Document:

exv10w31

Exhibit 10.31

 

LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT

dated as of

April 26, 2011

among

BANK OF AMERICA, N.A.,

as ABL Administrative Agent,

UBS AG, STAMFORD BRANCH,

as Term Loan Collateral Agent,

NORTEK, INC.

and

the Subsidiaries of Nortek, Inc. named herein

 

 

 

          LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT dated as of April 26, 2011, among BANK OF
AMERICA, N.A., as Administrative Agent under the ABL Credit Agreement referred to herein and as ABL
Administrative Agent for the ABL Secured Parties, UBS AG, STAMFORD BRANCH, as Term Loan Collateral
Agent for the Term Loan Secured Parties referred to herein, NORTEK, INC. and the subsidiaries of
Nortek, Inc. named herein.

          Reference is made to (a) the ABL Credit Agreement (such term and each other capitalized term
used and not otherwise defined herein having the meaning assigned to it in Article I herein), under
which the ABL Lenders have extended and agreed to extend credit to the Borrowers, and (b) the Term
Loan Credit Agreement, under which the Term Loan Lenders have extended and agreed to extend credit
to the Borrowers. In consideration of the mutual agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the ABL
Administrative Agent (for itself and on behalf of the ABL Secured Parties), the Term Loan
Collateral Agent (for itself and on behalf of the Term Loan Secured Parties), the Company and the
subsidiaries of the Company party hereto agree as follows:

ARTICLE I

Definitions

          SECTION 1.01. Construction; Certain Defined Terms.

          (a) The definitions of terms herein shall apply equally to the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be
deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to
have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (i)
any definition of or reference to any agreement, instrument, other document, statute or regulation
herein shall be construed as referring to such agreement, instrument, other document, statute or
regulation as from time to time amended, restated, amended and restated, supplemented or otherwise
modified, (ii) any reference herein to any Person shall be construed to include such Person’s
successors and assigns, but shall not be deemed to include the subsidiaries of such Person unless
express reference is made to such subsidiaries, (iii) the words “herein”, “hereof and “hereunder”,
and words of similar import, shall be construed to refer to this Agreement in its entirety and not
to any particular provision hereof, (iv) all references herein to Articles, Sections and Annexes
shall be construed to refer to Articles, Sections and Annexes of this Agreement, (v) unless
otherwise expressly qualified herein, the words “asset” and “property” shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights and (vi) the term “or” is not
exclusive.

          (b) As used in this Agreement, the following terms have the meanings specified below:

 

 

          “ABL Administrative Agent” means Bank of America, N.A., in its capacity as Administrative
Agent under the ABL Credit Agreement, and its successors in such capacity (it being understood the
ABL Administrative Agent has been appointed as the sole “collateral agent” under the ABL Documents,
and is the sole representative under the ABL Documents with respect to the ABL Collateral and the
remedies with respect thereto).

          “ABL Collateral” means all assets and properties subject to Liens created by the ABL Security
Documents to secure the ABL Obligations.

          “ABL Credit Agreement” means the Amended and Restated Credit Agreement dated as of December
17, 2010, among the Borrowers named therein, the ABL Lenders, and the ABL Administrative Agent, as
amended, restated, amended and restated, supplemented, waived, Refinanced or otherwise modified
from time to time.

          “ABL Documents” means the ABL Credit Agreement and the ABL Security Documents.

          “ABL First Lien Collateral” means any and all of the following ABL Collateral now owned or at
any time hereafter acquired by the Company or any other Grantor or in which any such Person may
have now or in the future any right, title or interest:

     (a) all Accounts;

     (b) all Inventory;

     (c) to the extent evidencing, governing, securing or otherwise related to the items referred
to in the preceding clauses (a) and (b), all (i) General Intangibles, (ii) Chattel Paper, (iii)
Instruments and (iv) Documents;

     (d) to the extent evidencing, governing, securing or otherwise related to the items referred
to in the preceding clauses (a) and (b), all Payment Intangibles (including corporate tax refunds),
other than any Payment Intangibles that represent tax refunds in respect of or otherwise relate to
Term Loan First Lien Collateral;

     (e) all intercompany indebtedness of the Company or any of its subsidiaries that arises from
cash advances made after the date hereof to enable the obligor or obligors thereon to acquire
Inventory;

     (f) all collection accounts, Deposit Accounts, lock-boxes, Securities Accounts and Commodity
Accounts and any cash or other assets in any such accounts and all “Cash Equivalents” as defined in
the ABL Credit Agreement on the date hereof (or as modified from time to time to the extent such
modifications, taken as a whole, are not materially adverse to the Term Loan Secured Parties)
(other than (i) identifiable cash proceeds in respect of Term Loan First Lien Collateral, (ii) as
each may relate to the Capital Stock of the Grantors and (iii) amounts held in any Disposition
Proceeds Account to the extent that such amounts do not exceed the amount of proceeds of the sale
or other disposition of any Term Loan First Lien Collateral that are deposited in such Disposition
Proceeds Account plus interest, dividends, earnings and other proceeds thereof, and
minus

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withdrawals thereof that are applied as provided in the Term Loan Credit Agreement);

     (g) all books and records related to the foregoing; and

     (h) all Products and Proceeds (including Proceeds of Proceeds) and Supporting Obligations of
any and all of the foregoing in whatever form received, including proceeds of insurance policies
related to Inventory of any Grantor and business interruption insurance and all collateral security
and guarantees given by any other Person with respect to any of the foregoing; provided that no
Proceeds of Proceeds of ABL First Lien Collateral will constitute ABL First Lien Collateral unless
such Proceeds would otherwise constitute ABL First Lien Collateral.

          “ABL First Lien Collateral Transition Date” means the earlier of (a) the date on which all the
ABL Obligations shall have been paid in full (other than (i) indemnity payments not yet accrued
under the ABL Documents and (ii) obligations under Secured Hedge Agreements (as defined in the ABL
Credit Agreement) and Secured Cash Management Agreements (as defined in the ABL Credit Agreement)
as to which arrangements satisfactory to the applicable hedging or cash management counterparty, as
applicable, shall have been made) and all commitments to extend credit under the ABL Credit
Agreement shall have been terminated and all Letters of Credit (as defined in the ABL Credit
Agreement) shall have expired or terminated (other than any Letters of Credit as to which
arrangements reasonably satisfactory to the applicable issuing party shall have been made) and (b)
the date on which all Senior Liens on the ABL First Lien Collateral shall have been released.

          “ABL Lenders” means the Lenders under and as defined in the ABL Credit Agreement.

          “ABL Liens” means Liens on the ABL Collateral created under ABL Security Documents to secure
the ABL Obligations.

          “ABL Mortgages” means the mortgages, deeds of trust, leasehold mortgages, assignments of
leases and rents, modifications and other security documents that convey or evidence a Lien in
favor of the ABL Administrative Agent (on behalf of the ABL Secured Parties) on fee or leasehold
interests in real property of a Grantor to secure the ABL Obligations, as amended, restated,
amended and restated, supplemented, replaced or otherwise modified from time to time.

          “ABL Obligations” means all “U.S. Obligations” (as such term is defined in the ABL Credit
Agreement) under the ABL Documents, the Secured Hedge Agreements and the Secured Cash Management
Agreements (as such terms are defined in the ABL Credit Agreement).

          “ABL Secured Parties” means, at any time, the ABL Administrative Agent, each “Collateral
Agent” (as defined in the ABL Credit Agreement), each ABL Lender, each L/C Issuer (as defined in
the ABL Credit Agreement), each counterparty under any Secured Hedge Agreements (as defined in the
ABL Credit Agreement) and the Secured Cash Management Agreements (as defined in the ABL Credit
Agreement), the beneficiaries of each indemnification

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obligation undertaken by any Grantor under any ABL Document and each other holder of, or obligee in
respect of, any ABL Obligations outstanding at such time.

          “ABL Security Agreement” means that certain U.S. Security Agreement dated as of December 17,
2009, among the Company, the subsidiaries of the Company party thereto and the ABL Administrative
Agent, as amended, restated, amended and restated, supplemented, replaced or otherwise modified
from time to time.

          “ABL Security Documents” means the ABL Credit Agreement (insofar as the same grants a Lien on
Collateral), the ABL Security Agreement, the ABL Mortgages, the Intellectual Property Security
Agreements (as defined in the ABL Security Agreement) and any other documents now existing or
entered into after the date hereof that create Liens on any assets or properties of any Grantor or
any of its subsidiaries to secure any ABL Obligations.

          “Agreement” means this Lien Subordination and Intercreditor Agreement as in effect from time
to time.

          “Bankruptcy Code” means Title 11 of the United States Code.

          “Borrowers” means the Company and the subsidiaries of the Company that are borrowers under the
ABL Credit Agreement or the Term Loan Credit Agreement, as applicable.

          “Business Day” means any day other than a Saturday, Sunday or other day on which banks in New
York City are authorized or required by law to close.

          “Capital Stock” means (a) in the case of a corporation, corporate stock, (b) in the case of an
association or business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (c) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or limited), and (d) any
other interest or participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.

          “Collateral” means the ABL Collateral and the Term Loan Collateral.

          “Collateral Agent” means the ABL Administrative Agent and/or the Term Loan Collateral Agent.

          “Company” means Nortek, Inc., a Delaware corporation.

          “Discharge” means, (a) in the case of the ABL Obligations and ABL Collateral, (i) the payment
in full of all ABL Obligations (other than (A) indemnity payments not yet accrued under the ABL
Documents and (B) obligations under Secured Hedge Agreements (as defined in the ABL Credit
Agreement) and Secured Cash Management Agreements (as defined in the ABL Credit Agreement) as to
which arrangements satisfactory to the applicable hedging or cash management counterparty, as
applicable, shall have been made) and the termination of all commitments to extend credit under the
ABL Credit Agreement and the termination or expiration of all Letters of Credit (as defined in the
ABL Credit Agreement) (other than any Letters of Credit as to which arrangements reasonably
satisfactory to the applicable issuing party shall have

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been made) and (ii) the release of all ABL Liens on the ABL First Lien Collateral and (b) in the
case of the Term Loan Obligations and the Term Loan Collateral, (i) the payment in full of all Term
Loan Obligations (other than (A) indemnity payments not yet accrued under the Term Loan Documents
and (B) obligations under Secured Hedge Agreements (as defined in the Term Loan Credit Agreement)
as to which arrangements satisfactory to the applicable hedging counterparty shall have been made)
and (ii) the release of all Tem Loan Liens on the Term Loan First Lien Collateral.

          “Disposition Proceeds Account” means one or more deposit accounts or securities accounts
established or maintained by the Term Loan Collateral Agent or ABL Administrative Agent for the
sole purpose of holding the proceeds of any sale or other disposition of any Term Loan First Lien
Collateral pending reinvestment pursuant to the terms of the Term Loan Credit Agreement as in
effect on the date hereof (or as modified from time to time to the extent such modifications, taken
as a whole, are not materially adverse to the ABL Secured Parties).

          “Enforcement Action” shall have the meaning assigned to such term in Section 2.02(a).

          “Enforcement Notice” at a time when an Event of Default under the ABL Credit Agreement or the
Term Loan Credit Agreement has occurred and the ABL Administrative Agent or the Term Loan
Collateral Agent, as applicable, shall have delivered written notice to the Company and (x) in the
case of such a notice delivered by the ABL Administrative Agent, the Term Loan Collateral Agent
and (y) in the case of such a notice delivered by the Term Loan Collateral Agent, the ABL
Administrative Agent, that the ABL Administrative Agent or the Term Loan Collateral Agent, as the
case may be, intends to exercise remedies against any of the Collateral.

          “Event of Default” means an “Event of Default” under and as defined in the ABL Credit
Agreement or the Term Loan Credit Agreement, as the context may require.

          “Grantor” means the Company and each subsidiary of the Company that shall have granted any
Lien in favor of the ABL Administrative Agent or the Term Loan Collateral Agent on any of its
assets or properties to secure any of the Obligations.

          “Junior Documents” means (a) in respect of the Term Loan First Lien Collateral, the ABL
Documents, and (b) in respect of the ABL First Lien Collateral, the Term Loan Documents.

          “Junior Liens” means (a) in respect of the ABL First Lien Collateral, the Term Loan Liens on
such Collateral, and (b) in respect of the Term Loan First Lien Collateral, the ABL Liens on such
Collateral.

          “Junior Representative” means (a) with respect to the Term Loan First Lien Collateral, the ABL
Administrative Agent, and (b) with respect to the ABL First Lien Collateral, the Term Loan
Collateral Agent.

          “Junior Secured Obligations” means (a) with respect to the Term Loan Obligations (to the
extent such Obligations are secured by the Term Loan First Lien Collateral), the

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ABL Obligations, and (b) with respect to ABL Obligations (to the extent such Obligations are
secured by the ABL First Lien Collateral), the Term Loan Obligations.

          “Junior Secured Obligations Collateral” means the Collateral in respect of which the Junior
Representative (on behalf of itself and the Junior Secured Obligations Secured Parties) holds a
Junior Lien.

          “Junior Secured Obligations Secured Parties” means (a) with respect to the Term Loan First
Lien Collateral, the ABL Secured Parties, and (b) with respect to the ABL First Lien Collateral,
the Term Loan Secured Parties.

          “Junior Secured Obligations Security Documents” means (a) with respect to the ABL First Lien
Collateral, the Term Loan Security Documents, and (b) with respect to the Term Loan First Lien
Collateral, the ABL Security Documents.

          “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title retention agreement,
any lease in the nature thereof, any other agreement to give a security interest therein and any
filing of or agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes of any jurisdiction) with respect thereto; provided, however, that in no event
shall an operating lease be deemed to constitute a Lien.

          “Loan Agreements” mean the ABL Credit Agreement and the Term Loan Credit Agreement.

          “Notice of Event of Default” shall mean a written certification from any Collateral Agent
addressed to the other Collateral Agent certifying that an Event of Default has occurred and is
continuing under the applicable Loan Agreement, and that any required notice thereof has been given
and any grace periods provided for therein have expired and such Collateral Agent has demanded the
repayment of all the principal amount of the applicable Obligations.

          “Obligations”
means the Term Loan Obligations and the ABL Obligations. 

          “Person” means any
individual, sole proprietorship, partnership, limited liability company, joint venture, joint-stock
company, trust, unincorporated organization, association, corporation, government or any agency or
political subdivision thereof or any other entity.

          “Refinance” means, in respect of any indebtedness, and in each case subject to the provisions
of Section 2.10 hereof, to refinance, extend, renew, restructure or replace such indebtedness, or
to issue other indebtedness or enter into alternative financing arrangements in exchange or
replacement for such indebtedness (in each case in whole or in part), including by adding or
replacing lenders, creditors, agents, trustees, borrowers and/or guarantors, and including, in each
case, but not limited to, after the original instrument giving rise to such indebtedness has been
terminated and including, in each case, through any ABL Credit Agreement, Term Loan Credit
Agreement or other agreement. “Refinanced” and “Refinancing” have correlative meanings.

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          “Representative” means (a) in the case of any Term Loan Obligations, the Term Loan Collateral
Agent, and (b) in the case of any ABL Obligations, the ABL Administrative Agent.

          “Secured Parties” means the Term Loan Secured Parties and the ABL Secured Parties.

          “Security Documents” means the Term Loan Security Documents and the ABL Security Documents.

          “Senior Documents” means (a) in respect of the Term Loan First Lien Collateral, the Term Loan
Documents, and (b) in respect of the ABL First Lien Collateral, the ABL Documents.

          “Senior Liens” means (a) in respect of the ABL First Lien Collateral, the ABL Liens on such
Collateral, and (b) in respect of the Term Loan First Lien Collateral, the Term Loan Liens on such
Collateral.

          “Senior Representative” means (a) with respect to the Term Loan First Lien Collateral, the
Term Loan Collateral Agent, and (b) with respect to the ABL First Lien Collateral, the ABL
Administrative Agent.

          “Senior Secured Obligations” means (a) with respect to the ABL Obligations (to the extent such
Obligations are secured by the Term Loan First Lien Collateral), the Term Loan Obligations, and (b)
with respect to Term Loan Obligations (to the extent such Obligations are secured by the ABL First
Lien Collateral), the ABL Obligations.

          “Senior Secured Obligations Collateral” means the Collateral in respect of which the Senior
Representative (on behalf of itself and the applicable Senior Secured Obligations Secured Parties)
holds a Senior Lien.

          “Senior Secured Obligations Secured Parties” means (a) with respect to the Term Loan First
Lien Collateral, the Term Loan Secured Parties, and (b) with respect to the ABL First Lien
Collateral, the ABL Secured Parties.

          “Senior Secured Obligations Security Documents” means (a) with respect to the ABL First Lien
Collateral, the ABL Security Documents, and (b) with respect to the Term Loan First Lien
Collateral, the Term Loan Security Documents.

          “subsidiary” means, with respect to any Person, (a) any corporation, association or other
business entity (other than a partnership, joint venture or limited liability company) of which
more than 50% of the total voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or trustees thereof
is at the time of determination owned or controlled, directly or indirectly, by such Person or one
or more of the other subsidiaries of that Person or a combination thereof, and (b) any partnership,
joint venture or limited liability company of which (i) more than 50% of the capital accounts,
distribution rights, total equity and voting interests or general and limited partnership
interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or

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more of the other subsidiaries of that Person or a combination thereof, whether in the form of
membership, general, special or limited partnership interests or otherwise, and (ii) such Person or
any subsidiary of such Person is a controlling general partner or otherwise controls such entity.

          “Term Loan Administrative Agent” means UBS AG, Stamford Branch, in its capacity as Term Loan
Administrative Agent under the Term Loan Credit Agreement, and its successors in such capacity.

          “Term Loan Collateral” means all assets and properties subject to Liens created by the Term
Loan Security Documents to secure the Term Loan Obligations.

          “Term Loan Collateral Agent” means UBS AG, Stamford Branch, in its capacity as Term Loan
Collateral Agent under the Term Loan Security Documents, and its successors in such capacity.

          “Term Loan Credit Agreement” means the Credit Agreement dated as of April 26, 2011, among the
Company, the Term Loan Administrative Agent and the Term Loan Collateral Agent, as amended,
restated, amended and restated, supplemented, waived, Refinanced or otherwise modified from time to
time.

          “Term Loan Documents” means the Term Loan Credit Agreement and the Term Loan Security
Documents.

          “Term Loan First Lien Collateral” means any and all Term Loan Collateral, other than the ABL
First Lien Collateral, including, without limitation, and in each case to the extent not
constituting ABL First Lien Collateral, (a) all Equipment; (b) all real property; (c) all
intellectual property; (d) all General Intangibles; (e) all documents of title related to
Equipment; (f) all Capital Stock or other equity interests of each subsidiary of the Company or any
Grantor; (g) all promissory notes and instruments evidencing indebtedness owed to any Grantor
(other than intercompany loans advanced to fund the purchase of Inventory); (h) all books and
records, Supporting Obligations and related letters of credit, Commercial Tort Claims or other
claims and causes of action, in each case, to the extent related primarily to the foregoing; (i)
all other Goods and assets of the Grantors not constituting ABL First Lien Collateral; and (j)
substitutions, replacements, accessions, Products and Proceeds (including, without limitation,
insurance proceeds, licenses, royalties, income, payments, claims, damages and proceeds of suit) of
any or all of the foregoing.

          “Term Loan Lenders” means the Lenders under and as defined in the Term Loan Credit Agreement.

          “Term Loan Liens” means Liens on the Term Loan Collateral created under the Term Loan Security
Documents to secure the Term Loan Obligations.

          “Term Loan Mortgages” means the mortgages, deeds of trust, leasehold mortgages, assignments of
leases and rents, modifications and other security documents that convey or evidence a Lien in
favor of the Term Loan Collateral Agent or Term Loan Administrative Agent (in each case on behalf
of the Term Loan Secured Parties) on fee or leasehold interests in

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real property of a Grantor to secure Term Loan Obligations, as amended, restated, amended and
restated, supplemented, replaced or otherwise modified from time to time.

          “Term Loan Obligations” means all “Obligations” (as such term is defined in the Term Loan
Credit Agreement) under the Term Loan Documents and under the Secured Hedge Agreements (as such
term is defined in the Term Loan Credit Agreement).

          “Term Loan Secured Parties” means, at any time, the Term Loan Administrative Agent, the Term
Loan Collateral Agent, each Term Loan Lender, each Hedge Bank (as defined in the ABL Credit
Agreement), the beneficiaries of each indemnification obligation undertaken by any Grantor under
any Term Loan Document and each other holder of, or obligee in respect of, any Term Loan
Obligations outstanding at such time.

