Document vO9eYKkdx1jemDvr6wk1xprR

COOPER INDUSTRIES LTD(Form 424B2, Received 10/25/2002 13 39 31) Page 39 of 68 As of December 31, 2001 all employee reduction and facility consolidation actions related to the first quarter 1999 and fourth quarter 1998 employee reduction and facility consolidation plans were essentially completed and amounts accrued for these programs have been satisfied NOTE 3: CHARGE RELATED TO DISCONTINUED OPERATIONS In October 1998, Cooper sold its Automotive Products business to Federal-Mogul Corporation ("Federal- Mogul") These discontinued businesses (including the Abex product line obtained from Pneumo-Abex Corporation ("Pneumo") m 1994) were operated through subsidiary companies, and the stock of those subsidiaries was sold to Federal-Mogul pursuant to a Purchase and Sale Agreement dated August 17, 1998 ("1998 Agreement") In conjunction with the sale, Federal-Mogul indemnified Cooper for certain liabilities of these subsidiary companies, including liabilities related to the Abex product line and any potential liability that Cooper may have to Pneumo pursuant to a 1994 Mutual Guaranty Agreement between Cooper and Pnuemo On October 1, 2001, Federal-Mogul and several of its affiliates filed a Chapter 11 bankruptcy petition and indicated that Federal-Mogul may not honor the indemnification obligations to Cooper As of the date of this filing, Federal-Mogul had not yet made a decision whether to reject the 1998 Agreement, which includes the indemnification to Cooper If Federal-Mogul rejects the 1998 Agreement, Cooper will be relieved of its future obligations under the 1998 Agreement, including specific indemnities relating to payment of taxes and certain obligations regarding insurance for its former Automotive Products businesses To the extent Cooper is obligated to Pneumo for any asbestos-related claims arising from the Abex product line ("Abex Claims"), Cooper has rights, confirmed by Pneumo, to significant insurance for such claims Based on information provided by representatives of Federal-Mogul, from August 28, 1998 through December 31, 2001, a total of 75,152 Abex Claims were filed, of which 16,974 claims have been resolved leavmg 58,178 Abex Claims pending at December 31, 2001, that are the responsibility of Federal-Mogul Since August 28, 1998, the average indemnity payment for resolved Abex Claims was $908 before insurance A total of $25 5 million was spent on defense costs for the period August 28, 1998 through December 31, 2001 Historically, existing insurance coverage has provided 50% to 80% of the total defense and indemnity payments for the Abex claims Since the October 1, 2001 bankruptcy filing by Federal-Mogul through December 31, 2001, a total of 3,541 Abex Claims have been filed F-8 COOPER INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) With the assistance of its mdependent advisors, Cooper has completed a thorough analysis of its potential exposure for asbestos liabilities in the event Federal-Mogul rejects the 1998 Agreement At this time, the manner m which this issue ultimately will be resolved is not known Based on Cooper's analysis of its contingent liability exposure resulting from Federal-Mogul's bankruptcy, Cooper concluded that an additional fourth-quarter 2001 discontinued operations provision of $30 million after tax, or $ 32 per share, was appropriate to reflect the potential net financial impact of this issue This conclusion is based on a review of the Abex claims history, existing insurance coverage, the contractual indemnities and other facts determined to date Cooper is preserving its rights as a creditor for breach of Federal-Mogul's indemnification to Cooper and its rights against all Federal-Mogul subsidiaries Cooper intends to take all actions to seek a resolution of the indemnification issues and future handling of the Abex- related claims within the Federal-Mogul bankruptcy proceedings NOTE 4: ACQUISITIONS AND DIVESTITURES During 2001, Cooper received purchase price adjustments of $9 8 million net, primarily related to httn I/wrwrwr p/ppnnor/C^aorFlo+m 1 AfWiOPAtvmnm rTTN--r^xyc i i a i ooo 1/10