstain from voting, or who do not participate in the shareholders meeting approving the Merger Agreement Proposal. A shareholder who votes in favor of the approval of the Merger Agreement Proposal may under certain circumstances also be able to file a suit. Tyco Switzerland shareholders who filed an appraisal suit will receive the merger consideration at the same time as all other Tyco Switzerland shareholders. If a claim by one or more shareholders of Tyco Switzerland is successful, all Tyco Switzerland shareholders who held
18 24 common shares at the time of the effectiveness of the Merger would receive the same compensation. Under Swiss law, if an appraisal suit is filed, the court will determine the compensation, if any, that it considers adequate. The Swiss Merger Act does not prescribe any specific valuation reference points that a court should use in making its determination, and to the knowledge of Tyco Switzerland, there are no Swiss Supreme Court precedents published in which a successful appraisal claim was made. Article 105 of the Swiss Merger Act only states that a court shall award an adequate compensation (angemessene Ausgleichszahlung) and Article 7 of the Swiss Merger Act provides that the shareholders of the merged company are entitled to receive shares in the surviving entity in correlation to their former shareholding in the merged entity, taking into account the respective net assets (Vermögen) of the two merging companies, the apportionment of voting rights as well as other relevant factors. The court should consider the respective net assets of Tyco Switzerland and Tyco Ireland and the audit report, which will confirm that the merger consideration is justifiable (vertretbar) and adequate (angemessen) based on Article 15(4)(c) and (d) of the Swiss Merger Act. In addition, a court will also consider other factors it deems relevant. Because shareholders will receive, as consideration in the Merger, Tyco Ireland ordinary shares on a one-for-one basis and all of the assets and liabilities of Tyco Switzerland as a result of the completion of the Merger will be transferred by operation of law to Tyco Ireland, we believe that the equity and shareholder interests of Tyco Switzerland shareholders are adequately safeguarded. In a lawsuit brought before Swiss courts, the procedural and litigation costs of the appraisal proceedings will generally be borne by Tyco Ireland as the surviving company in the Merger. Under special circumstances, the court may require the plaintiffs to bear some of these costs. The filing of an appraisal suit does not prevent completion of the Merger. This description of appraisal rights and procedural aspects is based on Swiss law and international treaties applicable in Switzerland (such as the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Lugano Convention)). Should an appraisal suit be filed by shareholders against Tyco Ireland in Ireland, the applicable legal and procedural considerations might be different. Note that this description of the appraisal rights available to the shareholders of Tyco Switzerland under Article 105 of the Swiss Merger Act and of certain other provisions of Swiss law is a summary only. This summary does not purport to be a complete description of the relevant Swiss statutory provisions and it is qualified in its entirety by reference to the full text of the Swiss Merger Act, the Swiss Code of Obligations, the relevant provisions of the Swiss Federal Private International Law Act or international treaties regarding the recognition and enforcement of judgments (such as the Lugano Convention). In addition, this description is based on Swiss law and does not cover Irish law provisions that might be relevant in case an appraisal suit were brought before courts in Ireland.
19 24 V. Capital Increase of Tyco Ireland and Exchange of Shares A. Capital Increase of Tyco Ireland Immediately prior to the Merger, the issued share capital of Tyco Ireland will be 40,000, comprised of 40,000 ordinary shares with a par value of 1 per share (the Euro Share Capital). In connection with the consummation of the Merger, the Euro Share Capital will be acquired by Tyco Ireland for nil consideration and will then be cancelled by Tyco Ireland. We expect that Tyco Ireland will at the same time issue approximately 472 million ordinary shares with a par value of $0.01 each. All shares issued on completion of the Merger will be issued as fully paid up. B. Exchange of Shares The exchange of Tyco Switzerland shares into Tyco Ireland ordinary shares will occur automatically at the Effective Time. Broadridge Corporate Issuer Solutions, Inc., our transfer agent (the Transfer Agent), will, as soon as reasonably practicable after the Effective Time, exchange Tyco Switzerland shares for Tyco Ireland ordinary shares to be received in the Merger pursuant to the terms of the Merger Agreement. If you are currently a beneficial holder of Tyco Switzerland common shares (i.e., your shares are held through a bank, broker or other nominee), your ownership of Tyco Ireland ordinary shares will be recorded in book entry form by your bank, broker or other nominee on the Effective Time, without the need for any further action on your part. If you hold Tyco Switzerland common shares as a shareholder of record registered in our share register, your ownership of Tyco Ireland ordinary shares will be recorded in book entry form on the Effective Time by the Transfer Agent without the need for any further action on your part. After the Effective Time, each Tyco Switzerland share will no longer be outstanding and will cease to exist, and each book-entry share for registered holders that previously represented Tyco Switzerland shares will represent only the right to be entered into the register of members of Tyco Ireland.