          “Term Loan Security Agreement” means that certain Security Agreement dated as of April 26,
2011, among the Company, the subsidiaries of the Company party thereto and the Term Loan Collateral
Agent, as amended, restated, amended and restated, supplemented, replaced or otherwise modified
from time to time.

          “Term Loan Security Documents” means the Term Loan Security Agreement, the Term Loan
Mortgages, the Intellectual Property Security Agreements (as defined in the Term Loan Security
Agreement) and any other documents now existing or entered into after the date hereof that create
Liens on any assets or properties of any Grantor to secure any Term Loan Obligations.

          “UCC” means the Uniform Commercial Code as from time time in effect in the State of New York;
provided that, if perfection or the effect of perfection or non-perfection or the priority of any
security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect
from time to time in such other jurisdiction for purposes of the provisions hereof relating to such
perfection, effect of perfection or non-perfection or priority.

          (c) Unless otherwise defined in this Agreement, terms defined in Article 8 or 9 of the UCC are
used in this Agreement (whether or not capitalized) as such terms are defined in such Article 8 or
9 (including Accounts, Certificated Security, Chattel Paper, Commercial Tort Claims, Commodity
Accounts, Commodity Contract, Deposit Accounts, Documents, Equipment, Farm Products, Financial
Assets, Fixtures, General Intangibles, Payment Intangibles, Goods, Instruments, Inventory,
Investment Property, Letter of Credit Rights, Proceeds, Products, Securities Accounts, Securities
Intermediary, Security, Securities Account, Security Entitlements and Supporting Obligations).

ARTICLE II

Subordination of Junior Liens; Certain Agreements

          SECTION 2.01. Subordination of Junior Liens.

          (a) All Junior Liens in respect of any Collateral are expressly subordinated and made junior
in right, priority, operation and effect to any and all Senior Liens in respect of

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such Collateral, notwithstanding anything contained in this Agreement, the Term Loan Documents, the
ABL Documents or any other agreement or instrument to the contrary, and irrespective of the time,
order or method of creation, attachment or perfection of such Junior Liens and Senior Liens or any
failure, defect or deficiency or alleged failure, defect or deficiency in any of the foregoing.
The Junior Representative agrees to execute and deliver (at the sole cost and expense of the
Grantors) all subordination agreements and other instruments as shall be reasonably requested by
the Senior Representative to confirm and evidence any subordination of Junior Secured Obligations
Collateral provided for in this Section 2.01(a). If requested, such subordination agreement or
other instrument shall be in recordable form and shall be in form and substance reasonably
satisfactory to the Senior Representative, the Junior Representative and the title insurance
company insuring the Liens of the Secured Parties on the Mortgaged Properties (as defined in the
Term Loan Credit Agreement).

          (b) It is acknowledged that (i) the aggregate amount of the Senior Secured Obligations may
be increased from time to time, (ii) a portion of the Senior Secured Obligations consists or may
consist of indebtedness that is revolving in nature, and the amount thereof that may be outstanding
at any time or from time to time may be increased or reduced and subsequently reborrowed, and (iii)
the Senior Secured Obligations may be increased, Refinanced, restated, supplemented or otherwise
amended or modified from time to time, all without affecting the subordination of the Junior Liens
hereunder or the provisions of this Agreement defining the relative rights of the ABL Secured
Parties and the Term Loan Secured Parties. The lien priorities provided for herein shall not be
altered or otherwise affected by any amendment, modification, supplement, increase, restatement or
Refinancing of either the Junior Secured Obligations (or any part thereof) or the Senior Secured
Obligations (or any part thereof), by the release of any Collateral or of any guarantees for any
Senior Secured Obligations or by any action that any Representative or Secured Party may take or
fail to take in respect of any Collateral.

          SECTION 2.02. No Action With Respect to Junior Secured Obligations Collateral Subject to
Senior Liens. Subject to clause (b) below, no Junior Representative or other Junior Secured
Obligations Secured Party shall commence or instruct any Junior Representative to commence any
judicial or nonjudicial foreclosure proceedings with respect to, seek to have a trustee, receiver,
liquidator or similar official appointed for or over, attempt any action to take possession of,
exercise any right, remedy or power with respect to, or otherwise take any action to enforce its
interest in or realize upon, or take any other action available to it in respect of, any Junior
Secured Obligations Collateral under any Junior Secured Obligations Security Document, under
applicable law or otherwise (any such action, an “Enforcement Action”), at any time when such
Junior Secured Obligations Collateral shall be subject to any Senior Lien and any Senior Secured
Obligations secured by such Senior Lien shall remain outstanding or any commitment to extend credit
that would constitute Senior Secured Obligations secured by such Senior Lien shall remain in
effect, it being agreed that only the Senior Representative, acting in accordance with the
applicable Senior Secured Obligations Security Documents, shall be entitled to take any such
actions or exercise any such remedies. Notwithstanding the foregoing, any Junior Representative
may, subject to Section 2.05, (A) take all such actions as it shall deem necessary to preserve,
perfect or continue the perfection of its Junior Liens, (B) in any bankruptcy, insolvency or other
proceeding commenced by or against Company or any other Grantor, the Junior Representative may file
a claim or statement of interest with respect to the Junior Secured Obligations, (C) the Junior
Secured Obligations Secured Parties shall be entitled to file any necessary responsive or

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defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made
by any person objecting to or otherwise seeking the disallowance of the claims of the Junior
Secured Obligations Secured Parties, including without limitation any claims secured by the
Collateral, if any, (D) subject to Section 2.04, in any bankruptcy, insolvency or other proceeding,
the Junior Secured Obligations Secured Parties shall be entitled to file any pleadings, objections,
motions or agreements which assert rights or interests available to unsecured creditors of the
Grantors arising under the Bankruptcy Code or applicable law, and (E) in any bankruptcy, insolvency
or other proceeding, the Junior Secured Obligations Secured Parties shall be entitled to vote on
any plan of reorganization, in each case of the foregoing clauses (A) through (E) to the extent
consistent with the provisions hereof.

          (b) Notwithstanding anything to the contrary herein, with respect to the Senior Secured
Obligations Collateral, (i) after a period of 180 days has elapsed since the later of: (A) the
date on which the Junior Representative declared the existence of an Event of Default and demanded
the repayment of all the principal amount of any Junior Lien Obligations; and (B) the date on which
the Senior Representative received a Notice of Event of Default (the “Standstill Period”), the
Junior Representative and/or any Junior Secured Obligations Secured Party may commence an
Enforcement Action with respect to the Senior Secured Obligations Collateral; provided, however,
that (A) notwithstanding the expiration of the Standstill Period, in no event shall the Junior
Representative and/or any Junior Secured Obligations Secured Party commence an Enforcement Action
with respect to any Senior Secured Obligations Collateral if the Senior Representative or any
Senior Secured Obligations Secured Parties shall have commenced, and shall be diligently pursuing,
an Enforcement Action, and (B) following the Standstill Period, if the Junior Representative and/or
any Junior Secured Obligations Secured Party has commenced an Enforcement Action and either the
Senior Representative or any Senior Secured Obligations Secured Party, as applicable, shall have
commenced an Enforcement Action thereafter, the Junior Representative or the applicable Junior
Secured Obligations Secured Parties that commenced the Enforcement Action shall promptly cease such
action so long as the Senior Representative or the applicable Senior Secured Obligations Secured
Party shall be diligently pursuing its Enforcement Action; and (ii) proceeds of any Senior Secured
Obligations Collateral received pursuant to an Enforcement Action by the Junior Representative
and/or any Junior Secured Obligations Secured Party in respect of any Junior Secured Obligations
will be paid over to the Senior Representative in accordance with Section 2.04 and applied in
accordance with Section 2.14.

          SECTION 2.03. No Duties of Senior Representative.

          Each Junior Secured Obligations Secured Party acknowledges and agrees that neither the Senior
Representative nor any other Senior Secured Obligations Secured Party shall have any duties or
other obligations to such Junior Secured Obligations Secured Party with respect to any Senior
Secured Obligations Collateral, other than (i) to transfer to the Junior Representative any
proceeds of any such Collateral that constitutes Junior Secured Obligations Collateral remaining in
its possession following any sale, transfer or other disposition of such Collateral (in each case,
unless the Junior Liens on all such Junior Secured Obligations Collateral are terminated and
released prior to or concurrently with such sale, transfer, disposition, payment or satisfaction),
the payment and satisfaction in full of the Senior Secured Obligations secured thereby and the
termination of any commitment to extend credit that would constitute Senior Secured Obligations
secured thereby, or, if the Senior Representative shall be in possession of all or

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any part of such Collateral after such payment and satisfaction in full and termination, such
Collateral or any part thereof remaining, in each case without representation or warranty on the
part of the Senior Representative or any Senior Secured Obligations Secured Party and (ii) to serve
as gratuitous bailee pursuant to Article III herein. In furtherance of the foregoing, each Junior
Secured Obligations Secured Party acknowledges and agrees that until the Senior Secured Obligations
secured by any Collateral in respect of which such Junior Secured Obligations Secured Party holds a
Junior Lien shall have been paid and satisfied in full and any commitment to extend credit that
would constitute Senior Secured Obligations secured thereby shall have been terminated, the Senior
Representative shall be entitled, for the benefit of the holders of such Senior Secured
Obligations, to sell, transfer or otherwise dispose of or deal with such Collateral as provided
herein and in the Senior Secured Obligations Security Documents without regard to any Junior Lien
or any rights to which the holders of the Junior Secured Obligations would otherwise be entitled as
a result of such Junior Lien. Without limiting the foregoing, each Junior Secured Obligations
Secured Party agrees that neither the Senior Representative nor any other Senior Secured
Obligations Secured Party shall have any duty or obligation first to marshal or realize upon any
type of Senior Secured Obligations Collateral (or any other collateral securing the Senior Secured
Obligations), or to sell, dispose of or otherwise liquidate all or any portion of such Collateral
(or any other collateral securing the Senior Secured Obligations), in any manner that would
maximize the return to the Junior Secured Obligations Secured Parties, notwithstanding that the
order and timing of any such realization, sale, disposition or liquidation may affect the amount of
proceeds actually received by the Junior Secured Obligations Secured Parties from such realization,
sale, disposition or liquidation. Following the associated Discharge of Senior Secured
Obligations, the Junior Secured Obligations Secured Parties may, subject to any other agreements
binding on such Junior Secured Obligations Secured Parties, assert their rights under the UCC or
otherwise to any proceeds remaining following a sale, disposition or other liquidation of
Collateral by, or on behalf of the Junior Secured Obligations Secured Parties. Each of the Junior
Secured Obligations Secured Parties waives any claim such Junior Secured Obligations Secured Party
may now or hereafter have against the Senior Representative or any other Senior Secured Obligations
Secured Party (or their representatives) arising out of (i) any actions which the Senior
Representative or the Senior Secured Obligations Secured Parties take or omit to take (including,
actions with respect to the creation, perfection or continuation of Liens on any Collateral,
actions with respect to the foreclosure upon, sale, release or depreciation of, or failure to
realize upon, any of the Collateral and actions with respect to the collection of any claim for all
or any part of the Senior Secured Obligations from any account debtor, guarantor or any other
party) in accordance with the Senior Secured Obligations Security Documents or any other agreement
related thereto or to the collection of the Senior Secured Obligations or the valuation, use,
protection or release of any security for the Senior Secured Obligations, (ii) any election by the
Senior Representative or any Senior Secured Obligations Secured Party, in any proceeding instituted
under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code or (iii)
subject to Section 2.06, any borrowing by, or grant of a security interest or administrative
expense priority under Section 364 of the Bankruptcy Code by, the Company or any of its
subsidiaries, as
 debtor-in-possession.

          SECTION 2.04. No Interference; Payment Over; Reinstatement.

          (a) Each Junior Secured Obligations Secured Party agrees that (i) it will not knowingly take
or cause to be taken any action the purpose or effect of which is, or could be, to

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make any Junior Lien pari passu with, or to give such Junior Secured Obligations Secured Party any
preference or priority relative to, any Senior Lien with respect to the Collateral subject to such
Senior Lien and Junior Lien or any part thereof, (ii) it will not challenge or question in any
proceeding the validity or enforceability of any Senior Secured Obligations or Senior Secured
Obligations Security Document, or the validity, attachment, perfection or priority of any Senior
Lien, or the validity or enforceability of the priorities, rights or duties established by any
other provisions of this Agreement, (iii) it will not take or cause to be taken any action the
purpose or intent of which is, or could be, to interfere, hinder or delay, in any manner, whether
by judicial proceedings or otherwise, any sale, transfer or other disposition of the Collateral
subject to any Junior Lien by any Senior Secured Obligations Secured Parties secured by Senior
Liens on such Collateral or any Senior Representative acting on their behalf, (iv) it shall have no
right to (A) direct any Senior Representative or any holder of Senior Secured Obligations to
exercise any right, remedy or power with respect to the Collateral subject to any Junior Lien or
(B) consent to the exercise by any Senior Representative or any other Senior Secured Obligations
Secured Party of any right, remedy or power with respect to the Collateral subject to any Junior
Lien, (v) it will not institute any suit or assert in any suit, bankruptcy, insolvency or other
proceeding any claim against any Senior Representative or other Senior Secured Obligations Secured
Party seeking damages from or other relief by way of specific performance, instructions or
otherwise with respect to, and neither any Senior Representative nor any other Senior Secured
Obligations Secured Party shall be liable for, any action taken or omitted to be taken by such
Senior Representative or other Senior Secured Obligations Secured Party with respect to any
Collateral securing such Senior Secured Obligations that is subject to any Junior Lien, (vi) it
will not seek, and hereby waives any right, to have any Senior Secured Obligations Collateral
subject to any Junior Lien or any part thereof marshaled upon any foreclosure or other disposition
of such Collateral and (vii) it will not attempt, directly or indirectly, whether by judicial
proceedings or otherwise, to challenge the enforceability of any provision of this Agreement.

          (b) The Junior Representative and each other Junior Secured Obligations Secured Party hereby
agrees that if it shall obtain possession of any Senior Secured Obligations Collateral or shall
realize any proceeds or payment in respect of any such Collateral, pursuant to any Junior Secured
Obligations Security Document or by the exercise of any rights available to it under applicable law
or in any bankruptcy, insolvency or similar proceeding or through any other exercise of remedies,
at any time when any Senior Secured Obligations secured or intended to be secured by such
Collateral shall remain outstanding or any commitment to extend credit that would constitute Senior
Secured Obligations secured or intended to be secured by such Senior Lien shall remain in effect,
then it shall hold such Collateral, proceeds or payment in trust for the Senior Secured Obligations
Secured Parties and transfer such Collateral, proceeds or payment, as the case may be, to the
Senior Representative reasonably promptly after obtaining actual knowledge or notice from the
Senior Secured Obligations Secured Parties that it has possession of such Senior Secured
Obligations Collateral or proceeds or payments in respect thereof. Each Junior Secured Obligations
Secured Party agrees that if, at any time, it receives notice or obtains actual knowledge that all
or part of any payment with respect to any Senior Secured Obligations previously made shall be
rescinded for any reason whatsoever, such Junior Secured Obligations Secured Party shall promptly
pay over to the Senior Representative any payment received by it and then in its possession or
under its control in respect of any Collateral subject to any Senior Lien securing such Senior
Secured Obligations and shall
promptly turn any Collateral subject to any such Senior Lien then held by it over to the
Senior Representative, and the provisions set forth in

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this Agreement shall be reinstated as if such payment had not been made, until the payment and
satisfaction in full of the Senior Secured Obligations. All Junior Liens will remain attached to
and enforceable against all proceeds so held or remitted. Anything contained herein to the
contrary notwithstanding, this Section 2.04(b) shall not apply to any proceeds of Senior Secured
Obligations Collateral realized in a transaction not prohibited by the Senior Documents and as to
which the possession or receipt thereof by the Junior Representative or other Junior Secured
Obligations Secured Party is otherwise permitted by the Senior Documents.

          SECTION 2.05. Automatic Release of Junior Liens.

          (a) The Junior Representative and each other Junior Secured Obligations Secured Party agree
that (i) in the event the Senior Secured Obligations Secured Parties release their Lien on any
Senior Secured Obligations Collateral subject to any Junior Lien (other than a release in
connection with a sale, transfer or other disposition of Senior Secured Obligations Collateral,
which shall be governed by clause (a)(ii) below), such Junior Lien on such Collateral shall
terminate and be released automatically and without further action unless, at the time of such
release by the Senior Secured Obligations Secured Parties, an Event of Default shall then have
occurred and be continuing under the Junior Documents (provided that any Junior Lien that would
have otherwise been released and terminated pursuant to this clause (a)(i) in the absence of such
an Event of Default under the Junior Documents shall terminate and be released automatically and
without further action when such Event of Default (and all other Events of Default under the Junior
Documents) ceases to exist); and (ii) in the event of a sale, transfer or other disposition of
Senior Secured Obligations Collateral subject to any Junior Lien (regardless of whether or not an
Event of Default has occurred and is continuing under the Junior Documents at the time of such
sale, transfer or other disposition), such Junior Lien on such Collateral shall terminate and be
released automatically and without further action if the applicable Senior Liens on such Collateral
are released and if such sale, transfer or other disposition either (A) is then not prohibited by
the Junior Documents or (B) occurs in connection with the foreclosure upon or other exercise of
rights and remedies with respect to such Senior Secured Obligations Collateral; provided that such
Junior Lien shall remain in place with respect to any proceeds of a sale, transfer or other
disposition under this clause (a)(ii) that remain after the satisfaction in full of the Senior
Secured Obligations. In addition, for the avoidance of doubt, the Junior Representative and each
Junior Secured Obligations Secured Party agree that, with respect to any property or assets that
would otherwise constitute Senior Secured Obligations Collateral, the requirement that a Junior
Lien attach to, or be perfected with respect to, such property or assets shall be waived
automatically and without further action so long as the requirement that a Senior Lien attach to,
or be perfected with respect to, such property or assets is waived by the Senior Secured
Obligations Secured Parties (or the Senior Representative) in accordance with the Senior Documents
and so long as no Event of Default under the Junior Documents shall have occurred, be continuing or
would result therefrom at such time.

          (b) The Junior Representative agrees to execute and deliver (at the sole cost and expense of
the Grantors) all such releases and other instruments as shall reasonably be requested by the
Senior Representative to evidence and confirm any release of Junior Secured Obligations Collateral
provided for in this Section 2.05.

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          SECTION 2.06. Certain Agreements With Respect to Bankruptcy or Insolvency Proceedings.

          (a) This Agreement shall continue in full force and effect notwithstanding the commencement
of any proceeding under the Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, receivership or similar law by or against the Company or any of its subsidiaries.

          (b) If the Company or any of its subsidiaries shall become subject to a case under the
Bankruptcy Code and shall, as debtor(s)-in-possession, move for approval of financing
(“DIP Financing”) to be provided by one or more lenders (the “DIP Lenders”) under Section 364 of
the Bankruptcy Code or the use of cash collateral under Section 363 of the Bankruptcy Code, each
Junior Secured Obligations Secured Party agrees that it will raise no objection to any such
financing or to the Liens on the Senior Secured Obligations Collateral securing the same
(“DIP Financing Liens”) or to any use of cash collateral that constitutes Senior Secured
Obligations Collateral, unless the Senior Secured Obligations Secured Parties, or a representative
authorized by the Senior Secured Obligations Secured Parties, shall then oppose or object to such
DIP Financing or such DIP Financing Liens or use of cash collateral (and, to the extent that such
DIP Financing Liens are senior to, or rank pari passu with, the Senior Liens, the Junior
Representative will, for itself and on behalf of the other Junior Secured Obligations Secured
Parties, subordinate the Junior Liens on the Senior Secured Obligations Collateral to the Senior
Liens and the DIP Financing Liens), so long as the Junior Secured Obligations Secured Parties
retain Liens on all the Junior Secured Obligations Collateral, including proceeds thereof arising
after the commencement of such proceeding, with the same priority as existed prior to the
commencement of the case under the Bankruptcy Code.

          (c) Each Junior Secured Obligations Secured Party agrees that it will not object to or
oppose a sale or other disposition of any Senior Secured Obligations Collateral (or any portion
thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if
the Senior Secured Obligations Secured Parties shall have consented to such sale or disposition of
such Senior Secured Obligations Collateral.

          (d) If any Secured Party is required in any insolvency, bankruptcy or other proceeding or
otherwise to turn over or otherwise pay to the estate of the applicable Grantor any amount paid in
respect of ABL Obligations or the Term Loan Obligations, as the case may be (a “Recovery”), then
such ABL Secured Parties or Term Loan Secured Parties shall be entitled to a reinstatement of ABL
Obligations or the Term Loan Obligations, as the case may be, with respect to all such recovered
amounts. If this Agreement shall have been terminated prior to such Recovery, this Agreement shall
be reinstated in full force and effect, and such prior termination shall not diminish, release,
discharge, impair or otherwise affect the obligations of the parties hereto from such date of
reinstatement.

          SECTION 2.07. Reinstatement.

          In the event that any of the Senior Secured Obligations shall be paid in full and such payment
or any part thereof shall subsequently, for whatever reason (including an order or judgment for
disgorgement of a preference under the Bankruptcy Code, or any similar law, or the

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settlement of any claim in respect thereof), be required to be returned or repaid, the terms and
conditions of this Article II shall be fully applicable thereto until all such Senior Secured
Obligations shall again have been paid in full in cash.

          SECTION 2.08. Entry Upon Premises by the ABL Administrative Agent and the ABL Lenders.

          (a) If the ABL Administrative Agent takes any enforcement action with respect to the ABL
First Lien Collateral, the Term Loan Secured Parties (i) shall cooperate with the ABL
Administrative Agent (at the sole cost and expense of the ABL Administrative Agent and subject to
the condition that the Term Loan Secured Parties shall have no obligation or duty to take any
action or refrain from taking any action that could reasonably be expected to result in the
incurrence of any liability or damage to the Term Loan Secured Parties) in its efforts to enforce
its security interest in the ABL First Lien Collateral and to finish any work-in-process and
assemble the ABL First Lien Collateral, (ii) shall not take any action designed or intended to
hinder or restrict in any respect the ABL Administrative Agent from enforcing its security interest
in the ABL First Lien Collateral or from finishing any work-in-process or assembling the ABL First
Lien Collateral, and (iii) subject to the rights of any landlords under real estate leases, shall
permit the ABL Administrative Agent, its employees, agents, advisers and representatives, at the
sole cost and expense of the ABL Secured Parties and upon reasonable advance notice, to enter upon
and use the Term Loan First Lien Collateral (including (A) equipment, processors, computers and
other machinery related to the storage or processing of records, documents or files and (B)
intellectual property), for a period not to exceed 180 days after the taking of such enforcement
action, for purposes of (1) assembling and storing the ABL First Lien Collateral and completing the
processing of and turning into finished goods of any ABL First Lien Collateral consisting of
work-in-process, (2) selling any or all of the ABL First Lien Collateral located on such Term Loan
First Lien Collateral, whether in bulk, in lots or to customers in the ordinary course of business
or otherwise, (3) removing any or all of the ABL First Lien Collateral located on such Term Loan
First Lien Collateral, or (4) taking reasonable actions to protect, secure and otherwise enforce
the rights of the ABL Secured Parties in and to the ABL First Lien Collateral; provided, however,
that nothing contained in this Agreement shall restrict the rights of the Term Loan Administrative
Agent or the Term Loan Collateral Agent from selling, assigning or otherwise transferring any Term
Loan First Lien Collateral prior to the expiration of such 180-day period if the purchaser,
assignee or transferee thereof agrees to be bound by the provisions of this Section 2.08. If any
stay or other order prohibiting the exercise of remedies with respect to the ABL First Lien
Collateral has been entered by a court of competent jurisdiction, such 180-day period shall be
tolled during the pendency of any such stay or other order. If the ABL Administrative Agent
conducts a public auction or private sale of the ABL First Lien Collateral at any of the real
property included within the Term Loan First Lien Collateral, the ABL Administrative Agent shall
provide the Term Loan Collateral Agent with reasonable notice and use reasonable efforts to hold
such auction or sale in a manner which would not unduly disrupt the Term Loan Collateral Agent’s
use of such real property.

          (b) During the period of actual occupation, use or control by the ABL Administrative Agent
or its employees, agents, or representatives, of any Term Loan First Lien Collateral, the ABL
Secured Parties shall (i) be responsible for the ordinary course third-party expenses related
thereto, including costs with respect to heat, light, electricity, water and real property

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taxes with respect to that portion of any premises so used or occupied, and (ii) be obligated
to repair at their expense any physical damage to such Term Loan First Lien Collateral or other
assets or property resulting from such occupancy, use or control, and to leave such Term Loan First
Lien Collateral or other assets or property in substantially the same condition as it was at the
commencement of such occupancy, use or control, ordinary wear and tear excepted. The ABL Secured
Parties jointly and severally agree to pay, indemnify and hold the Term Loan Administrative Agent
and the Term Loan Collateral Agent and their respective officers, directors, employees and agents
harmless from and against any liability, cost, expense, loss or damages, including reasonable and
documented legal fees and expenses, resulting from the gross negligence or willful misconduct of
the ABL Administrative Agent or any of its agents, representatives, employees, or invitees in its
or their operation of such facilities. In the event, and only in the event, that in connection
with its use of some or all of the premises constituting Term Loan First Lien Collateral, the ABL
Administrative Agent requires the services of any employees of the Company or any of its
subsidiaries, the ABL Administrative Agent shall pay directly to any such employees the
appropriate, allocated wages of such employees, if any, during the time periods that the ABL
Administrative Agent requires their services. Notwithstanding the foregoing, in no event shall the
ABL Secured Parties have any liability to the Term Loan Secured Parties pursuant to this Section
2.08 as a result of any condition (including any environmental condition, claim or liability) on or
with respect to the Term Loan First Lien Collateral existing prior to the date of the exercise by
the ABL Secured Parties of their rights under this Section 2.08 and the ABL Secured Parties shall
have no duty or liability to maintain the Term Loan First Lien Collateral in a condition or manner
better than that in which it was maintained prior to the use thereof by the ABL Secured Parties, or
for any diminution in the value of the Term Loan First Lien Collateral that results solely from
ordinary wear and tear resulting from the use of the Term Loan First Lien Collateral by the ABL
Secured Parties in the manner and for the time periods specified under this Section 2.08. Without
limiting the rights granted in this paragraph, the ABL Administrative Agent, to the extent that
rights have been exercised under this Section 2.08 by the ABL Administrative Agent, shall cooperate
with the Term Loan Secured Parties in connection with any efforts made by the Term Loan Secured
Parties to sell the Term Loan First Lien Collateral.

          SECTION 2.09. Insurance.

          Unless and until written notice by the ABL Administrative Agent to the Term Loan
Administrative Agent that the ABL Obligations have been Discharged, as between the ABL
Administrative Agent, on the one hand, and the Term Loan Administrative Agent and Term Loan
Collateral Agent, as the case may be, on the other hand, only the ABL Administrative Agent will
have the right (subject to the rights of the Grantors under the ABL Documents and the Term Loan
Documents) to adjust or settle any insurance policy or claim covering or constituting ABL First
Lien Collateral in the event of any loss thereunder and to approve any award granted in any
condemnation or similar proceeding affecting the ABL First Lien Collateral. Unless and until
written notice by the Term Loan Administrative Agent to the ABL Administrative Agent that the Term
Loan Obligations have been Discharged, as between the ABL Administrative Agent, on the one hand,
and the Term Loan Administrative Agent and the Term Loan Collateral Agent, as the case may be, on
the other hand, only the Term Loan Collateral Agent will have the right (subject to the rights of
the Grantors under the ABL Documents and the Term Loan Documents) to adjust or settle any insurance
policy covering or constituting Term Loan First Lien Collateral in the event of any loss thereunder
and to approve any award granted in any condemnation

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or similar proceeding solely affecting the Term Loan First Lien Collateral. To the extent
that an insured loss covers or constitutes both ABL First Lien Collateral and Term Loan First Lien
Collateral, then the ABL Administrative Agent and the Term Loan Collateral Agent will work jointly
and in good faith to collect, adjust or settle (subject to the rights of the Grantors under the ABL
Documents and the Term Loan Documents) under the relevant insurance policy. Notwithstanding
anything to the contrary in any Security Document, if any provision of any ABL Security Document or
any Term Loan Security Document requires the Company or any of its subsidiaries to name the ABL
Administrative Agent or the Term Loan Collateral Agent as an additional insured or a loss payee
under any insurance policy, such requirement shall have been complied with if any such insurance
policy also names the ABL Administrative Agent or the Term Loan Collateral Agent, as applicable, as
an additional insured or loss payee, as the case may be, in each case subject to the terms of this
Section 2.09.

          SECTION 2.10. Refinancings.

          The ABL Obligations and the Term Loan Obligations may be Refinanced, in whole or in part, in
each case, without notice to, or the consent (except to the extent a consent is otherwise required
to permit the Refinancing transaction under any ABL Document or any Term Loan Document) of any ABL
Secured Party or any Term Loan Secured Party, all without affecting the Lien priorities provided
for herein or the other provisions hereof; provided, however, that the holders of any such
Refinancing indebtedness (or an authorized agent or trustee on their behalf) bind themselves in
writing to the terms of this Agreement pursuant to such documents or agreements (including
amendments or supplements to this Agreement) as the ABL Administrative Agent or the Term Loan
Collateral Agent, as the case may be, shall reasonably request and in form and substance reasonably
acceptable to the ABL Administrative Agent or the Term Loan Collateral Agent, as the case may be.
In connection with any Refinancing contemplated by this Section 2.10, this Agreement may be amended
at the request and sole expense of the Company, and without the consent of either Representative,
(a) to add parties (or any authorized agent or trustee therefor) providing any such Refinancing
indebtedness, (b) to establish that Liens on any Term Loan First Lien Collateral securing such
Refinancing indebtedness shall have the same priority as the Liens on any Term Loan First Lien
Collateral securing the indebtedness being Refinanced, and (c) to establish that the Liens on any
ABL First Lien Collateral securing such Refinancing indebtedness shall have the same priority as
the Liens on any ABL First Lien Collateral securing the indebtedness being Refinanced, all on the
terms provided for herein immediately prior to such Refinancing.

          SECTION 2.11. Amendments to Security Documents.

          Without the prior written consent of the Senior Representative, no Junior Secured Obligations
Security Document may be amended, supplemented or otherwise modified or entered into to the extent
such amendment, supplement or modification, or the terms of any new Junior Secured Obligations
Security Document, would be prohibited by, or would require any Grantor to act or refrain from
acting in a manner that would violate, any of the terms of this Agreement.

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          SECTION 2.12. Legends.

          The ABL Administrative Agent acknowledges with respect to the ABL Credit Agreement and the ABL
Security Documents, and the Term Loan Collateral Agent acknowledges with respect to the Term Loan
Credit Agreement and the Term Loan Security Documents, that the ABL Credit Agreement, the Term Loan
Credit Agreement and each Security Document will contain the appropriate legend set forth on Annex
I.

          SECTION 2.13. No Debt Subordination.

          Nothing in this Agreement shall be deemed to subordinate the right of the ABL Lenders or the
Term Loan Lenders to receive payment, whether before or after the occurrence of any default, event
of default or insolvency proceeding (other than payments from Collateral, to the extent contrary to
the provisions of this Agreement).

          SECTION 2.14. Application of Proceeds.

          Prior to the Discharge of Senior Secured Obligations, whether or not any proceeding under the
Bankruptcy Code has been commenced by or against any Grantor, any Senior Secured Obligations
Collateral or proceeds thereof received in connection with any exercise of remedies with respect to
such Senior Secured Obligations Collateral (at such time as such Collateral or proceeds has been
monetized) shall be applied: (i) first, to the payment in full in cash of the Senior Secured
Obligations in accordance with the Senior Documents and (ii) second, to the payment in full in cash
of the Junior Secured Obligations in accordance with the Junior Documents, and the Senior
Representative shall provide the Junior Representative with such Collateral or proceeds in the same
form as received and with any necessary endorsements. If any exercise of remedies with respect to
the Collateral produces non-cash proceeds, then such non-cash proceeds shall be held by the
applicable Representative that exercised such remedies as additional Collateral and, at such time
as such non-cash proceeds are monetized, shall be applied as set forth above.

          SECTION 2.15. Exercise of Remedies — Set Off and Tracing of Priorities in Proceeds.

          (a) The ABL Administrative Agent, for itself and on behalf of the ABL Secured Parties,
acknowledges and agrees that, to the extent the ABL Administrative Agent or any ABL Secured Party
exercises its rights of setoff against any Grantors’ deposit accounts or securities accounts that
contain identifiable proceeds of Term Loan First Lien Collateral, a percentage of the amount of
such setoff equal to the percentage that such Proceeds bear to the total amount on deposit in or
credited to the balance of such deposit accounts or securities accounts shall be deemed to
constitute Term Loan First Lien Collateral, which amount shall be held and distributed pursuant to
Section 2.14; provided, however that the foregoing shall not apply to any setoff by
the ABL Administrative Agent against any ABL First Lien Collateral to the extent applied to the
payment of ABL Obligations.

          (b) Subject to Section 2.15(c), the ABL Administrative Agent, for itself and on behalf of
the ABL Secured Parties and the Term Loan Collateral Agent, for itself and on behalf of the Term
Loan Secured Parties, further agree that prior to an issuance of an Enforcement

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Notice, any Proceeds of Collateral, whether or not deposited in an account subject to an account
control agreement, shall not (as between the Collateral Agents, the ABL Secured Parties and the
Term Loan Secured Parties) be treated as Proceeds of Collateral for purposes of determining the
relative priorities in the Collateral.

          (c) The Term Loan Collateral Agent, for itself and on behalf of the applicable Term Loan
Secured Parties, also agrees that prior to an issuance of an Enforcement Notice, (i) all funds
deposited in a Deposit Account or Securities Account (excluding, for the avoidance of doubt, the
Disposition Proceeds Accounts) subject to an account control agreement that constitute ABL First
Lien Collateral and (ii) then applied to the ABL Obligations (including, without limitation,
pursuant to the occurrence of a “cash dominion period” or similar event under the ABL Documents)
shall be treated as ABL First Lien Collateral and, unless the ABL Administrative Agent has actual
knowledge to the contrary, any claim that such payments made to the ABL Administrative Agent
through such Deposit Accounts and Securities Accounts that are subject to such account control
agreements are Proceeds of or otherwise constitute Term Loan Collateral are waived by the Term Loan
Collateral Agent and the Term Loan Secured Parties; provided that after receipt of an Enforcement
Notice from the Term Loan Collateral Agent, all such funds and proceeds of Collateral shall be
applied pursuant to Section 2.14.

          SECTION 2.16. Junior Secured Obligations Secured Parties Rights as Unsecured
Creditors.

          Except as otherwise set forth herein, both before and during any bankruptcy, insolvency or
other proceeding, any of the Junior Secured Obligations Secured Parties may take any actions and
exercise any and all rights that would be available to a holder of unsecured claims, including,
without limitation, the commencement of bankruptcy, insolvency or other proceeding, against the
Company or any other Grantor in accordance with applicable law; provided, that the Junior Secured
Obligations Secured Parties may not take any such actions to the extent inconsistent with this
Agreement; provided, further, that in the event that any of the Junior Secured Obligations Secured
Parties becomes a judgment lien creditor in respect of any Collateral as a result of its
enforcement of its rights as an unsecured creditor with respect to the Junior Secured Obligations,
such judgment lien shall be subject to the terms of this Agreement for all purposes (including in
relation to the Senior Secured Obligations) as the other Liens securing the Junior Secured
Obligations are subject to this Agreement.

          SECTION 2.17. Similar Liens and Agreements.

          The parties hereto agree that it is their intention that the ABL Collateral and the Term Loan
Collateral be identical. In furtherance of the foregoing, the parties hereto agree, subject to the
other provisions of this Agreement:

     (a) upon request by the ABL Administrative Agent or the Term Loan Collateral Agent, to
cooperate in good faith (and to direct their counsel to cooperate in good faith) from time to time
in order to determine the specific items included in the ABL Collateral and the Term Loan
Collateral and the steps taken to perfect their respective Liens thereon and the identity of the
respective parties obligated under the ABL Documents and the Term Loan Documents;

-20-

 

     (b) that the documents and agreements creating or evidencing the ABL Collateral and the Term
Loan Collateral shall be in all material respects the same forms of documents other than with
respect to (i) the first lien and the second lien nature of the obligations thereunder and (ii)
the delivery of Collateral, the security interest in which may be perfected only by possession or
control by a single person of such Collateral prior to the Discharge of Senior Secured Obligations;

     (c) each Grantor agrees that, in the event any Grantor takes any action to grant or perfect
a Lien in favor of one Collateral Agent in any assets, such Grantor shall also take such action to
grant or perfect a Lien (subject to the terms of this Agreement) in favor of the other Collateral
Agent without request of such Collateral Agent; and

     (d) each Grantor agrees that, in the event any subsidiary of such Grantor which from time to
time after the date hereof guarantees the ABL Obligations or the Term Loan Obligations or pledges
any assets as collateral for the ABL Obligations or Term Loan Obligations, then such Grantor shall
cause such subsidiary to also guarantee the ABL Obligations or Term Loan Obligations, as applicable
or pledge assets as collateral for the ABL Obligations or Term Loan Obligations, as applicable.

ARTICLE III

Gratuitous Bailment for Perfection of Certain Security Interests; Rights Under Permits and Licenses

          SECTION 3.01. General.

          The Senior Representative agrees that if it shall at any time hold a Senior Lien on any Junior
Secured Obligations Collateral that can be perfected by the possession or control of such
Collateral or of any account in which such Collateral is held, and if such Collateral or any such
account is in fact in the possession or under the control of the Senior Representative, the Senior
Representative will serve as gratuitous bailee for and on behalf of and for the benefit of the
Junior Representative for the sole purpose of perfecting the Junior Lien of the Junior
Representative on such Collateral to the extent that a security interest in such Collateral or
account may be perfected by an agent serving as gratuitous bailee for and on behalf of another
party. It is agreed that the obligations of the Senior Representative and the rights of the Junior
Representative and the other Junior Secured Obligations Secured Parties in connection with any such
bailment arrangement will be in all respects subject to the provisions of Article II.
Notwithstanding anything to the contrary herein, the Senior Representative will be deemed to make
no representation as to the adequacy of the steps taken by it to perfect the Junior Lien on any
such Collateral and shall have no responsibility, duty, obligation or liability to the Junior
Representative or other Junior Secured Obligations Secured Party or any other Person for such
perfection or failure to perfect, it being understood that the sole purpose of this Article is to
enable the Junior Secured Obligations Secured Parties to obtain a perfected Junior Lien in such
Collateral to the extent, if any, that such perfection results from the possession or control of
such Collateral or any such account by the Senior Representative. Subject to Section 2.07, at such
time as the Senior Secured Obligations secured by the Senior Lien of the Senior Representative
shall have been paid and satisfied in full and any commitment to extend credit that would
constitute such Senior Secured

-21-

 

Obligations shall have been terminated, the Senior Representative shall take all such actions
in its power as shall reasonably be requested by the Junior Representative (at the sole cost and
expense of the Grantors) to transfer possession or control of such Collateral or any such account
(in each case to the extent the Junior Representative has a Lien on such Collateral or account
after giving effect to any prior or concurrent releases of Liens) to the Junior Representative;
provided that if the ABL Obligations are Refinanced in accordance with Section 2.10, such
Collateral and control will be transferred to the ABL Administrative Agent designated for such
Refinancing indebtedness.

          SECTION 3.02. Deposit Accounts.

          The Company and its subsidiaries may from time to time establish deposit accounts with certain
depositary banks in which collections from Inventory and Accounts may be deposited. Unless the
Junior Liens on such ABL First Lien Collateral shall have been or concurrently are released, after
the occurrence of the ABL First Lien Collateral Transition Date, the ABL Administrative Agent shall
(a) to the extent that the same are then under the sole dominion and control of the ABL
Administrative Agent and that such action is otherwise within the power and authority of the ABL
Administrative Agent pursuant to the ABL Documents, at the request of the Term Loan Administrative
Agent or the Term Loan Collateral Agent, transfer all cash and other assets in any such Deposit
Account maintained with the ABL Administrative Agent to the Term Loan Collateral Agent (and each
Grantor hereby authorizes and consents to any such transfer) and (b) at the request of the Term
Loan Collateral Agent, cooperate with the Company and the Term Loan Collateral Agent (at the
expense of the Company) in permitting control of any other Deposit Accounts to be transferred to
the Term Loan Collateral Agent (or for other arrangements with respect to each such Deposit Account
satisfactory to the Term Loan Collateral Agent to be made); provided that if the ABL Obligations
are Refinanced in accordance with Section 2.10, such Collateral and control will be transferred to
the ABL Administrative Agent designated for such Refinancing indebtedness; it being understood and
agreed that any existing control agreements in favor of the ABL Administrative Agent shall be
revised to include the Term Loan Collateral Agent and any future control agreements shall be in
favor of the ABL Administrative Agent and the Term Loan Collateral Agent.