20 24 VI. New Obligations Imposed on Shareholders as a Result of the Merger In essence, the duties of a shareholder under Swiss law (in a company limited by shares (Aktiengesellschaft)) and of a shareholder under the laws of Ireland (in a public limited company (plc)) are comparable. As Tyco Ireland is a company limited by shares pursuant to Irish Companies Acts 1963-2012, the financial liability of Tyco Ireland shareholders will be limited to the amount, if any, unpaid on the shares held by them. Once shares are credited as fully paid up, there is no further financial liability on the part of shareholders. Tyco Ireland's ordinary shares issued upon the Merger will be credited as full paid up upon issuance. Many of the principal attributes of Tyco Switzerland s common shares and Tyco Ireland s ordinary shares will be similar. However, if the Merger is consummated, your future rights under Irish corporate law as a holder of ordinary shares of Tyco Ireland will partially differ from your current rights under Swiss corporate law as a holder of common shares of Tyco Switzerland. In addition, Tyco Ireland s proposed memorandum and articles of association differ in some respects from Tyco Switzerland s articles of association and organizational regulations. A summary of material changes to your rights resulting from the Merger is included in the U.S. Registration Statement in the Section "Comparison of Rights of Shareholders." The U.S. Registration Statement is attached hereto as Annex 2. The summary in this Merger Report and the U.S. Registration Statement is not complete and does not cover all of the differences between Irish law and Swiss law affecting companies and their shareholders or all the differences between our Swiss articles of association and organizational regulations and our proposed Irish memorandum and articles of association. We believe this summary is complete and accurate in all material respects. It is, however, subject to the complete text of the relevant provisions of the Irish Companies Acts 1963-2012, Tyco Ireland s memorandum and articles of association, Tyco Switzerland s articles of association and organizational regulations and the Swiss Code of Obligations, in particular articles 620 through 763 of the Swiss Code of Obligations and the Swiss Merger Act. We encourage you to read those laws and documents. Tyco Ireland s proposed memorandum and articles of association are attached as Annex 1. Our Swiss Articles of Association and Organizational Regulations are attached as Annex 5.
21 24 VII. Consequences of the Merger for Employees At the Effective Time, any employment agreements with Tyco Switzerland will be transferred to and assumed by Tyco Ireland. The employees will continue to work in Switzerland. Tyco Switzerland will inform and consult with its employees pursuant to Article 28 Merger Act no later than 30 days prior to the Special General Meeting. Tyco Ireland does not, and will not prior to the Effective Time, have any employees.
22 24 VIII. Consequences of the Merger for Creditors At the Effective Time, Tyco Ireland will accept the assignment, transfer, conveyance, assumption and delivery (as the case may be) of any and all of the rights, assets (including, for the avoidance of doubt, any and all goodwill, intellectual property rights, know-how, stock, property, records, cash, bank or brokerage accounts, artwork, contracts and the benefit of any claims or debts) and liabilities (including, for the avoidance of doubt, any and all legal positions, obligations, claims, debts and environmental, health and safety, employer, contractual, financing or other liabilities, including contingent liabilities and guarantees) of Tyco Switzerland. Tyco Ireland has undertaken, for the benefit of each person to whom Tyco Switzerland owes any obligation or has any liability, from and after the date the Merger becomes effective, to accept, assume and agree to faithfully perform and fulfill such obligations and discharge such liabilities as if it originally owed or had them instead of Tyco Switzerland. Tyco Ireland accordingly agrees for the benefit of each such person that such person may enforce any such liability directly against Tyco Ireland, without recourse to Tyco Switzerland, on the same terms and to the same extent that such liability would have been enforceable by such person against Tyco Switzerland had the Merger not been completed, regardless of where or against whom such liability is asserted or determined (including any liability arising out of claims made by Tyco Switzerland s or Tyco Ireland s respective shareholders, directors, officers, employees, agents, subsidiaries or affiliates) or whether asserted or determined prior to, on or after the Effective Time, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of the laws of any jurisdiction, fraud, misrepresentation or any other cause. Further, in connection with the Merger, Tyco Ireland will become a guarantor and a newly formed Luxembourg subsidiary of Tyco Ireland will assume the obligations of Tyco Switzerland as an issuer or guarantor, as the case may be, under the indentures governing Tyco's outstanding notes. The Board therefore believes that the Merger does not negatively affect Tyco's creditors. The Board has procured that three calls to the Tyco Switzerland's creditors were published in the Swiss Official Gazette of Commerce (SHAB), as required in connection with the Merger, and appointed PWC to prepare an audit report according to Article 164 para. 1 PILA.
23 24 IX. Governmental Approvals The Board is not aware of any governmental approvals or actions that are required to be obtained to complete the Merger other than (i) the registration of the Merger in the Commercial Register as described in this Merger Report, (ii) receipt of the Lex Koller Ruling, (iii) receipt of the Swiss tax authority confirmation that no exit withholding tax is payable under Swiss law by Tyco Switzerland shareholders as a result of the Merger, and (iv) compliance with U.S. federal and state securities laws and Swiss and Irish law.