          SECTION 3.03. Rights under Permits and Licenses.

          The Term Loan Collateral Agent agrees that if the ABL Administrative Agent shall require
rights available under any permit or license controlled by the Term Loan Collateral Agent in order
to realize on any ABL First Lien Collateral, the Term Loan Collateral Agent (subject to the terms
of the Term Loan Credit Agreement, including the Term Loan Collateral Agent’s rights to
indemnification thereunder) take all such actions as shall be available to them (at the sole
expense of the Grantors), consistent with applicable law and reasonably requested by the ABL
Administrative Agent in writing, to make such rights available to the ABL Administrative Agent,
subject to the Term Loan Liens. The ABL Administrative Agent agrees that if the Term Loan
Collateral Agent shall require rights available under any permit or license controlled by the ABL
Administrative Agent (as certified to the ABL Administrative Agent by the Term Loan Collateral
Agent, upon which the ABL Administrative Agent may rely) in order to realize on any Term Loan First
Lien Collateral, the ABL Administrative Agent shall take all such actions as shall be available to
it (at the sole expense of the Grantors), consistent with applicable

-22-

 

law and reasonably requested by the Term Loan Collateral Agent in writing, to make such rights
available to the Term Loan Collateral Agent, subject to the ABL Liens.

ARTICLE IV

Existence and Amounts of Liens and Obligations

          Whenever a Representative shall be required, in connection with the exercise of its rights or
the performance of its obligations hereunder, to determine the existence or amount of any Senior
Secured Obligations (or the existence of any commitment to extend credit that would constitute
Senior Secured Obligations) or Junior Secured Obligations, or the existence of any Lien securing
any such obligations, or the Collateral subject to any such Lien, it may request that such
information be furnished to it in writing by the other Representative and shall be entitled to make
such determination on the basis of the information so furnished; provided, however, that if a
Representative shall fail or refuse reasonably promptly to provide the requested information, the
requesting Representative shall be entitled to make any such determination by such method as it
may, in the exercise of its good faith judgment, determine, including by reliance upon a
certificate of the Company. Each Representative may rely conclusively, and shall be fully
protected in so relying, on any determination made by it in accordance with the provisions of the
preceding sentence (or as otherwise directed by a court of competent jurisdiction) and shall have
no liability to the Company or any of its subsidiaries, any Secured Party or any other Person as a
result of such determination.

ARTICLE V

Consent of Grantors

          Each Grantor hereby consents to the provisions of this Agreement and the intercreditor
arrangements provided for herein and agrees that the obligations of the Grantors under the Security
Documents will in no way be diminished or otherwise affected by such provisions or arrangements
(except as expressly provided herein).

ARTICLE VI

Representations and Warranties

          SECTION 6.01. Representations and Warranties of Each Party.

          Each party hereto represents and warrants to the other parties hereto as follows:

     (a) Such party is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization and has all requisite power and authority to enter into and
perform its obligations under this Agreement.

     (b) This Agreement has been duly executed and delivered by such party.

-23-

 

     (c) The execution, delivery and performance by such party of this Agreement (i) do not
require any consent or approval of, registration or filing with or any other action by any
governmental authority of which the failure to obtain could reasonably be expected to have a
Material Adverse Effect (as defined in the ABL Credit Agreement), (ii) will not violate any
applicable law or regulation or any order of any governmental authority or any indenture, agreement
or other instrument binding upon such party which could reasonably be expected to have a Material
Adverse Effect and (iii) will not violate the charter, by-laws or other organizational documents of
such party.

          SECTION 6.02. Representations and Warranties of Each Representative.

          Each of the Term Loan Collateral Agent and the ABL Administrative Agent represents and
warrants to the other parties hereto that it is authorized under the Term Loan Credit Agreement and
the ABL Credit Agreement, respectively, to enter into this Agreement.

ARTICLE VII

Miscellaneous

          SECTION 7.01. Notices.

          All notices and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or registered mail or sent by
telecopy, as follows:

     (a) if to the ABL Administrative Agent, to it at Bank of America, N.A., 335 Madison Avenue,
New York, New York 10017, Attention of Robert Anchundia (Telecopy No. (212) 503-7483);

     (b) if to the Term Loan Collateral Agent, to it at UBS AG, Stamford Branch, 677 Washington
Boulevard, Attention of Banking Products Services Agency (Telecopy No. (203) 719-4176);

     (c) if to the Company, to it at Nortek, Inc., 50 Kennedy Plaza, Providence, RI 02903,
Attention: Kevin W. Donnelly (Telecopy No. 401-751-4610); and

     (d) if to any other Grantor, to it in care of the Company as provided in clause (d) above.

Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto (and for this purpose a notice to the Company shall
be deemed to be a notice to each Grantor). All notices and other communications given to any party
hereto in accordance with the provisions of this Agreement shall be deemed to have been given on
the date of receipt (if a Business Day) and on the next Business Day thereafter (in all other
cases) if delivered by hand or overnight courier service or sent by telecopy or on the date five
Business Days after dispatch by certified or registered mail if mailed, in each case delivered,
sent or mailed (properly addressed) to such party as provided in this Section 7.01 or in accordance
with the latest unrevoked direction from such party given in accordance with this

-24-

 

Section 7.01. As agreed to in writing among the Company, the Term Loan Collateral Agent and the
ABL Administrative Agent from time to time, notices and other communications may also be delivered
by e-mail to the e-mail address of a representative of the applicable Person provided from time to
time by such Person.

          SECTION 7.02. Waivers; Amendment.

          (a) No failure or delay on the part of any party hereto in exercising any right or power
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such
right or power, or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other right or power. The
rights and remedies of the parties hereto are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of this Agreement or consent
to any departure by any party therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section 7.02, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice or demand on any
party hereto in any case shall entitle such party to any other or further notice or demand in
similar or other circumstances.

          (b) Neither this Agreement nor any provision hereof may be terminated, waived, amended or
modified except pursuant to an agreement or agreements in writing entered into by each
Representative and the Company; provided, however, that this Agreement may be amended from time to
time, in each case to the extent such amendment is in form and substance reasonably satisfactory to
each Representative, (x) as provided in Section 2.10 and (y)(A) to add other parties (or any
authorized agent thereof or trustee therefor) holding Credit Agreement Refinancing Indebtedness
(as defined in the Term Loan Credit Agreement) that are incurred in compliance with the ABL
Documents and the Term Loan Documents, (B) to establish that the Liens on any Term Loan First Lien
Collateral securing such Credit Agreement Refinancing Indebtedness shall be pari passu hereunder
with the Liens on such Term Loan First Lien Collateral securing the Term Loan Obligations and
senior to the Liens on such Term Loan First Lien Collateral securing any ABL Obligations, all on
the terms provided for herein immediately prior to such amendment and (C) to establish that the
Liens on any ABL First Lien Collateral securing such Credit Agreement Refinancing Indebtedness
shall be pari passu hereunder with the Liens on such ABL First Lien Collateral securing the Term
Loan Obligations and junior and subordinated to the Liens on such ABL First Lien Collateral
securing any ABL Obligations, all on the terms provided for herein immediately prior to such
amendment. Any such additional party and each party hereto shall be entitled to rely upon a
certificate delivered by an officer of the Company certifying that such Credit Agreement
Refinancing Indebtedness was issued or borrowed in compliance with the ABL Documents and the Term
Loan Documents.

          SECTION 7.03. Parties in Interest.

          This Agreement shall be binding upon and inure to the benefit of the parties hereto (including
any Person that becomes a party hereto after the date hereof, including, but not limited to, the
holders of Credit Agreement Refinancing Indebtedness) and their respective successors and assigns,
as well as the other Term Loan Secured Parties and ABL Secured Parties, all of whom are intended to
be bound by, and to be third party beneficiaries of, this Agreement.

-25-

 

          SECTION 7.04. Survival of Agreement.

          All covenants, agreements, representations and warranties made by any party in this Agreement
shall be considered to have been relied upon by the other parties hereto and shall survive the
execution and delivery of this Agreement.

          SECTION 7.05. Counterparts.

          This Agreement may be executed in counterparts, each of which shall constitute an original but
all of which when taken together shall constitute a single contract. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be as effective as delivery of a
manually signed counterpart of this Agreement.

          SECTION 7.06. Severability.

          Any provision of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and enforceability of the
remaining provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions
with valid provisions the economic effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.

          SECTION 7.07. Governing Law; Jurisdiction; Consent to Service of Process.

          (a) This Agreement shall be construed in accordance with and governed by the law of the
State of New York.

          (b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court of the Southern District of New York, and
any appellate court from any thereof, in any action or proceeding arising out of or relating to
this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent permitted by law,
in such federal court. Each of the parties hereto agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right
that any party hereto may otherwise have to bring any action or proceeding relating to this
Agreement in the courts of any jurisdiction.

          (c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent
it may legally and effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (b) of this Section 7.07. Each of the parties

-26-

 

hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such court.

          (d) Each party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 7.01. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

          SECTION 7.08. WAIVER OF JURY TRIAL.

          EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.08.

          SECTION 7.09. Headings.

          Article, Section and Annex headings used herein are for convenience of reference only, are not
part of this Agreement and are not to affect the construction of, or to be taken into consideration
in interpreting, this Agreement.

          SECTION 7.10. Conflicts.

          In the event of any conflict or inconsistency between the provisions of this Agreement and the
provisions of any of the other ABL Documents and/or Term Loan Documents, the provisions of this
Agreement shall control.

          SECTION 7.11. Provisions Solely to Define Relative Rights.

          The provisions of this Agreement are and are intended solely for the purpose of defining the
relative rights of the ABL Secured Parties, on the one hand, and the Term Loan Secured Parties, on
the other hand. None of the Company, any other Grantor or any other creditor thereof shall have
any rights or obligations hereunder, except as expressly provided in this Agreement (provided that
nothing in this Agreement (other than Sections 2.05, 2.06, 2.10, 2.11 or Article VII) is intended
to or will amend, waive or otherwise modify the provisions of the ABL Credit Agreement or the Term
Loan Credit Agreement), and neither the Company nor any other Grantor may rely on the terms hereof
(other than Sections 2.01(b), 2.05, 2.06, 2.10 and 2.11, Article VI and Article VII). Nothing in
this Agreement is intended to or shall impair the obligations of the Company or any other Grantor,
which are absolute and unconditional, to pay the Obligations under the Term Loan Documents and the
ABL Documents as and when the same shall become due and payable in accordance with their terms.
Notwithstanding anything to the contrary herein, in any Term Loan Document or any ABL Document, the
Grantors shall not be required to act or refrain from acting (a) pursuant to this Agreement or any
Term Loan 

-27-

 

Document with respect to any ABL First Lien Collateral in any manner that would cause a default under
any ABL Document, or (b) pursuant to this Agreement or any ABL Document with respect to any Term
Loan First Lien Collateral in any manner that would cause a default under any Term Loan Document.

          SECTION 7.12. Certain Terms Concerning Term Loan Collateral Agent, and ABL Administrative
Agent.

          Each of the Term Loan Collateral Agent and ABL Administrative Agent is executing and
delivering this Agreement solely in its capacity as such and pursuant to direction set forth in the
Term Loan Credit Agreement and the ABL Credit Agreement, as the case may be; and in so doing,
neither the Term Loan Collateral Agent nor the ABL Administrative Agent shall be responsible for
the terms or sufficiency of this Agreement for any purpose. Neither the Term Loan Collateral Agent
nor the ABL Administrative Agent shall have any duties or obligations under or pursuant to this
Agreement other than such duties as may be expressly set forth in this Agreement as duties on its
part to be performed or observed. In entering into this Agreement, or in taking (or forbearing
from) any action under or pursuant to the Agreement, the Term Loan Collateral Agent shall have and
be protected by all of the rights, immunities, indemnities and other protections granted to it
under the Term Loan Credit Agreement (including without limitation Article IX thereof) and, in the
case of the Term Loan Collateral Agent, the Term Loan Security Agreement. In entering into this
Agreement, or in taking (or forbearing from) any action under or pursuant to the Agreement, the ABL
Administrative Agent shall have and be protected by all of the rights, immunities, indemnities and
other protections granted to it under the ABL Credit Agreement (including without limitation
Article IX thereof) and the other ABL Documents.

[Remainder of this page intentionally left blank]

-28-

 

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.

	 	 	 	 	 
	 	BANK OF AMERICA, N.A.,

as ABL Administrative Agent,

 	 
	 	By:  	/s/ Robert Anchundia
 	 
	 	 	Name:  	Robert Anchundia 	 
	 	 	Title:  	Vice President 	 
	 

Signature page to the Lien Subordination and Intercreditor Agreement

 

	 	 	 	 	 
	 	UBS AG, STAMFORD BRANCH, as Term Loan Collateral Agent,

 	 
	 	By:  	/s/ Irja R. Otsa
 	 
	 	 	Name:  	Irja R. Otsa 	 
	 	 	Title:  	Associate Director

Banking Products Services, US 	 
	 
	 	 	 
	 	By:  	                                            /s/ Mary E. Evans
 	 
	 	 	Name:  	Mary E. Evans 	 
	 	 	Title:  	Associate Director

Banking Products Services, US 	 
	 

Signature page to the Lien Subordination and Intercreditor Agreement

 

	 	 	 	 	 

	 	 	NORTEK, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Edward J. Cooney
	 

	 	 	 	 
	 

	 	Name:
	 	Edward J. Cooney
	 

	 	Title:
	 	Vice President and Treasurer

Signature page to the Lien Subordination and Intercreditor Agreement

 

	 	 	 	 	 

	 	 	AIGIS MECHTRONICS, INC.
	 	 	BROAN-MEXICO HOLDINGS, INC.
	 	 	BROAN-NUTONE LLC
	 	 	BROAN-NUTONE STORAGE SOLUTIONS LP
	 	 	CES GROUP, LLC
	 	 	CES INTERNATIONAL LTD.
	 	 	CLPK, LLC
	 	 	ELAN HOME SYSTEMS, L.L.C.
	 	 	ERGOTRON, INC.
	 	 	GATES THAT OPEN, LLC
	 	 	GEFEN, LLC
	 	 	GOVERNAIR LLC
	 	 	HUNTAIR, INC.
	 	 	HUNTAIR MIDDLE EAST HOLDINGS, INC.
	 	 	LINEAR LLC
	 	 	LITE TOUCH, INC.
	 	 	MAGENTA RESEARCH LTD.
	 	 	MAMMOTH, INC.
	 	 	NILES AUDIO CORPORATION
	 	 	NORDYNE LLC
	 	 	NORDYNE INTERNATIONAL, INC.
	 	 	NORTEK, INC.
	 	 	NORTEK INTERNATIONAL, INC.
	 	 	NUTONE LLC
	 	 	OMNIMOUNT SYSTEMS, INC.
	 	 	OPERATOR SPECIALTY COMPANY, INC.
	 	 	PACIFIC ZEPHYR RANGE HOOD INC.
	 	 	PANAMAX LLC
	 	 	RANGAIRE GP, INC.
	 	 	RANGAIRE LP, INC.
	 	 	SECURE WIRELESS, INC.
	 	 	SPEAKERCRAFT, LLC
	 	 	TEMTROL, LLC
	 	 	THE AVC GROUP, LLC
	 	 	XANTECH LLC
	 	 	ZEPHYR VENTILATION, LLC
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Edward J. Cooney
	 

	 	 	 	 
	 

	 	Name:
	 	Edward J. Cooney
	 

	 	Title:
	 	Vice President and Treasurer
	 

	 	 	 	(of entity listed or as an officer of the managing member, sole member or general partner)

Signature page to the Lien Subordination and Intercreditor Agreement

 

ANNEX I

Provision for the ABL Credit Agreement and the Term Loan Credit Agreement

          Reference is made to the Lien Subordination and Intercreditor Agreement dated as of April 26,
2011, among Bank of America, N.A., as ABL Administrative Agent thereunder for the ABL Secured
Parties referred to therein; UBS AG, Stamford Branch, as Term Loan Collateral Agent; Nortek, Inc.;
and the other subsidiaries of Nortek, Inc. named therein (the “Intercreditor Agreement”). Each
[ABL Lender hereunder] [Term Loan Lender hereunder,] (a) consents to the subordination of Liens
provided for in the Intercreditor Agreement, (b) agrees that it will be bound by and will take no
actions contrary to the provisions of the Intercreditor Agreement and (c) authorizes and instructs
the [ABL Administrative Agent] [Term Loan Collateral Agent] to enter into the Intercreditor
Agreement as [ABL Administrative Agent] [Term Loan Collateral Agent] and on behalf of such [ABL
Lender] [Term Loan Lender]. The foregoing provisions are intended as an inducement to the lenders
under the [ABL Credit Agreement] [Term Loan Credit Agreement] to extend credit and such lenders are
intended third party beneficiaries of such provisions and the provisions of the Intercreditor
Agreement.

Provision for ABL Security Documents and Term Loan Security Documents

          Reference is made to the Lien Subordination and Intercreditor Agreement dated as of April 26,
2011, among Bank of America, N.A., as ABL Administrative Agent thereunder for the ABL Secured
Parties referred to therein; UBS AG, Stamford Branch, as Term Loan Collateral Agent and as Term
Loan Collateral Agent; Nortek, Inc.; and the other subsidiaries of Nortek, Inc. named therein (the
“Intercreditor Agreement”). Notwithstanding any other provision contained herein, this Agreement,
the Liens created hereby and the rights, remedies, duties and obligations provided for herein are
subject in all respects to the provisions of the Intercreditor Agreement and, to the extent
provided therein, the applicable Senior Secured Obligations Security Documents (as defined in the
Intercreditor Agreement). In the event of any conflict or inconsistency between the provisions of
this Agreement and the Intercreditor Agreement, the provisions of the Intercreditor Agreement
shall control.exv10w1

Exhibit 10.1

BENEFITS AND COMPENSATION MATTERS AGREEMENT

DATED AS OF [       ], 2011,

AMONG

ITT CORPORATION,

XYLEM INC.

AND

EXELIS INC.

 

 

Table of Contents

	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	1.
	 	EMPLOYEES	 	 	1	 
	2.
	 	BENEFIT PROGRAM PARTICIPATION	 	 	2	 
	3.
	 	DEFINED BENEFIT PLANS	 	 	4	 
	4.
	 	DEFINED CONTRIBUTION PLANS	 	 	8	 
	5.
	 	EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS	 	 	11	 
	6.
	 	INCENTIVE PLANS	 	 	14	 
	7.
	 	STOCK OPTIONS AND OTHER AWARDS	 	 	15	 
	8.
	 	COLI	 	 	17	 
	9.
	 	DIRECTOR PLANS	 	 	17	 
	10.
	 	COLLECTIVE BARGAINING AGREEMENTS	 	 	18	 
	11.
	 	TRANSITION SERVICES	 	 	19	 
	12.
	 	ALLOCATION OF BALANCE SHEET ACCOUNTS	 	 	19	 
	13.
	 	ACCESS TO INFORMATION AND DATA EXCHANGE	 	 	20	 
	14.
	 	NOTICES; COOPERATION	 	 	21	 
	15.
	 	FURTHER ASSURANCES	 	 	22	 
	16.
	 	INDEMNIFICATION	 	 	22	 
	17.
	 	DISPUTE RESOLUTION	 	 	23	 
	18.
	 	MISCELLANEOUS	 	 	23	 
	19.
	 	DEFINITIONS	 	 	1	 

Exhibits

	 	 	 

	Exhibit A:

	 	Transition Services Agreement (Infinium Payroll)
	 
	 	 
	Exhibit B:

	 	Transition Services Agreement (Infinium Accounting)
	 
	 	 
	Exhibit C:

	 	Transition Services Agreement (Active Healthcare)
	 
	 	 
	Exhibit D:

	 	Transition Services Agreement (MVP and FSS)

 

 

          BENEFITS AND COMPENSATION MATTERS AGREEMENT dated as of [     ],
2011, among ITT CORPORATION, an Indiana corporation (which, together with its
subsidiaries, is herein referred to as “ITT”), Xylem Inc., an Indiana
corporation, (which, together with its subsidiaries, is herein referred to as
“Water”), and Exelis Inc., an Indiana corporation (which, together with its
subsidiaries, is herein referred to as “Defense”).

          WHEREAS, the Board of Directors of ITT (the “Board”) has determined that it is
appropriate, desirable and in the best interests of ITT, its shareholders and its other
constituents, to separate ITT into three separate, publicly traded companies, one for each of (i)
the ITT Retained Business, which shall be owned and conducted, directly or indirectly, by ITT, (ii)
the Defense Business, which shall be owned and conducted, directly or indirectly, by Exelis and
(iii) the Water Business, which shall be owned and conducted, directly or indirectly, by Xylem;

          WHEREAS, the Board of Directors of ITT has determined that it is appropriate and desirable to
distribute to the holders of shares of common stock, par value $1.00 per share, of ITT (the
“ITT Common Stock”), on a pro rata basis (in each case without consideration being paid by
such shareholders) (A) all of the outstanding shares of common stock, par value $.01 per share, of
Water (the “Water Common Stock”) and (B) all of the outstanding shares of common stock, par
value $.01 per share, of Defense (the “Defense Common Stock”) (such transactions as they
may be amended or modified from time to time, the “Distribution”);

          WHEREAS, ITT, Water and Defense have executed a distribution agreement dated as of the date
hereof (the “Distribution Agreement”) to effectuate such Distribution and allocate and
assign certain responsibilities; and

          WHEREAS, each of ITT, Water and Defense has determined that it is necessary and desirable to
allocate and assign responsibility for certain employee benefit liabilities in respect of the
activities of the businesses of such entities on the Distribution Date (as defined herein) and
those liabilities in respect of other businesses and activities of ITT and its former subsidiaries
and certain other matters.

          NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, ITT,
Water and Defense agree as follows:

          1. EMPLOYEES. (a) General. Effective as of the Distribution Date, ITT shall transfer
all employees listed on Schedule 1(a)(i) to Water and all such employees shall become Water
Employees. Effective as of the Distribution Date, ITT shall transfer all employees listed on
Schedule 1(a)(ii) to Defense and all such employees shall become Defense Employees. All
Preexisting ITT Employees employed by legal entities that became legal entities of ITT following
the Distribution Date shall be ITT Employees. All Preexisting ITT Employees employed by legal
entities that became legal entities of Water following the Distribution Date shall be Water
Employees. All Preexisting ITT Employees employed by legal entities that became legal entities of
Defense following the Distribution Date shall be Defense Employees. Except as expressly identified
in this Agreement, Defense shall be liable for all liabilities, claims or controversies involving
Defense Employees, Water shall be liable for all liabilities, claims or

1

 

controversies involving Water Employees and ITT shall be liable for all liabilities, claims or
controversies involving ITT Employees and ITT Retirees.

          (b) Schedule of Water Employees and Defense Employees. As of the date of this
Agreement, ITT, Water and Defense shall have in good faith determined which individuals who are
Preexisting ITT Employees shall become Water Employees and Defense Employees on no later than the
Distribution Date. Such lists may be modified only by written consent by each of ITT, Water and
Defense on or following the Distribution Date. Prior to the Distribution Date, ITT may modify such
lists without the consent of Water and Defense.

          (c) Non-Termination of Employment. Except as otherwise expressly provided herein and
in compliance with Section 2(d) of this Agreement, no provision of, or event arising under, this
Agreement, the Distribution Agreement or any of the Ancillary Agreements shall be construed to
create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part
of any Preexisting ITT Employee or other future, present, or former employee of ITT, Water or
Defense and any of their respective Subsidiaries.

          (d) Employment Agreements. As soon as practicable on or after the execution of this
Agreement, ITT, Water and Defense shall use their reasonable best efforts to enter into, or have in
place, an employment agreement with each of the Preexisting ITT Employees listed on Schedule 1(d)
attached hereto, which employment agreements shall become effective on the Close of the
Distribution Date. Water shall assume from ITT the employment agreement of Frank Jimenez, along
with the pension assets and liabilities identified in such agreement. Defense shall assume from
ITT the employment agreement of Chris Bernhardt. ITT shall continue to be bound by the employment
agreement of Denise Ramos.

          (e) No Solicit; No Hire. As described in Section 5.1 of the Distribution Agreement and
agreed to by ITT, Defense and Water, none of ITT, Water or Defense shall solicit or hire
Preexisting ITT Employees for such period following the Effective Time as specified therein,
without receiving the written consent of the affected prior employer. In respect of countries
whose local laws declare as invalid or unenforceable or prohibit any agreement between employers
not to hire employees of the other, ITT, Defense and Water will not have an agreement not to hire
employees of the other but agree not to actively solicit the services of each other’s employees for
such period following the Effective Time as specified in the Distribution Agreement.

          2. BENEFIT PROGRAM PARTICIPATION. (a) Except as specifically provided herein with respect to
particular compensation or benefit programs, all Water Employees and Defense Employees will cease
participation in all ITT benefit plans and programs no later than immediately prior to the
Distribution Date; provided that certain Water Employees who participate in the ITT Industries
Pension Plan for UK Expatriates, Godwin Pumps Limited Pension Scheme and ITT Retirement Savings
Plan, as identified as Items 23 and 24 on Schedule 3(a)(iii) and Item 13 of Schedule 4(a)(iii)
shall continue to participate in their respective plans following the Distribution Date, subject to
the terms of such plans. As soon as reasonably practicable, ITT will retain liability for all
incurred but not yet reported claims of Water Employees and Defense Employees who participate in
the ITT welfare benefit plans and programs through the earlier of (i) December 31, 2011 or (ii) the
date on which two separate

2

 

liability accounts for Water and Defense are created. The separate liability accounts shall
correspond to the new bank accounts established by Water and by Defense for new incurred but not
yet reported claims. The balance of the new accounts shall be transferred as soon as reasonably
practicable following the Distribution Date.

          (b) (i) Water shall cause to be recognized each Water Employee’s service with ITT for purposes
of determining (x) eligibility for vacation benefits, short-term disability and severance benefits
and (y) eligibility for vesting under all other employee benefit plans and policies of Water
applicable to such Water Employees, to the extent such service was recognized by ITT for such
purposes.

          (ii) Defense shall cause to be recognized each Defense Employee’s service with ITT for
purposes of determining (x) eligibility for vacation benefits, short-term disability and severance
benefits and (y) eligibility for vesting under all other employee benefit plans and policies of
Defense applicable to such Defense Employees, to the extent such service was recognized by ITT for
such purposes.

          (c) Nothing in this Agreement shall be construed or interpreted to restrict ITT’s, Water’s or
Defense’s right or authority to amend or terminate any of its employee benefit plans, policies or
programs effective as of a date following the Distribution Date, except neither Defense nor any
successor entity to Defense may amend or alter the eligibility schedule described for Preexisting
ITT Employees under Sections 3(b)(vii) and 3(c)(iv) or the requirement not to reduce or eliminate
health benefits under Section 5(b)(ix).

          (d) Any Preexisting ITT Employee who, on the Distribution Date, is employed by ITT, Defense or
Water shall not be deemed either to have terminated employment or to be in retirement status under
any employee benefit plan operated by ITT, Water or Defense. Except to the extent required by law
and as otherwise stated in Section 3(b)(vii), any Preexisting ITT Employee who, on the Distribution
Date, is employed by ITT, Defense or Water shall not, solely as a result of the Distribution or
related transactions, be eligible to receive payment of, or exercise any portability rights in
respect of, his or her vested benefit or retirement allowance under any employee benefit plan
operated by ITT, Water or Defense; provided, that each Water Employee and each Defense Employee
shall receive credit for their service with ITT prior to the Distribution Date from Water or
Defense as provided in this Article II. As permitted by Final Treasury Regulation Section
1.409A-1(h)(4), ITT, Water and Defense agree that any employee and any other “service provider”
within the meaning of the term as defined in Section 409A of the Code who provides services to ITT
immediately before the transactions contemplated hereby and provides services to ITT, Water or
Defense after and in connection with such transactions shall not be treated as separating from
service for purposes of Section 409A of the Code.

          (e) Except as otherwise specified on any of the Schedules, which are specifically incorporated
by reference to this Agreement, (i) any ITT Plan maintained by ITT prior to the Distribution Date
will continue to be maintained by ITT following the Distribution Date, (ii) any Defense Plan
maintained by Defense prior to the Distribution Date will continue to be maintained by Defense
following the Distribution Date and (iii) any Water Plan maintained by Water prior to the
Distribution Date will continue to be maintained by Water following the Distribution Date. Unless
otherwise specified in this Agreement, all assets and liabilities of any

3

 

Plan, Defense Plan or Water Plan will remain with and be assumed by the entity maintaining
such plan.

     3. DEFINED BENEFIT PLANS. (a) List of Defined Benefit Plans. (i) Certain current
and former employees of ITT, Water and Defense participate in ITT Group tax qualified defined
benefit pension plans made available for certain ITT Group employees in the United States. Schedule
3(a)(i) lists each defined benefit pension plan applicable to Preexisting ITT Employees (the
“US Qualified DB Plans”).

          (ii) Certain current and former employees of ITT, Water and Defense participate in ITT Group
tax non-qualified defined benefit pension plans made available for certain ITT Group employees in
the United States. Schedule 3(a)(ii) lists each defined benefit pension plan applicable to
Preexisting ITT Employees (the “US Non-Qualified DB Plans”).

          (iii) Certain current and former employees of ITT, Water and Defense participate in ITT Group
defined benefit pension plans made available for certain ITT Group employees outside of the United
States. Schedule 3(a)(iii) lists each defined benefit pension plan applicable to Preexisting ITT
Employees (the “Non-US DB Plans”).

          (b) US Qualified DB Plans. (i) Continuation of US Qualified DB Plans.
Following the Distribution Date, ITT shall continue to sponsor the ITT US Qualified DB Plans as so
identified on Schedule 3(a)(i). Following the Distribution Date, Defense shall continue to sponsor
the Defense US Qualified DB Plans as so identified on Schedule 3(a)(i). Following the Distribution
Date, Water shall continue to sponsor the Water US DB Qualified Plans as so identified on Schedule
3(a)(i). Each of ITT, Defense and Water shall assume all liabilities associated with such plans
that it sponsors following the Distribution Date, whether incurred prior to, on or following the
Distribution Date; provided, that Defense shall recognize the additional service credit as
specified in Section 3(b)(v) of this Agreement. Each of ITT, Defense and Water shall retain all
accrued benefits associated with such plans that it sponsors following the Distribution Date,
whether accrued prior to, on or following the Distribution Date.

          (ii) Adoption of US Qualified DB Plan. Effective as of the Distribution Date, Water
shall adopt New ITT Pension Plan for Bargaining Unit Employees, Seneca Falls, New York, which shall
have terms similar in all material respects to the ITT Pension Plan for Bargaining Unit Employees,
Seneca Falls, New York maintained by ITT and identified as Item 16 on Schedule 3(a)(i).

          (iii) Adoption of New Master Trusts. As soon as practicable on or after the
Distribution Date, Water shall adopt a new trust that is substantially similar in all material
respects to the Master Trust (the “New Water Trust”). Effective as of the Distribution
Date, ITT shall adopt a new trust that is substantially similar in all material respects to the
Master Trust (the “New ITT Trust”).

          (iv) Transfer of Master Trust and Assets. As soon as practicable on or after the
Distribution Date, ITT shall transfer to Defense the Master Trust, and Defense shall assume all
liabilities associated with such Master Trust. As soon as practicable on or after the Distribution
Date, the interests of the US Qualified DB Plans identified on Schedule 3(b)(iv) will

4

 

be liquidated and cash will be transferred from the Master Trust to the New Water Trust in the
amount identified on Schedule 3(b)(iv) and to the New ITT Trust in the amount identified on
Schedule 3(b)(iv). All other interests will remain in the Master Trust at Defense.

          (v) Transfer of US Qualified DB Plans to Defense. Effective as of the Distribution
Date, ITT shall transfer to Defense the defined benefit pension plans identified as Items 1-7 on
Schedule 3(a)(i), and Defense shall assume all liabilities associated with such plans, including
with respect to accrued benefits thereof.

          (vi) Transfer of US Qualified DB Plans to Water. Effective as of the Distribution
Date, ITT shall transfer to Water the ITT US Qualified DB Plans identified as Items 19-22 on
Schedule 3(a)(i), and Water shall assume all liabilities associated with such plans, including with
respect to accrued benefits thereof.

          (vii) Additional Retirement Eligibility. (A) Effective as of the Distribution Date,
any ITT Employee or any Water Employee listed on Schedule 3(b)(vii) who has accrued benefits under
the ITT Salaried Retirement Plan as of the Distribution Date and who is eligible to receive
retirement benefits thereunder may elect to commence receipt of that person’s retirement benefits
under the ITT Salaried Retirement Plan on or after the Distribution Date. Any ITT Employee or
Water Employee shall cease earning additional eligibility service at the earliest of the fifth
anniversary of the Distribution Date, the date on which the employee is terminated, the date on
which benefits attributable to the Traditional Pension Plan formula commence, the date of death or
a Change in Control of ITT or Water, respectively (the “Eligibility End Date”). Any ITT
Employee or any Water Employee who is eligible to begin retirement as of the Distribution Date who
elects to commence receipt of that person’s retirement benefits under the ITT Salaried Retirement
Plan shall not continue to earn eligibility service following the later of the Distribution Date
and the last month preceding the annuity start date. Following the Eligibility End Date, no ITT
Employee or Water Employee will receive credit toward the retirement criteria specified in the ITT
Salaried Retirement Plan. Except as provided in this Section 3(b)(vii), all accrued benefits under
the ITT Salaried Retirement Plan will be frozen with respect to any ITT Employee or any Water
Employee as of the Distribution Date.

          (B) Effective as of the later of the Distribution Date and January 1, 2012, any Defense
Employee who has accrued benefits under the ITT Salaried Retirement Plan may make a one-time
irrevocable election either to (x) continue earning eligibility and benefit service under the
Traditional Pension Plan formula defined in the ITT Salaried Retirement Plan or (y) choose to begin
participation in the enhanced employer-contribution portion of the defined contribution plan
identified as Item 1 on Schedule 4(a)(i).

          (C) Following the Distribution Date, all unvested benefits accrued by Preexisting ITT
Employees under the ITT Salaried Retirement Plan who have at least one year of service credit as of
the Distribution Date, which are attributable to ITT Employees and Water Employees (other than the
ability to continue earning eligibility service for up to five years as described above) shall be
vested as of the Distribution Date. Unvested benefits attributable to Defense Employees shall
remain unchanged and Defense shall remain liable for all benefits (unvested or vested) attributable
to Defense Employees.

5

 

          (c) US Non-Qualified DB Plans. (i) Continuation of US Non-Qualified DB Plans.
Following the Distribution Date, ITT shall continue to sponsor the ITT US Non-Qualified DB Plans as
so identified on Schedule 3(a)(ii). Following the Distribution Date, Defense shall sponsor the
Defense US Non-Qualified DB Plans as so identified on Schedule 3(a)(ii). Following the
Distribution Date, Water shall sponsor the Water US Non-Qualified DB Plans as so identified on
Schedule 3(a)(ii). Each of ITT, Defense and Water shall assume all liabilities associated with
such plans that it sponsors following the Distribution Date, whether incurred prior to, on or
following the Distribution Date; provided, that Defense shall recognize the additional service
credit as specified in Section 3(c)(iv) of this Agreement. Each of ITT, Defense and Water shall be
liable for all accrued benefits associated with such plans that it sponsors following the
Distribution Date, whether accrued prior to, on or following the Distribution Date.

          (ii) Excess Pension Plans. Effective as of the Distribution Date, ITT shall cause the
transfer of the sponsorship of the ITT US Non-Qualified DB Plans identified as Items 1-7 on
Schedule 3(a)(ii) to Defense; provided, that Defense shall recognize the additional service credit
as specified in Section 3(c)(iv) of this Agreement.

          Defense does hereby assume liability for all benefits accrued prior to the Distribution Date
under the ITT Excess Pension Plans, the ITT Enhanced Pension Plan, Federal Labs Unfunded 1, EDO
Excess Plan — SERP and the Retirement Plan for Non-Management Directors of ITT Corp. identified as
Items 1, 3-7 on Schedule 3(a)(ii) for all Preexisting ITT Employees, except as provided in the
Ancillary Agreements.

          (iii) Ex Gratia Plan. Effective as of the Distribution Date, ITT shall cause the
transfer of the Ex Gratia Plan to Defense identified as Item 2 on Schedule 3(a)(ii) along with all
liabilities accrued under the plan with the exception of any liabilities identified on Schedule
3(a)(ii).

          (iv) Additional Retirement Eligibility. Effective as of the Distribution Date, any
ITT Employee and any Water Employee listed on Schedule 3(c)(iv) who has accrued benefits under the
ITT Excess Pension Plan shall have his or her benefit accruals under the Excess Pension Plans cease
as of the date immediately preceding the Distribution Date; provided that, solely for purposes of
determining the amount of an employee’s Excess Pension Plans benefit under the Excess Pension
Plans, such Water Employee or ITT Employee shall be deemed to have incurred a Termination of
Employment (as defined in the Excess Pension Plans) as of the Distribution Date; provided
however, that for purposes of determining such employee’s eligibility for a benefit under
the Excess Pension Plans, such Water Employee or ITT Employee shall be credited with the same
eligibility service he or she is credited with under the ITT Salaried Retirement Plan as described
in Section 3(b)(vii) herein. Notwithstanding the previous sentence, a Water Employee shall not
incur a Termination of Employment under the terms of the Excess Pension Plans until such Water
Employee incurs a Termination of Employment with Water and (b) an ITT Employee shall not incur a
Termination of Employment under the terms of the Excess Pension Plans until such ITT Employee
incurs a Termination of Employment with ITT.

6

 

          Effective as of the Distribution Date, all accrued benefits under the Excess Pension Plans for
ITT Employees and Water Employees who have at least one year of service credit as of the
Distribution Date shall become 100 percent vested and nonforfeitable as of the Distribution Date.
Unvested benefits attributable to Defense Employees shall remain unchanged and Defense shall be
liable for all benefits (unvested or vested) attributable to Defense Employees.

          (v) Springing Rabbi Trust. It is contemplated that Defense will enter into a rabbi
trust agreement following the Distribution Date that will, only in the event of a change in control
of Defense, be fully funded with the amounts payable under the ITT Excess Pension Plans identified
as Item 1 on Schedule 3(a)(ii) and will pay to each participant the lump-sum amount payable
following a change in control in accordance with such plans.

          (d) Non-US DB Plans. (i) Continuation of Non-US DB Plans. Following the
Distribution Date, ITT shall continue to sponsor the ITT Non-US DB Plans as so identified on
Schedule 3(a)(iii). Following the Distribution Date, Defense shall continue to sponsor the Defense
Non-US DB Plans as so identified on Schedule 3(a)(iii). Following the Distribution Date, Water
shall continue to sponsor the Water Non-US DB Plans as so identified on Schedule 3(a)(iii). Each
of ITT, Defense and Water shall assume all liabilities associated with such plans that it sponsors
following the Distribution Date, whether incurred prior to, on or following the Distribution Date.
Each of ITT, Defense and Water shall retain all accrued benefits associated with such plans that it
sponsors following the Distribution Date, whether accrued prior to, on or following the
Distribution Date. For any ITT Non-US DB Plan not identified on Schedule 3(a)(iii), the entity
that maintained such ITT Non-US DB Plan prior to the Distribution Date shall continue to maintain
such plan and assume all liabilities associated with such plan following the Distribution Date.

          (ii) Adoption of Non-US DB Plan. Effective as of the Distribution Date, Water shall
adopt a benefits plan for Water Employees, which shall have terms similar in all material respects
to the benefit plan identified on Item 3 of Schedule 3(a)(iii). Each of ITT, Defense and Water
shall assume all liabilities associated with the plans that it sponsors following the Distribution
Date, whether incurred prior to, on or following the Distribution Date.

          (iii) Transfer of Non-US DB Plans. Effective as of the Distribution Date, ITT shall
transfer to Water the Non-US DB Plan identified as Item 22 of Schedule 3(a)(iii) (the “British
DB Plan”), and Water shall assume all liabilities associated with such plan; provided that the
transfer of such plan will be made in accordance with a deed of substitution between Lowara UK
Limited, ITT Industries Limited and Pension Trustee Management Limited and a scheme apportionment
arrangement deed between the Trustee and the employers participating in such plan.

          (iv) Transfer of Non-US Assets and Liabilities. As soon as practicable on or after
the Distribution Date, ITT shall transfer to Water the assets and liabilities associated with Water
Employees who participated in the Non-US Pension Plans identified as Items 8, 23 and 24 of Schedule
3(a)(iii) prior to the Distribution. Such assets will be transferred in kind to the maximum extent
practicable. The plan actuary for each such transfer shall be responsible for

7

 

determining the appropriate amount of assets and liabilities to be allocated per employee
transferred, in each case in accordance with applicable local law.

          (v) Transfer of Other Non-US Assets. Notwithstanding any other provision of this
Article III, the Plan Actuary for each such Non-US DB Plan shall be responsible for determining the
appropriate amount of assets and liabilities to be allocated to comparable plans to be established
and adopted by the companies as required pursuant to the provisions of this Article III, in each
case in accordance with applicable local law.

          (vi) Canadian DB Plans. Effective as of the Distribution Date, any ITT Employee who
has accrued benefits under the Non-US DB Plans identified as Items 14 and 15 on Schedule 3(a)(iii)
(the “Canadian Salaried DB Plans”) will cease participation in the Canadian Salaried DB
Plans as of the Distribution Date, shall be vested as of the Distribution Date and shall cease to
accrue further benefits under the Canadian Salaried DB Plans following the Distribution Date.
Benefit entitlements of ITT Employees under the Canadian Salaried DB Plans shall be determined in
accordance with the terms of the plans and applicable local law.

          (vii) Additional Retirement Eligibility for British DB Plan. Effective as of September 30,
2011 (or as soon as reasonably practicable after this date), any ITT Employee, Defense Employee or
any Water Employee who has accrued benefits under the Non-US DB Plan identified as the British DB
Plan as Item 22 on Schedule 3(a)(iii) shall be vested and will be credited for benefit service
through December 31, 2011. Such plan will be frozen as of September 30, 2011 (or as soon as
reasonably practicable after this date) and Water will continue to sponsor and administer the plan.

          Effective as of the Distribution Date, all ITT Employees who participate in the Non-US DB Plan
identified as the British DB Plan as Item 22 on Schedule 3(a)(iii) will cease participation in the
British DB Plan as of the Distribution Date, shall be vested as of the Distribution Date and shall
not continue to earn eligibility service following the Distribution Date. Unvested benefits
attributable to Water Employees under the British DB Plan shall remain unchanged and Water shall
remain liable for all benefits (unvested or vested) attributable to Water Employees.

          4. DEFINED CONTRIBUTION PLANS.

          (a) List of Defined Contribution Plans. (i) Certain current and former employees of
ITT, Water and Defense participate in ITT Group tax qualified defined contribution plans made
available for certain ITT Group employees in the United States. Schedule 4(a)(i) lists each defined
contribution plan applicable to Preexisting ITT Employees (the “US Qualified DC Plans”).

          (ii) Certain current and former employees of ITT, Water and Defense participate in ITT Group
non-tax qualified defined contribution plans made available for certain ITT Group employees in the
United States. Schedule 4(a)(ii) lists each defined contribution plan applicable to Preexisting ITT
Employees (the “US Non-Qualified DC Plans”).

          (iii) Certain current and former employees of ITT, Water and Defense participate in ITT Group
defined contribution plans made available for certain ITT Group

8

 

employees outside of the United States. Schedule 4(a)(iii) lists each defined contribution
plan applicable to Preexisting ITT Employees (the “Non-US DC Plans”).

          (b) US Qualified DC Plans. (i) Continuation of Existing US Qualified DC
Plans. Following the Distribution Date, ITT shall continue to sponsor the US Qualified DC
Plans so identified on Schedule 4(a)(i). Following the Distribution Date, Defense shall continue
to sponsor the US Qualified DC Plans so identified on Schedule 4(a)(i). Following the Distribution
Date, Water shall sponsor the US Qualified DC Plans so identified on Schedule 4(a)(i). All
employees who participate in the ITT Salaried Investment and Savings Plan identified as Item 1 on
Schedule 4(a)(i) shall be vested immediately on the Distribution Date.

          (ii) Adoption of New US Qualified DC Plans. Effective as of the Distribution Date,
ITT shall adopt a new defined contribution plan for ITT Employees who participated in the defined
contribution plan identified as Item 1 on Schedule 4(a)(i). Effective as of the Distribution Date,
Water shall adopt new defined contribution plans for Water Employees who participated in the
defined contribution plans identified as Items 1 and 14 on Schedule 4(a)(i).

          (iii) Transfer of US Qualified DC Plans. As soon as practicable on or after the
Distribution Date, ITT shall cause the transfer of the sponsorship of the ITT Salaried Investment
and Savings Plan identified as Item 1 on Schedule 4(a)(i) to Defense and Defense shall cause the
transfer of the accounts of all ITT Employees and Water Employees from such plan to the defined
contribution plans adopted by ITT and Water, as applicable.

          ITT shall cause the transfer of the accounts of all Water Employees from the Goulds Pumps,
Inc. Retirement Savings and Investment Plan identified as Item 14 on Schedule 4(a)(i) to a new
defined contribution plan maintained by Water. Assets attributable to the accounts identified in
this Section 4(b)(iii) will be transferred in kind to the maximum extent practicable. Each of ITT,
Defense and Water shall assume all liabilities associated with the plans that it sponsors following
the Distribution Date, whether incurred prior to, on or following the Distribution Date.

          (iv) ITT Stock Funds. As soon as practicable on or after the Distribution Date, each
U.S. Qualified DC Plan identified on Schedule 4(a)(i) that invests in ITT Common Stock will
maintain stock funds for each of ITT Common Stock, Water Common Stock and Defense Common Stock
(each as adjusted for the Distribution) for a period as determined by the fiduciaries of each such
U.S. Qualified DC Plan. Following the Distribution Date, the applicable fiduciaries of each such
U.S. Qualified DC Plan shall determine the proper treatment of the stock funds maintained in such
U.S. Qualified DC Plans and shall determine the timing of the disposition of shares held in such
stock funds and the treatment of the proceeds of sale of such shares.

          (c) US Non-Qualified DC Plans. (i) Continuation of Existing US Non-Qualified DC
Plans. Following the Distribution Date, ITT shall continue to sponsor the defined contribution
plans so identified on Schedule 4(a)(ii). Following the Distribution Date, Defense shall sponsor
the defined contribution plans so identified on Schedule 4(a)(ii). Following the Distribution
Date, Water shall sponsor the defined contribution plans so identified on Schedule 4(a)(ii).

9

 

          (ii) Adoption of New US Non-Qualified DC Plans. Effective as of the Distribution
Date, Defense shall adopt a new defined contribution plan, which shall have terms similar in all
material respects to the ITT Deferred Compensation Plan identified as Item 3 on Schedule 4(a)(ii).
Effective as of the Distribution Date, Water shall adopt new defined contribution plans, which
shall have terms similar in all material respects to the ITT Excess Savings Plan and the ITT
Deferred Compensation Plan identified, respectively, as Items 1 and 3 on Schedule 4(a)(ii).
Effective as of the Distribution Date, ITT shall adopt a new defined contribution plan, which shall
have terms similar in all material respects to the ITT Excess Savings Plan identified as Item 1 on
Schedule 4(a)(ii).

          (iii) Deferred Compensation Plan. Effective as of the Distribution Date, ITT shall
remain liable for benefits accrued under the ITT Deferred Compensation Plan as identified Item 3 on
Schedule 4(a)(ii) prior to the Distribution Date with respect to ITT Preexisting Employees and ITT
Retirees. Effective as of the Distribution Date, Water shall adopt the Water Deferred Compensation
Plan, which shall be identical in all material respects to the ITT Deferred Compensation Plan as in
effect immediately prior to the Distribution Date. Effective as of the Distribution Date, Defense
shall adopt the Defense Deferred Compensation Plan, which shall be identical in all material
respects to the ITT Deferred Compensation Plan as in effect immediately prior to the Distribution
Date. ITT shall cause the transfer of all benefits accrued under the ITT Deferred Compensation
Plan for Defense Employees listed on Schedule 4(c)(iii) to Defense and for Water Employees listed
on Schedule 4(c)(iii) to Water as soon as practicable following the Distribution Date.

          Water does hereby assume liability for benefits accrued prior to the Distribution Date under
the ITT Deferred Compensation Plan with respect to Water Employees, including without limitation,
such liabilities incurred prior to 1995 identified in the 1995 Employee Matters Agreement. Defense
does hereby assume liability for benefits accrued prior to the Distribution Date under the ITT
Deferred Compensation Plan with respect to Defense Employees, including without limitation, such
liabilities incurred prior to 1995 identified in the 1995 Employee Matters Agreement.

          (iv) Excess Savings Plans. Effective as of the Distribution Date, ITT shall remain
liable for benefits accrued under the ITT Excess Savings Plan identified as Item 1 on Schedule
4(a)(ii) prior to the Distribution Date with respect to ITT Preexisting Employees and ITT
Retirees. Effective as of the Distribution Date, Water shall adopt a new excess savings plan.
Effective as of the Distribution Date, Defense shall adopt a new excess savings plan, which shall
be identical in all material respects to the ITT Excess Savings Plan as in effect immediately prior
to the Distribution Date. ITT shall cause the transfer of all benefits accrued under the ITT
Excess Savings Plan for Defense Employees listed on Schedule 4(c)(iv) to Defense and for Water
Employees listed on Schedule 4(c)(iv) to Water as soon as practicable following the Distribution
Date. Water does hereby assume liability for benefits accrued prior to the Distribution Date under
the ITT Excess Savings Plan with respect to Water Employees, and Defense does hereby assume
liability for benefits accrued prior to the Distribution Date under the ITT Excess Savings Plan
with respect to Defense Employees.

          (d) Non-US DC Plans. (i) Continuation of Non-US DC Plans. Following the
Distribution Date, ITT shall continue to sponsor the ITT Non-US DC Plans as so identified on

10

 

Schedule 4(a)(iii). Following the Distribution Date, Defense shall continue to sponsor the
Defense Non-US DC Plans as so identified on Schedule 4(a)(iii). Following the Distribution Date,
Water shall continue to sponsor the Water Non-US DC Plans as so identified on Schedule 4(a)(iii).
Each of ITT, Defense and Water shall assume all liabilities associated with such plans that it
sponsors following the Distribution Date, whether incurred prior to, on or following the
Distribution Date. Each of ITT, Defense and Water shall retain all accrued benefits associated with
such plans that it sponsors following the Distribution Date, whether accrued prior to, on or
following the Distribution Date. For any ITT Non-US DC Plan not identified on Schedule 4(a)(iii),
the entity that maintained such ITT Non-US DC Plan prior to the Distribution Date shall continue to
maintain such plan and assume all liabilities associated with such plan following the Distribution
Date.

          (ii) Adoption of Non-US DC Plans. Effective as of the Distribution Date, ITT shall
adopt benefits plans for ITT Employees, which shall have terms similar in all material respects to
the benefit plans identified on Items 8, 9, 12 and 13 of Schedule 4(a)(iii). Effective as of the
Distribution Date, Defense shall adopt benefits plans for Defense Employees, which shall have terms
similar in all material respects to the benefit plan identified as the ITT Retirement Savings Plan
— ITT Industries (UK) on Item 13 of Schedule 4(a)(iii). Effective as of the Distribution Date,
Water shall adopt benefits plans for Water Employees, which shall have terms similar in all
material respects to the benefit plans identified on Items 2 and 3 of Schedule 4(a)(iii). Each of
ITT, Defense and Water shall assume all liabilities associated with the plans that it sponsors
following the Distribution Date, whether incurred prior to, on or following the Distribution Date.

          (iii) Transfer of Non-US Assets and Liabilities. As soon as practicable on or after
the Distribution Date, ITT shall transfer to Defense the assets and liabilities associated with
Defense ITT Group employees who participated in the Non-US DC Plan identified as the ITT Retirement
Savings Plan — ITT Industries (UK) as Item 13 of Schedule 4(a)(iii) prior to the Distribution,
unless any such employee elects otherwise. As soon as practicable on or after the Distribution
Date, ITT shall transfer to Water the assets and liabilities associated with Water ITT Group
employees who participated in the Non-US DC Plans identified as Items 2 and 3 of Schedule 4(a)(iii)
prior to the Distribution, unless any such employee elects otherwise. As soon as practicable on or
after the Distribution Date, Water shall transfer to ITT the assets and liabilities associated with
ITT Employees who participated in the Non-US DC Plans identified as Items 8, 9, 12 and 13 of
Schedule 4(a)(iii) prior to the Distribution, unless any such employee elects otherwise. Such
assets will be transferred in kind to the maximum extent practicable.

          5. EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS.

          (a) List of Health and Welfare Plans. (i) Certain current and former employees of
ITT, Water and Defense participate in ITT Group health and welfare plans made available for certain
ITT Group employees in the United States. Schedule 5(a)(i) lists each health and welfare plan
applicable to Preexisting ITT Employees (the “US H&W Plans”).

          (ii) Certain current and former employees of ITT, Water and Defense participate in ITT Group
health and welfare plans made available for certain ITT Group

11

 

employees outside of the United States. Schedule 5(a)(ii) lists each health and welfare plan
applicable to Preexisting ITT Employees (the “Non-US H&W Plans”).

          (b) US H&W Plans. (i) Continuation of Existing US H&W Plans. Following the
Distribution Date, ITT shall continue to sponsor the health and welfare plans so identified on
Schedule 5(a)(i). Following the Distribution Date, Defense shall continue to sponsor the health
and welfare plans so identified on Schedule 5(a)(i). Following the Distribution Date, Water shall
continue to sponsor the health and welfare plans so identified on Schedule 5(a)(i). Each of ITT,
Defense and Water shall retain all accrued benefits associated with such plans that it sponsors
following the Distribution Date, whether accrued prior to, on or following the Distribution Date.

          (ii) Adoption of New US H&W Plans. Effective on the earlier of the Distribution Date
and December 31, 2011, Defense shall adopt new health and welfare plans, which shall have terms
similar in all material respects to the health and welfare plans identified as Items 14, 21, 22,
23, 24, 26, 42, 43, 45 and 46 on Schedule 5(a)(i). Effective on the earlier of the Distribution
Date and December 31, 2011, Water shall adopt new health and welfare plans, which shall have terms
similar in all material respects to the health and welfare plans identified as Items 14, 21, 22,
23, 24, 26, 42, 43, 45, 46 and 47 on Schedule 5(a)(i).

          (iii) Goulds Plans. Effective as of the Distribution Date, Water shall adopt new
health and welfare plans substantially similar in all material ways to the Goulds Postretirement
Medical Plan and the Goulds Postretirement Life Plan, identified as Items 33 and 39 on Schedule
5(a)(i), respectively. As soon as practicable following the Distribution Date, ITT shall transfer
to Water 25% of the assets and 25% of the liabilities of the Goulds Postretirement Medical Plan and
the Goulds Postretirement Life Plan, and Water shall be liable for such assets and liabilities as
of the date of such transfer.

          (iv) Transfer of ITT Employee Benefit Trust. As soon as practicable on or after the
Distribution Date, ITT shall transfer to Defense the ITT Employee Benefit Trust, and Defense shall
assume all liabilities associated with such trust. As soon as practicable following the
Distribution Date, ITT shall transfer to Defense all of the assets and liabilities of the ITT
Employee Benefit Trust related to the retiree portion of the plan, and Defense shall be liable for
all such assets and liabilities as of the date of such transfer.

          (v) ITT Salaried Retiree Health Plan. Effective as of the Distribution Date, the ITT
Salaried Retiree Health Plan identified as Item 13 on Schedule 5(a)(i) will provide that for
purposes of determining eligibility for post-retirement medical benefits under the ITT Salaried
Retiree Health Plan with respect to an eligible salaried Preexisting ITT Employee who on the
Distribution Date, becomes a Water Employee or remains an ITT Employee, such Water Employee or ITT
Employee shall be credited with the same eligibility service he or she is credited with under the
ITT Salaried Retirement Plan as described in Section 3(b)(vii) herein.

          (vi) Severance. Effective as of the Distribution Date, each of ITT, Water and Defense
shall provide severance plans for all Preexisting ITT Employees which are substantially equivalent
to those ITT severance plans covering such employees immediately prior to the Distribution Date
identified as Items 15-19 of Schedule 5(a)(i), with no restriction as to modification by each of
ITT, Water and Defense.

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          (vii) Long-Term Disability Insurance. Effective as of the Distribution Date, Water and
Defense shall each adopt long-term disability plans, identical in all material respects to the ITT
Long-Term Disability Plan and the ITT Corporation Excess Long-Term Disability Plan identified as
Items 23 and 24 of Schedule 5(a)(i), each as in effect on the Distribution Date, covering eligible
Water Employees and Defense Employees, respectively.

          (viii) Liabilities. ITT shall transfer all liability to Defense with respect to, and
all Code Section 501(c)(9) assets attributable to, retiree life insurance and medical benefits
under the ITT employee welfare benefit plans, except that (x) ITT shall transfer to Water the
liability of ITT with respect to, and any assets attributable to, certain Preexisting ITT Employees
identified on Schedule 1(a)(i) whose employment is transferred to Water in connection with the
Distribution, and Water does hereby assume such liability, and (y) ITT shall transfer to Defense
the liability with respect to, and assets attributable to, certain Preexisting ITT Employees
identified on Schedule 1(a)(ii) whose employment is transferred to Defense in connection with the
Distribution, and Defense does hereby assume such liability.

          (ix) Change in Control. If there is a Change in Control of ITT, Water or Defense
during the five-year period following the Distribution Date, then the company in which such Change
in Control occurred shall not, during the balance of such five-year period, reduce or eliminate
health benefits in effect immediately prior to such Change in Control provided to former employees
who retired from ITT or any of its Affiliates on or prior to the Distribution Date (or as set forth
in the next succeeding sentence), or increase associated retiree contributions, unless the other
companies consent in writing to such a reduction, elimination or cost increase; provided, however,
that the company in which the Change in Control occurred may, in its sole discretion, modify such
benefits in accordance with the changes contemplated in the assumptions in effect immediately prior
to the Change in Control that are used to establish such company’s Accumulated Postretirement
Benefit Obligation (as defined in Financial Accounting Standards Board ASC 715). Persons who are
receiving severance payments in connection with the Distribution and who are or become eligible to
retire on or before the end of such severance period shall be afforded the treatment of this
Section 5(b)(ix).

          (x) Indemnity. In the event that any of ITT, Water or Defense is asked to
consent to a reduction, elimination or cost increase with respect to retiree health benefits after
a Change in Control as described in clause (iii) above, each such company shall determine whether
to provide such consent in its sole and absolute discretion. Each of ITT, Water and Defense does
hereby agree to indemnify any other company asked by it to provide such consent against any and all
liability that might arise with respect to the granting or withholding of such consent.

          (c) Non-US H&W Plans. (i) Continuation of Non-US H&W Plans. Following the
Distribution Date, ITT shall continue to sponsor the ITT Non-US H&W Plans as so identified on
Schedule 5(a)(ii). Following the Distribution Date, Defense shall continue to sponsor the Defense
Non-US H&W Plans as so identified on Schedule 5(a)(ii). Following the Distribution Date, Water
shall continue to sponsor the Water Non-US H&W Plans as so identified on Schedule 5(a)(ii). Each
of ITT, Defense and Water shall assume all liabilities associated with such plans that it sponsors
following the Distribution Date, whether incurred prior to, on or following the Distribution Date.
Each of ITT, Defense and Water shall retain all accrued benefits associated with such plans that it
sponsors following the Distribution Date, whether accrued prior

13

 

to, on or following the Distribution Date. For any ITT Non-US H&W Plan not identified on
Schedule 5(a)(ii), the entity that maintained such ITT Non-US H&W Plan prior to the Distribution
Date shall continue to maintain such plan and assume all liabilities associated with such plan
following the Distribution Date.

          (ii) Adoption of Non-US H&W Plans. Effective as of the Distribution Date, ITT shall
adopt benefits plans for ITT Employees, which shall have terms similar in all material respects to
the benefit plans identified on Items 27, 30-35 and 42 of Schedule 5(a)(ii). Effective as of the
Distribution Date, Defense shall adopt benefits plans for Defense Employees, which shall have terms
similar in all material respects to the benefit plans identified on Items 7, 8, 22 and 23 of
Schedule 5(a)(ii). Effective as of the Distribution Date, Water shall adopt benefits plans for
Water Employees, which shall have terms similar in all material respects to the benefit plans
identified on Items 7-11, 22 and 23 of Schedule 5(a)(ii). Each of ITT, Defense and Water shall
assume all liabilities associated with the plans that it sponsors following the Distribution Date,
whether incurred prior to, on or following the Distribution Date.

          6. INCENTIVE PLANS. (a) ITT currently maintains certain annual incentive plans and certain
long-term performance plans, each as listed on Schedule 6(a) (the “Incentive Plans”),
pursuant to which certain Preexisting ITT Employees employed by ITT might become entitled to
payments after the Distribution Date with respect to their performance with ITT prior to the
Distribution Date.

          (b) Effective as of the Distribution Date, ITT shall be and remain liable for all payments
accrued prior to the Distribution Date for ITT Employees under the Incentive Plans, including any
such payments to be made following the Distribution Date. Effective as of the Distribution Date,
Water shall be and remain liable for all payments accrued prior to the Distribution Date for Water
Employees under the Incentive Plans, including any such payments to be made following the
Distribution Date. Effective as of the Distribution Date, Defense shall be and remain liable for
all payments accrued prior to the Distribution Date for Defense Employees under the Incentive
Plans, including any such payments to be made following the Distribution Date. ITT, Water and
Defense shall cause any such payments under the Incentive Plans to be recognized as compensation
without regard to the source of such payments.

          As soon as practicable following the Distribution Date, ITT shall transfer any amounts accrued
under the Incentive Plans for (i) Water Employees to Water and (ii) Defense Employees to Defense.

          (c) All multi-year cash performance awards under the Incentive Plans (the “TSR
Awards”) shall be terminated effective as of the Distribution Date. ITT shall determine the
amount to be paid in cash, if any, to each eligible Preexisting ITT Employee under outstanding TSR
Awards as described in this Section 6(c). The amount to be paid under the TSR Awards shall be paid
in cash on the normal payment schedule of the original TSR Award. ITT shall be liable for and make
any such payments to ITT Employees, including any such payments to be made following the
Distribution Date. Water shall be liable for and make any such payments to Water Employees,
including any such payments to be made following the Distribution Date. Defense shall be liable
for and make any such payments to Defense Employees, including any such payments to be made
following the Distribution Date.

14

 

          For the TSR Awards granted in 2009, ITT shall pay such award in cash to the extent payment is
earned according to the original vesting and payment schedule to each eligible Preexisting ITT
Employee based on (i) actual performance for the pro rata percentage of the performance period
completed on the Distribution Date and (ii) target value for the remaining uncompleted performance
period following the Distribution Date.

          For the TSR Awards granted in 2010, (i) ITT shall pay such award in cash to the extent payment
is earned to each eligible Preexisting ITT Employee based on actual performance for the pro rata
percentage of the performance period completed on the Distribution Date, which shall be paid
according to the original vesting and payment schedule, and (ii) following the Distribution Date,
ITT, Water or Defense shall award to such Preexisting ITT Employee (thereafter, an ITT Employee, a
Water Employee or Defense Employee, as applicable) a restricted stock unit (“RSU”) for the
remaining target value, which RSU shall vest on December 31, 2012 and shall be settled in ITT
shares, Water shares or Defense shares, as applicable.

          For the TSR Awards granted in 2011, (i) ITT shall pay such award in cash to the extent payment
is earned to each eligible Preexisting ITT Employee based on actual performance for the pro rata
percentage of the performance period completed on the Distribution Date, which shall be paid
according to the original vesting and payment schedule, and (ii) following the Distribution Date,
ITT, Water or Defense will award to such Preexisting ITT Employee (thereafter, an ITT Employee, a
Water Employee or Defense Employee, as applicable) an RSU for the remaining target value, which RSU
shall vest on December 31, 2013 and shall be settled in ITT shares, Water shares or Defense shares,
as applicable.

          (d) Effective as of the Distribution Date, ITT shall accrue, be and remain liable for all
payments for ITT Employees under the ITT Corporation Retention Program as identified on Item 4 of
Schedule 6(a). Effective as of the Distribution Date, Water shall accrue, be and remain liable for
all payments for Water Employees under the ITT Corporation Retention Program as identified on Item
4 of Schedule 6(a). Effective as of the Distribution Date, Defense shall accrue, be and remain
liable for all payments for Defense Employees under the ITT Corporation Retention Program as
identified on Item 4 of Schedule 6(a).

          7. STOCK OPTIONS AND OTHER AWARDS. (a) Effective as of the Distribution Date, outstanding
stock options (whether vested or unvested), stock appreciation rights, RSUs and restricted stock
awards (together, “ITT stock awards”) under the ITT stock plans listed on Schedule 7(a), as
each plan may have been amended from time to time (the “ITT Stock Plans”), shall be treated
as follows:

          (i) ITT Employees; Retirees. ITT stock awards held by ITT Employees and ITT
Retirees shall be adjusted to reflect the Distribution, as provided pursuant to the terms of
the ITT Stock Plans, such that they retain ITT stock awards (but not stock awards payable in
Water or Defense shares) following the Distribution Date.

          (ii) Water Employees. Water Employees holding ITT stock awards shall receive
substitute stock awards in respect of Water Common Stock pursuant to the terms of a stock
plan to be adopted by Water as of the Distribution Date (the “Water

15

 

Stock Plan”), which are deemed adjusted to reflect the Distribution, as
provided pursuant to the terms of the ITT Stock Plans and as described in Section 7(a)(i).

          (iii) Defense Employees. Defense Employees holding ITT stock awards shall
receive substitute stock awards in respect of Defense Common Stock pursuant to the terms of
a stock plan, to be adopted by Defense as of the Distribution Date (the “Defense Stock
Plan”), which are deemed adjusted to reflect the Distribution, as provided pursuant to
the terms of the ITT Stock Plans and as described in Section 7(a)(i).

          (iv) ITT Non-Employee Directors. The Compensation and Personnel Committee of
the Board of Directors of ITT has approved the adjustment of any ITT stock awards held by
such non-employee directors that have not been exercised as of the Distribution Date to
reflect the Distribution, as provided pursuant to the terms of the ITT Stock Plans following
the conversion formula used for common shareholders of ITT stock. Such ITT stock awards
held by a non-employee director will be adjusted on an “as distributed basis” such that each
ITT stock award will be converted into a like number of ITT stock awards based on shares of
each of ITT, Water and Defense following the Distribution Date. Generally, vesting and
exercisability terms will remain the same, although certain adjustments may be made as the
Board of Directors of ITT or the applicable committee thereof shall approve.

          (v) Other Provisions. Effective as of the Distribution Date, Water Employees
and Defense Employees shall cease active participation in all ITT Stock Plans; provided,
however, that Water Employees and Defense Employees shall receive full credit under any
substitute stock awards in respect of Water Common Stock and Defense Common Stock,
respectively, for their service to ITT Group prior to the Distribution. To the extent that
any Preexisting ITT Employee continues to be entitled to future ITT awards following the
Distribution Date, such grants may be made in forms that are acceptable to ITT, Water or
Defense, as such entity deem adequate.

          (b) Manner of Substitution. (i) With respect to each cancelled ITT stock award, the
number and exercise price of substitute stock awards granted under the Water Stock Plan or the
Defense Stock Plan with respect thereto, and the other terms and conditions of the substitute stock
awards, shall be equitably determined to preserve the economic value of the cancelled ITT stock
award.

          (ii) Each holder of ITT Common Stock on the Distribution Record Date (or such holder’s
designated transferee or transferees) shall be entitled to receive in the Water Distribution a
substitute stock award representing [•] [of a] share[s] of Water Common Stock granted under the
Water Stock Plan for every stock award representing one (1) share of ITT Common Stock granted under
the ITT Stock Plan held by such holder. No action by any such holder shall be necessary for such
holder to receive the applicable substitute stock award representing shares of Water Common Stock
such holder is entitled in the Water Distribution.

          (iii) Each holder of ITT Common Stock on the Distribution Record Date (or such
holder’s designated transferee or transferees) shall be entitled to receive in the Defense
Distribution a substitute stock award representing [•] [of a] share[s] of Defense Common Stock

16

 

granted under the Defense Stock Plan for every stock award representing one (1) share of ITT
Common Stock granted under the ITT Stock Plan held by such holder. No action by any such holder
shall be necessary for such holder to receive the applicable substitute stock award representing
shares of Defense Common Stock such holder is entitled in the Defense Distribution.

          (c) Fractional Shares. ITT holders of stock awards under ITT incentive plans on
the Distribution Record Date, which would entitle such holders to receive a substitute stock award
representing less than one whole share of Water Common Stock or Defense Common Stock, as the case
may be, in the applicable Distribution, shall receive (x) if such holders are entitled to receive a
substitute stock award representing less than one-half of a whole share of Water Common Stock or
Defense Common Stock, as the case may be, such number shall be rounded down to the next whole share
of Water Common Stock or Defense Common Stock, or (y) if such holders are entitled to receive a
substitute stock award representing at least one-half of a whole share of Water Common Stock or
Defense Common Stock, as the case may be, such number shall be rounded up to the next whole share
of Water Common Stock or Defense Common Stock, as the case may be. Fractional shares of Water
Common Stock or Defense Common Stock shall not be distributed in the Distribution nor credited to
book-entry accounts, provided however that fractional shares of ITT, Water or Defense held for the
benefit of employees in book-entry accounts with the Company’s external administrator may be
credited to such accounts. The Distribution Agent shall, as soon as practicable after the
Distribution Date distribute to each such holder, or for the benefit of each such beneficial owner,
such holder or owner’s ratable share of such stock awards, based upon the average gross selling
price per share of Water Common Stock or Defense Common Stock, as the case may be, after making
appropriate deductions for any amount required to be withheld for United States federal income tax
purposes. Notwithstanding the foregoing, in the event of any adjustment, stock split, reverse
stock split or other adjustment or change to the capitalization of shares of ITT, Water or Defense
that occurs at or following the Distribution, ITT, Water or Defense, as applicable, shall provide
for an adjustment of the applicable stock awards then held to reflect such adjustment, stock split,
reverse stock split or other adjustment or change to the capitalization of shares prior to the
subsequent distribution and the terms of the applicable equity incentive plans will continue to
apply to the applicable stock awards.

          8. COLI. (a) Effective as of the Distribution Date, the COLI policies underwritten by
Northwestern Mutual Life Insurance Company and New York Life covering certain Preexisting ITT
Employees who are eligible for participation in the ITT Deferred Compensation Plan shall be
allocated among the three companies in accordance with Schedule 8(a).

          (b) Effective as of the Distribution Date, COLI policies underwritten by Penn Insurance and
Annuity Company as set forth in Schedule 8(b) purchased in connection with supplemental executive
life benefits known as “Options C and D” will remain with ITT.

          9. DIRECTOR PLANS. (a) Treatment of Current Director Plans. (i) Effective as of
the Distribution Date, ITT shall continue the director plans identified on Schedule 9(a) (the
“ITT Director Plans”). With respect to any non-employee director of ITT immediately
following the Distribution who is not also a director of Water or Defense at such

17

 

time and who has an accrued benefit under the suspended ITT Directors Retirement Plan, ITT shall provide
such accrued benefit in accordance with the terms of such plan, but only to the extent such accrued
benefit is not duplicated under a plan maintained by Water or Defense.

          (ii) Effective as of the Distribution Date, Defense shall adopt benefits plans for
non-employee directors of Defense, which shall have terms similar in all material respects to the
ITT Director Plans set forth on Schedule 9(a) (the “Defense Director Plans”), and Water
shall adopt benefits plans for non-employee directors of Defense, which shall have terms similar in
all material respects to the ITT Director Plans set forth on Schedule 9(a) (the “Water Director
Plans”).

          (iii) As soon as practicable on or after the Distribution Date, ITT shall cause the transfer
of the accounts of all non-employee directors of Defense from the ITT Directors Plans to the
Defense Director Plans. As soon as practicable on or after the Distribution Date, ITT shall cause
the transfer of the accounts of all non-employee directors of Water from the ITT Directors Plans to
the Water Director Plans. Such assets will be transferred in kind to the maximum extent
practicable.

          (b) Adoption of Water Director Plans. Effective as of the Distribution Date, Water
shall adopt plans and programs for non-employee directors that are identical in all material
respects to the ITT Director Plans. With respect to any non-employee director of Water immediately
following the Distribution who has an accrued benefit under any ITT Director Plan, Water shall
provide such accrued benefit in accordance with the terms of such plan, but only to the extent such
accrued benefit is not duplicated under a plan maintained by ITT or Defense.

          (c) Adoption of Defense Director Plans. Effective as of the Distribution Date, Defense
shall adopt plans and programs for non-employee directors that are identical in all material
respects to the ITT Director Plans. With respect to any non-employee director of Defense
immediately following the Distribution who has an accrued benefit under any suspended ITT Director
Plan, Defense shall provide such accrued benefit in accordance with the terms of such plan, but
only to the extent such accrued benefit is not duplicated under a plan maintained by ITT or Water.

          10. COLLECTIVE BARGAINING AGREEMENTS. (a) ITT Collective Bargaining Agreements. ITT
shall retain all collective bargaining agreements and associated liabilities so identified on
Schedule 10(a) and for each such collective bargaining agreement in effect as of the Distribution
Date. For each such collective bargaining agreement in effect as of the Distribution Date, ITT
shall continue to recognize the union which is a party to such collective bargaining agreement as
the exclusive collective bargaining representative for the ITT Employees covered under the terms of
each such collective bargaining agreement.

          (b) Water Collective Bargaining Agreements. Water shall expressly assume all
collective bargaining agreements and associated liabilities so identified on Schedule 10(a)
effective as of the Distribution Date. For each such collective bargaining agreement in effect as
of the Distribution Date, Water agrees to recognize the union which is a party to each such
collective bargaining agreement as the exclusive collective bargaining representative for the Water
Employees covered under the terms of each such collective bargaining agreement.

18

 

          (c) Defense Collective Bargaining Agreements. Defense shall expressly assume all
collective bargaining agreements and associated liabilities so identified on Schedule 10(a)
effective as of the Distribution Date. For each such collective bargaining agreement in effect as
of the Distribution Date, Defense agrees to recognize the union which is a party to each such
collective bargaining agreement as the exclusive collective bargaining representative for the
Defense Employees covered under the terms of each such collective bargaining agreement.

          (d) EU Directive. Notwithstanding anything to the contrary in this Section 10, in
countries in which the European Union Acquired Rights Directive applies, collective bargaining
agreements and any other agreements with employee representatives will continue to apply after the
Distribution Date to the extent and in the manner provided for by local law.

          11. TRANSITION SERVICES. Defense shall provide such transition services related to payroll
and the HRIS system to ITT and Water as described in the Transition Services Agreement (Infinium
Payroll) attached hereto as Exhibit A. Defense shall provide such transition services related to
accounting processes to ITT and Water as described in the Transition Services Agreement (Infinium
Accounting) attached hereto as Exhibit B. ITT shall provide such transition services related to
active U.S. healthcare to Defense and Water as described in the Transition Services Agreement
(Active Healthcare) attached hereto as Exhibit C. ITT shall provide such transition services
related to retiree medical and financial shared services and active dental to Defense as described
in the Transition Services Agreement (MVP and FSS) attached hereto as Exhibit D.

          12. ALLOCATION OF BALANCE SHEET ACCOUNTS. Effective as of the Distribution Date, certain
balance sheet accounts attributable to employee benefit plans for which responsibility is being
transferred from ITT to Water and/or Defense shall be allocated to the balance sheets of Water or
Defense, as appropriate, on the following basis:

          (a) All accruals on the balance sheets of Water (including accruals on the balance sheet of
Water) and Defense (including accruals on the balance sheet of Defense) which relate to benefit
plans sponsored by the respective companies shall be unaffected by the provisions of this Section
12.

          (b) With regard to the liabilities recorded by ITT with respect to the ITT Excess Savings Plan
that will, in accordance with Section 4(c)(iv), be assumed by Water and Defense, respectively, ITT
shall allocate to the respective new employing entity an amount equal to the sum of the plan
balances for such affected employees.

          (c) For each category of balance sheet account enumerated in this Section 12, there has been
recorded a corresponding deferred tax debit or credit, as the case may be, which shall also be
allocated to the respective companies based on the amount allocated for the stated reason above.

          (d) To the extent that a balance sheet account requiring allocation among the companies exists
that is not specifically included in this Section 12, ITT shall make the allocation on a reasonable
basis, subject to the agreement of the party in whose favor the allocation is being made.

19

 

          13. ACCESS TO INFORMATION AND DATA EXCHANGE. (a) Provision of Corporate Records. (i)
Consistent with Section 6.3 of the Distribution Agreement, upon the prior written request by Water
or Defense for specific and identified agreements, documents, books, records or files including,
without limitation, computer files, microfiche, tape recordings and photographs (collectively,
“Records”), relating to or affecting Water or Defense, as applicable, ITT shall arrange, as
soon as reasonably practicable following the receipt of such request, for the provision of
appropriate copies of such Records (or the originals thereof if the party making the request has a
reasonable need for such originals) in the possession of ITT or any of its Subsidiaries, but only
to the extent such items are not already in the possession of the requesting party;
provided, however, that as soon as practicable following the Distribution Date, ITT
shall provide copies of all necessary employee documentation for the Water Employees listed on
Schedule 1(a)(i) to Water and shall provide copies of all necessary employee documentation for the
Water Employees listed on Schedule 1(a)(ii) to Defense.

          (ii) After the Distribution Date, upon the prior written request by ITT or Defense for
specific and identified Records relating to or affecting ITT or Defense, as applicable,
Water shall arrange, as soon as reasonably practicable following the receipt of such
request, for the provision of appropriate copies of such Records (or the originals thereof
if the party making the request has a need for such originals) in the possession of Water or
any of its Subsidiaries, but only to the extent such items are not already in the possession
of the requesting party.

          (iii) After the Distribution Date, upon the prior written request by ITT or Water for
specific and identified Records relating to or affecting ITT or Water, as applicable,
Defense shall arrange, as soon as reasonably practicable following the receipt of such
request, for the provision of appropriate copies of such Records (or the originals thereof
if the party making the request has a need for such originals) in the possession of Defense
or any of its Subsidiaries, but only to the extent such items are not already in the
possession of the requesting party.

          (b) Access to Information. (i) From and after the Distribution Date and consistent
with Section 6.3 of the Distribution Agreement, each of ITT, Water and Defense shall afford to the
other and its authorized accountants, counsel and other designated representatives reasonable
access during normal business hours, subject to appropriate restrictions for classified, privileged
or confidential information, to the personnel, properties, books and Records of such party and its
Subsidiaries insofar as such access is reasonably required by the other party.

          (ii) Without limiting the generality of the foregoing clause (i), except as otherwise
provided by law, each party hereto shall furnish, or shall cause to be furnished to the
other parties, a list of all benefit plan participants and employee data or information in
its possession which is necessary for such other parties to maintain and implement any
benefit plan or arrangement covered by this Agreement, or to comply with the provisions of
this Agreement, and which is not otherwise readily available to such other party.

          (c) Reimbursement; Other Matters. (i) Except to the extent otherwise specifically
identified by the Distribution Agreement or any Ancillary Agreement, a party

20

 

providing Records or access to information to the other party under this Section 13 shall be
entitled to receive from the recipient, upon the presentation of invoices therefore, payments for
such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be
reasonably incurred in providing such Records or access to information.

          (ii) The parties hereto shall comply with those document retention policies, cost
sharing arrangements, expense reimbursement procedures and request procedures as shall be
established and agreed to in writing by their respective authorized officers on or prior to
the Distribution Date in respect of Records and related matters.

          (d) Confidentiality. Each of (i) ITT and its Subsidiaries, (ii) Water and its
Subsidiaries and (iii) Defense and its Subsidiaries shall not use or permit the use of (without the
prior written consent of the other) and shall hold, and shall cause its consultants and advisors to
hold, in strict confidence, all information concerning the other parties in its possession, its
custody or under its control (except to the extent that (A) such information has been in the public
domain through no fault of such party or (B) such information has been later lawfully acquired from
other sources by such party or (C) the Distribution Agreement, this Agreement or any other
Ancillary Agreement or any other agreement entered into pursuant hereto permits the use or
disclosure of such information or (D) as may be required under the USA Patriot Act) to the extent
such information (x) relates to the period up to the Effective Time, (y) relates to the
Distribution Agreement or any Ancillary Agreement or (z) is obtained in the course of performing
services for the other party pursuant to the Distribution Agreement or any Ancillary Agreement, and
each party shall not (without the prior written consent of the other) otherwise release or disclose
such information to any other person, except such party’s auditors and attorneys, unless compelled
to disclose such information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to consult with the other
affected party or parties prior to such disclosure. To the extent that a party hereto is compelled
by judicial or administrative process to disclose such information under circumstances in which any
evidentiary privilege would be available, such party agrees to assert such privilege in good faith
prior to making such disclosure. Each of the parties hereto agrees to consult with each relevant
other party in connection with any such judicial or administrative process, including, without
limitation, in determining whether any privilege is available, and further agrees to allow each
such relevant party and its counsel to participate in any hearing or other proceeding (including,
without limitation, any appeal of an initial order to disclose) in respect of such disclosure and
assertion of privilege. Notwithstanding anything to the contrary contained herein, each party shall
be entitled to use information disclosed pursuant to this Agreement to the extent reasonably
necessary for the administration of its employee benefit plans in accordance with applicable law.

          14. NOTICES; COOPERATION. Notwithstanding anything in this Agreement to the contrary, all
actions contemplated herein with respect to benefit plans which are to be consummated pursuant to
this Agreement shall be subject to such notices to, and/or approvals by, the Internal Revenue
Service (or other governmental agency or entity) as are required or deemed appropriate by such
benefit plan’s sponsor. Each of ITT, Water and Defense agrees to use its commercially reasonable
efforts to cause all such notices and/or approvals to be filed or obtained, as the case may be, in
a timely fashion. Each party hereto shall reasonably cooperate with the other parties with respect
to any government filings, employee notices or any

21

 

other actions reasonably necessary to maintain and implement the employee benefit arrangements
covered by this Agreement.

          15. FURTHER ASSURANCES. From time to time, as and when reasonably requested by any other party
hereto, each party hereto shall execute and deliver, or cause to be executed and delivered, all
such documents and instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to effect the purposes of
this Agreement and the transactions contemplated hereunder.

          16. INDEMNIFICATION. (a) Indemnification by ITT. Except as otherwise specifically
set forth in this Agreement or in Article VII of the Distribution Agreement, ITT shall indemnify,
defend and hold harmless the Water Indemnitees and the Defense Indemnitees from and against any and
all Indemnifiable Losses of the Water Indemnitees and the Defense Indemnitees, respectively,
arising out of, by reason of or otherwise in connection with (i) any employee benefit plan, policy,
program or arrangement established or adopted by ITT effective on or after the Distribution Date,
(ii) any and all liabilities relating primarily to, arising primarily out of or resulting primarily
from the operation or conduct of any ITT Plan or any individual identified as an ITT Employee,
(iii) any liability assumed or retained by ITT pursuant to the terms and conditions set forth on
Schedule 16(a) of this Agreement or (iv) the breach by ITT of any provision of this Agreement.

          (b) Indemnification by Water. Except as otherwise specifically set forth in this
Agreement or in Article VII of the Distribution Agreement, Water shall indemnify, defend and hold
harmless the ITT Indemnitees and the Defense Indemnitees from and against any and all Indemnifiable
Losses of the ITT Indemnitees and the Defense Indemnitees, respectively, arising out of, by reason
of or otherwise in connection with (i) any employee benefit plan, policy, program or arrangement
established or adopted by Water effective on or after the Distribution Date, (ii) any and all
liabilities relating primarily to, arising primarily out of or resulting primarily from the
operation or conduct of any Water Plan or any individual identified as a Water Employee, (iii) any
liability assumed or retained by Water pursuant to the terms and conditions set forth on Schedule
16(b) of this Agreement or (iv) the breach by Water of any provision of this Agreement.

          (c) Indemnification by Defense. Except as otherwise specifically set forth in this
Agreement or in Article VII of the Distribution Agreement, Defense shall indemnify, defend and hold
harmless the ITT Indemnitees and the Water Indemnitees from and against any and all Indemnifiable
Losses of the ITT Indemnitees and the Water Indemnitees, respectively, arising out of, by reason of
or otherwise in connection with (i) any employee benefit plan, policy, program or arrangement
established or adopted by Defense effective on or after the Distribution Date, (ii) any and all
liabilities relating primarily to, arising primarily out of or resulting primarily from the
operation or conduct of any Defense Plan or any individual identified as a Defense Employee, (iii)
any liability assumed or retained by Defense pursuant to the terms and conditions set forth on
Schedule 16(c) of this Agreement or (iv) the breach by Defense of any provision of this Agreement.

          (d) Limitations on Indemnification Obligations. (i) The amount that any party (an
“Indemnifying Party”) is or may be required to pay to any other person (an
“Indemnitee”)

22

 

pursuant to paragraphs (a), (b) or (c) of this Section 16, as applicable, shall be reduced
(retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered by
or on behalf of such Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee
shall have received the payment required by this Agreement from an Indemnifying Party in respect of
an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds or other amounts
in respect of such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnifying Party a
sum equal to the amount of such Insurance Proceeds or other amounts actually received, up to the
aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement
in respect of such Indemnifiable Loss.

          (ii) An Indemnifying Party shall not be required to indemnify or pay an Indemnitee
pursuant to paragraphs (a), (b) or (c) of this Section 16, as applicable, for any
Indemnifiable Losses relating to or associated with any employee benefit plan, policy,
program or arrangement of the Indemnifying Party arising out of, by reason of or otherwise
in connection with any act or failure to act on the part of such Indemnitee (including for
this purpose any subsidiaries, businesses or operations which become associated with the
Indemnitee by virtue of or in connection with the Distribution) with respect to or in
connection with such employee benefit plan, policy, program or arrangement, including,
without limitation, any such act or failure to act in connection with the administration by
the Indemnitee of such employee benefit plan, policy, program or arrangement.

          (e) Survival of Indemnities. The obligations of ITT, Water and Defense under this
Section 16 shall survive the sale or other transfer by any of them of any assets or businesses or
the assignment by any of them of any Liabilities, with respect to any Indemnifiable Loss of the
other related to such assets, businesses or Liabilities.

          17. DISPUTE RESOLUTION. In the event of a controversy, dispute or claim arising out of, in
connection with, or in relation to the interpretation, performance, nonperformance, validity or
breach of this Agreement or otherwise arising out of, or in any way related to this Agreement,
including, without limitation, any claim based on contract, tort, statute or constitution, the
relevant parties shall adhere to the dispute resolution procedures as described in the Distribution
Agreement.

          18. MISCELLANEOUS. (a) Complete Agreement; Construction. This Agreement, including
the Schedules and the Exhibits, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous negotiations, commitments,
course of dealings and writings with respect to such subject matter. The Schedules shall be
construed with and as an integral part of this Agreement to the same extent as if they had been set
forth verbatim herein.

          (b) Ancillary Agreements. Except as expressly set forth herein, this Agreement is not
intended to address, and should not be interpreted to address, the matters specifically and
expressly covered by the Distribution Agreement or the Ancillary Agreements.

          (c) Counterparts. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become

23

 

effective when one or more such counterparts have been signed by each of the parties and
delivered to the other parties.

          (d) Survival of Agreements. Except as otherwise contemplated by this Agreement, all
covenants and agreements of the parties contained in this Agreement shall survive the Effective
Time and remain in full force and effect in accordance with their applicable terms.

          (e) Expenses. Except as specifically listed on Schedule 18(e), all out-of-pocket fees
and expenses incurred, or to be incurred and directly related to the transactions contemplated
hereby shall be paid as described in the Distribution Agreement.

          (f) Notices. All notices, requests, claims, demands and other communications under
this Agreement shall be made as described in the Distribution Agreement.

          (g) Waivers and Consents. The failure of either party to require strict performance by
any other party of any provision in this Agreement shall not waive or diminish that party’s right
to demand strict performance thereafter of that or any other provision hereof. Any consent required
or permitted to be given by any party to the other parties under this Agreement shall be in writing
and signed by the party giving such consent and shall be effective only against such party.

          (h) Amendments. Subject to the terms of Section 18(k) hereof, this Agreement may not
be modified or amended except by an agreement in writing signed by a duly authorized representative
of each of the parties.

          (i) Assignment. This Agreement shall be assignable in whole in connection with a
merger or consolidation or the sale of all or substantially all the assets of a party hereto so
long as the resulting, surviving or transferee entity assumes all the obligations of the relevant
party hereto by operation of law or pursuant to an agreement in form and substance reasonably
satisfactory to the other parties to this Agreement. Otherwise this Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any party hereto without the prior
written consent of the others, and any attempt to assign any rights or obligations arising under
this Agreement without such consent shall be void.

          (j) Successors and Assigns. The provisions of this Agreement and the obligations and
rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against)
the parties and their respective permitted successors and permitted transferees and assigns.

          (k) Certain Termination and Amendment Rights. This Agreement may be terminated,
amended, modified or abandoned at any time prior to the Distribution Date by and in the sole
discretion of ITT without the approval of Water, Defense or the shareholders of ITT. In the event
of such termination, no party shall have any liability of any kind to any other party or any other
person. After the Distribution Date, this Agreement may not be terminated except by an agreement in
writing signed by ITT, Water and Defense.

24

 

          (l) Payment Terms. Except as expressly provided to the contrary in this Agreement,
(i) any amount to be paid or reimbursed by any party, on the one hand, to any other party or
parties, on the other hand, under this Agreement shall be paid or reimbursed hereunder within
thirty (30) days after presentation of an invoice or a written demand therefore and setting forth,
or accompanied by, reasonable documentation or other reasonable explanation supporting such amount,
and (ii) any amount not paid when due pursuant to this Agreement (and any amount billed or
otherwise invoiced or demanded and properly payable that is not paid within thirty (30) days of
such bill, invoice or other demand) shall bear interest at a rate per annum equal to the LIBOR,
calculated for the actual number of days elapsed, accrued from the date on which such payment was
due up to the date of the actual receipt of payment.

          (m) No Circumvention. The parties agree not to directly or indirectly take any
actions, act in concert with any person who takes an action, or cause (including the failure to
take a reasonable action) such that the resulting effect would be reasonably expected to materially
undermine the effectiveness of any of the provisions of this Agreement.

          (n) Subsidiaries. Each of the parties hereto shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth herein to be
performed by any Subsidiary of such party or by any entity that becomes a Subsidiary of such party
on and after the Distribution Date.

          (o) Third Party Beneficiaries. This Agreement is solely for the benefit of the parties
hereto and should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing without reference to this
Agreement.

          (p) Titles and Headings. Titles and headings to Sections herein are inserted for the
convenience of reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.

          (q) Specific Performance. Each of the parties hereto acknowledges that there is no
adequate remedy at law for failure by such parties to comply with the provisions of this Agreement
and that such failure would cause immediate harm that would not be adequately compensable in
damages, and therefore agree that their agreements contained herein may be specifically enforced
without the requirement of posting a bond or other security, in addition to all other remedies
available to the parties hereto under this Agreement.

          (r) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS, BUT NOT THE LAWS GOVERNING CONFLICTS OF LAWS, OF THE STATE OF NEW YORK.

          (s) Consent to Jurisdiction. Subject to the provisions of Article XVI hereof, each of
the parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State
of New York, New York County, or (b) the United States District Court for the Southern District of
New York (the “New York Courts”), for the purposes of any suit, action or other proceeding
to compel arbitration or for provisional relief in aid of arbitration in accordance with Article IX
of the Distribution Agreement or to prevent irreparable harm, and to the non-

25

 

exclusive jurisdiction of the New York Courts for the enforcement of any award issued
thereunder. Each of the parties further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party’s respective address set forth above shall be
effective service of process for any action, suit or proceeding in the New York Courts with respect
to any matters to which it has submitted to jurisdiction in this Section 18(s). Each of the parties
irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement or the transactions contemplated hereby in the New York
Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.

          (t) Waiver of Jury Trial. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 18(T).

          (u) Severability. In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable provisions.

          (v) Force Majeure. No party (or any person acting on its behalf) shall have any
liability or responsibility for failure to fulfill any obligation (other than a payment obligation)
under this Agreement, so long as and to the extent to which the fulfillment of such obligation is
prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A
party claiming the benefit of this provision shall, as soon as reasonably practicable after the
occurrence of any such event: (a) notify the other applicable parties of the nature and extent of
any such Force Majeure condition and (b) use due diligence to remove any such causes and resume
performance under this Agreement as soon as feasible.

          (w) Interpretation. The parties have participated jointly in the negotiation and
drafting of this Agreement. This Agreement shall be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or causing any instrument
to be drafted.

26

 

          (x) No Duplication; No Double Recovery. Nothing in this Agreement is intended to
confer to or impose upon any party a duplicative right, entitlement, obligation or recovery with
respect to any matter arising out of the same facts and circumstances.

          (y) No Waiver. No failure to exercise and no delay in exercising, on the part of any
party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof;
nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.

          (z) No Admission of Liability. The allocation of assets and liabilities herein is
solely for the purpose of allocating such assets and liabilities among ITT, Water and Defense and
is not intended as an admission of liability or responsibility for any alleged liabilities vis a
vis any third party, including with respect to the Liabilities of any non-wholly owned subsidiary
of ITT, Water or Defense.

          (aa) Definitions. Capitalized terms used herein shall have the respective meanings
specified in the Appendix attached hereto unless otherwise herein defined or the context hereof
shall otherwise require.

[Signature Page Follows]

27

 

          IN WITNESS WHEREOF, the parties have duly executed and entered into this Agreement, as of
the date first above written.

	 	 	 	 	 
	 	ITT Corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	Xylem Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	Exelis Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

[Signature Page]

 

 

	 	 	 	 	 

          19. DEFINITIONS.

          As used in the Agreement, the following terms have the following meanings:

          “1995 Employee Matters Agreement” means the Employee Benefit Services and Liability
Agreement dated as of November 1, 1995, among ITT Corporation, a Delaware corporation, ITT
Destinations, Inc., a Nevada corporation, and ITT Hartford Group, Inc., a Delaware corporation.

          “Action” has the meaning set forth in the Distribution Agreement.

          “Affiliate” has the meaning set forth in the Distribution Agreement.

          “Ancillary Agreements” means all of the written agreements, instruments,
understandings, assignments or other written arrangements (other than this Agreement and the
Distribution Agreement) entered into in connection with the transactions contemplated hereby,
including, without limitation, the Conveyancing and Assumption Instruments, the Transition Services
Agreement, the Tax Matters Agreement, the License Agreements, the IP Assignments, the Supply
Agreement[s], the Master Lease Agreement and the Master Sublease Agreement.

          “Board” has the meaning set forth in the recitals to this Agreement.

          “Change in Control” means (i) where reference is made to a particular ITT Plan
(including, without limitation, the 2003 ITT Equity Incentive Plan), the definition of “Change in
Control” or “Acceleration Event” in such ITT Plan and (ii) where no reference is made to a
particular ITT Plan, the definition of “Change in Control” set forth in the Distribution Agreement.

          “Conveyancing and Assumption Instruments” has the meaning set forth in the
Distribution Agreement.

          “Defense” has the meaning set forth in the recitals to this Agreement.

          “Defense Business” has the meaning set forth in the Distribution Agreement.

          “Defense Common Stock” has the meaning set forth in the recitals to this Agreement.

          “Defense Director Plan” has the meaning set forth in Article IX of this Agreement.

          “Defense Employees” means persons who, immediately after the Distribution Date, are
employed by Defense, including such persons identified on Schedule 1(a)(ii) and such persons absent
from work at Defense by reason of layoff, leave of absence or disability.

          “Defense Indemnitees” has the meaning set forth in the Distribution Agreement.

1

 

          “Defense Plans” means such plans, programs and arrangements maintained for the benefit
of Defense Employees prior to the Distribution Date.

          “Defense Stock Plan” has the meaning set forth in Article VII of this Agreement.

          “Distribution” has the meaning set forth in the recitals to this Agreement.

          “Distribution Agent” has the meaning set forth in the Distribution Agreement.

          “Distribution Agreement” has the meaning set forth in the recitals to this Agreement.

          “Distribution Date” has the meaning set forth in the Distribution Agreement.

          “Distribution Record Date” has the meaning set forth in the Distribution Agreement.

          “Distribution” has the meaning set forth in the recitals to this Agreement.

          “Effective Time” has the meaning set forth in the Distribution Agreement.

          “Eligibility End Date” has the meaning set forth in Article III of this Agreement.

          “Force Majeure” has the meaning set forth in the Distribution Agreement.

          “Incentive Plan” has the meaning set forth in Article VI of this Agreement.

          “Indemnifiable Losses” has the meaning set forth in the Distribution Agreement.

          “Indemnifying Party” has the meaning set forth in Section 16(d) of this Agreement.

          “Indemnitee” has the meaning set forth in Section 16(d) of this Agreement.

          “Insurance Proceeds” has the meaning set forth in the Distribution Agreement.

          “Intellectual Property Agreements” means the various intellectual property and
licensing agreements entered into in connection with the Distribution.

          “ITT” has the meaning set forth in the recitals to this Agreement.

          “ITT Common Stock” has the meaning set forth in the recitals to this Agreement.

          “ITT Director Plans” has the meaning set forth in Article IX of this Agreement.

          “ITT Employees” means persons who, immediately after the Distribution Date, are
employed by ITT, including such persons absent from work at ITT by reason of layoff, leave of
absence or disability.

2

 

          “ITT Group” means ITT and its affiliates prior to the Distribution.

          “ITT Indemnitees” has the meaning set forth in the Distribution Agreement.

          “ITT Plans” means the ITT Deferred Compensation Plan, the ITT Defined Benefit Plans,
the ITT Defined Contribution Plans, the ITT Director Plan, the ITT Excess Pension Plan, the ITT
Excess Savings Plan, the ITT Non-Qualified Plans, the ITT Non-US H&W Plans, the ITT Non-US Pension
Plans, the ITT Non-US Unfunded Plans, the ITT Long-Term Disability Plan, the ITT Stock Plans and
any other plan, program or arrangement maintained for the benefit of ITT Employees prior to the
Distribution Date.

          “ITT Retained Business” has the meaning set forth in the Distribution Agreement.

          “ITT Retiree” means any retired employee of ITT or any of its predecessors.

          “ITT stock awards” has the meaning set forth in Section 7 of this Agreement.

          “ITT Stock Plans” has the meaning set forth in Section 7 of this Agreement.

          “Liabilities” has the meaning set forth in the Distribution Agreement.

          “Master Trust” means the trust established by ITT and maintained by Northern Trust as
the trustee to hold the assets of all US Qualified DB Plans.

          “New York Courts” has the meaning set forth in Article XVIII of this Agreement.

          “Non-US DB Plans” has the meaning set forth in Article III of this Agreement.

          “Non-US DC Plans” has the meaning set forth in Article IV of this Agreement.

          “Non-US H&W Plans” has the meaning set forth in Article V of this Agreement.

          “party” means ITT, Water and Defense.

          “person” means any natural person, corporation, business trust, joint venture,
association, company, partnership or government, or any agency or political subdivision thereof.

          “Plan Actuary” means the plan actuary for each Non-US DB Plan, Non-US DC Plan or
Non-US H&W Plan prior to the Distribution Date or the third-party individual who determined the
liability under such plan prior to, on or after the Distribution Date.

          “Preexisting ITT Employees” means persons actively employed by the ITT Group
immediately prior to the Distribution; and persons who are absent from work to the ITT Group
immediately prior to the Distribution by reason of layoff, leave of absence or disability.

          “Proxy Statement” means the proxy statement sent to the holders of shares of ITT
Common Stock in connection with the Distribution, including any amendment or supplement thereto.

3

 

          “Records” has the meaning set forth in Article 13 of this Agreement.

          “RSUs” has the meaning set forth in Article VII of this Agreement.

          “Schedule” or “Schedules” means the Schedules Relating to Benefits and
Compensation Matters Agreement, dated as of [____], 2011, among ITT Corporation, Exelis Inc. and
Xylem Inc., as they may be amended from time to time.

          “Subsidiary” has the meaning set forth in the Distribution Agreement.

          “Tax Matters Agreement” has the meaning set forth in the Distribution Agreement.

          “Tax” has the meaning set forth in the Tax Matters Agreement.

          “TSR Awards” has the meaning set forth in Article VI of this Agreement.

          “USA Patriot Act” means the Uniting and Strengthening America By Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001, and any
amendments thereto.

          “US H&W Plans” has the meaning set forth in Article V of this Agreement.

          “US Non-Qualified DB Plans” has the meaning set forth in Article III of this
Agreement.

          “US Non-Qualified DC Plans” has the meaning set forth in Article IV of this Agreement.

          “US Qualified DB Plans” has the meaning set forth in Article III of this Agreement.

          “US Qualified DC Plans” has the meaning set forth in Article IV of this Agreement.

          “Water” has the meaning set forth in the recitals to this Agreement.

          “Water Business” has the meaning set forth in the Distribution Agreement.

          “Water Common Stock” has the meaning set forth in the recitals to this Agreement.

          “Water Director Plan” has the meaning set forth in Article IX of this Agreement.

          “Water Employees” means persons who, immediately after the Distribution Date, are
employed by Water, including such persons identified on Schedule 1(a)(i) and such persons absent
from work at Water by reason of layoff, leave of absence or disability.

          “Water Indemnitees” has the meaning set forth in the Distribution Agreement.

          “Water Plans” means such plans, programs and arrangements maintained for the benefit
of Water Employees prior to the Distribution Date.

4

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