FILED: NEW YORK COUNTY CLERK 12/03/2014 10:40 PM

NYSCEF DOC. NO. 91

INDEX NO. 651863/2012

RECEIVED NYSCEF: 12/03/2014

EXHIBIT A

OFFERING MEMORANDUM AND DISCLOSURE STATEMENT

Offer to First Lien

Lenders

Offer to Second Lien

Lenders

Disclosure to Certain
Employees Regarding NewCo
Stock and Certain Notes

CONFIDENTIAL

Disclosure Statement for Solicitation

of Acceptances of a Pre-Packaged
Plan of Reorganization

THE OFFERS TO EXCHANGE AND SOLICITATION OF ACCEPTANCES OF THE PRE-PACKAGED PLAN OF

REORGANIZATION, EACH AS SET FORTH HEREIN, WILL EXPIRE AT 5:00 P.M., EASTERN DAYLIGHT TIME, ON
MAY 30, 2012, UNLESS EXTENDED OR EARLIER TERMINATED BY US (AS IT MAY BE EXTENDED, THE
EXPIRATION DATE). CONSENTS TO THE OFFERS TO EXCHANGE MAY NOT BE WITHDRAWN. ACCEPTANCES
OF THE PRE-PACKAGED PLAN OF REORGANIZATION MAY BE WITHDRAWN ANY TIME BEFORE THE VOTING
DEADLINE.
This Offering Memorandum and Disclosure Statement contains confidential information regarding Culligan
Investments S.r.l. and its affiliates and subsidiaries and the transactions described herein, and has been prepared solely
for the information of the parties to whom we are making the offers and solicitations set forth herein. By accepting this
Offering Memorandum and Disclosure Statement, you agree that you will use this Offering Memorandum and
Disclosure Statement only to evaluate the Offerings and the Pre-Packaged Plan and for no other purpose. You also
agree that you will not disclose any information contained in this Offering Memorandum and Disclosure Statement
(including the exhibits and annexes) to any other person, except that you may share this information with your legal,
tax or financial advisors in connection with your evaluation of the Offerings and the Pre-Packaged Plan (although you
must ensure that these advisors agree to keep all such information confidential). If we request it, you must return this
Offering Memorandum and Disclosure Statement (together with any copies thereof) to Culligan Investments S.r.l.
_______________
We have not registered the NewCo Stock under the federal securities laws of the United States or the
securities laws of any state, nor have we registered the NewCo Stock under the securities laws of any
jurisdiction outside the United States. The NewCo Stock is being offered and sold in the United States under
exemptions from registration under the Securities Act and available exemptions under state law.
_______________
The date of this Offering Memorandum and Disclosure Statement is May 15, 2012.
_______________

23633137v20

Culligan Investments S.r.l. is proposing to effectuate a restructuring through one of two approaches, either an out-of-court restructuring
if all holders of First Lien Debt and Second Lien Debt consent to the proposed treatment described in this Offering Memorandum and
Disclosure Statement and certain other conditions are satisfied, or an in-court restructuring pursuant to a pre-packaged plan of
reorganization under chapter 11 of the Bankruptcy Code. An overview of each approach is set forth below, and further detail regarding
each approach is included in other sections of this Offering Memorandum and Disclosure Statement. Before making a determination
whether to agree to the proposed treatment under either the out-of-court restructuring or the pre-packaged plan of reorganization, you are
encouraged to read the entire Offering Memorandum and Disclosure Statement. Capitalized terms that are not defined in this section of
the Offering Memorandum and Disclosure Statement are defined in the Glossary, attached as Exhibit I.
OVERVIEW OF THE PROPOSED OUT-OF-COURT RESTRUCTURING (THE RECAPITALIZATION PLAN):
1. Treatment of First Lien Debt. With respect to the First Lien Debt, the Recapitalization Plan constitutes an offer to exchange
(the First Lien Exchange Offer) each First Lien Lenders holdings of the First Lien Debt for a Pro Rata share of $180 million
in Cash (as defined in more detail in the Glossary, the First Lien Paydown), $175 million in new second lien debt (as defined in
more detail in the Glossary, the New Second Lien Facility) and approximately $180 million (subject to adjustment as provided
herein) in amended first lien debt (as defined in more detail in the Glossary, the Amended First Lien Facility).
2. Treatment of Second Lien Debt. With respect to the Second Lien Debt, the Recapitalization Plan constitutes an offer to
exchange (the Second Lien Exchange Offer) each Second Lien Lenders holdings of the Second Lien Debt for (a) at the
Second Lien Lenders option, either (a) a Pro Rata share of 47.64% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68) of the equity interests of a new entity (as defined in more
detail in the Glossary, NewCo) that will own the Company after the Recapitalization Plan is completed (as defined in more detail
in the Glossary, the NewCo Stock), or (b) a Cash payment option of $0.30 for every $1.00 of Second Lien Debt held by such
Second Lien Lender (calculated as set forth in The Second Lien Exchange OfferCalculation of Cash Election with respect to
Second Lien Debt, which begins on page 83), and (b) the rights to participate on a Pro Rata basis in a rights offering (as defined
in more detail in the Glossary, the Rights Offering) for an estimated 49.65% (subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on page 68) NewCo Stock and an estimated $10.5
million of the New Bridge Loan with an aggregate estimated offering amount of $104.5 million. Centerbridge, in its capacity as
a Second Lien Lender, has elected to receive NewCo Stock, rather than a Cash payment, under the Second Lien Exchange Offer.
3. Treatment of Revolving Debt. The Recapitalization Plan contemplates the refinancing of the Revolving Debt by a new
revolving facility (as defined in more detail in the Glossary, the New Revolving Facility) in the amount of $50 million.
4. Treatment of Current Employee Deferred Bonus Obligations. With respect to the Current Employee Deferred Bonus
Obligations, the Current Employees are being separately asked, pursuant to the Deferred Bonus Modification Agreement (the
Current Employee Deferred Bonus Modification), to consent to exchange all such obligations for (a) 50% of the face amount
of such obligations (net of applicable withholding taxes) in the form of NewCo Stock, and (b) 50% of the face amount of such
obligation (net of applicable withholding taxes) in the form of Cash, in full satisfaction of such obligations.
5. Treatment of Former Employee Deferred Bonus Obligations. With respect to the Former Employee Deferred Bonus
Obligations, the Former Employees are being separately asked, pursuant to the Deferred Bonus Modification Agreement (the
Former Employee Deferred Bonus Modification), to consent to exchange all such obligations for, at the option of each
Former Employee, either (a) 80% of the face amount of such obligation (net of applicable withholding taxes) in Cash or (b) a
combination of (i) 50% of the face amount of such obligation (net of applicable withholding taxes) in Cash, and (ii) 50% of the
face amount of such obligation (net of applicable withholding taxes) in the form of a participating interest in an unsecured sevenyear junior subordinated note bearing interest at 5% per annum (as defined in more detail in the Glossary, the Former Employee
Note), in full satisfaction of such obligations.
6. Treatment of Existing Equityholder. With respect to all interests (whether characterized as equity or debt under local law) in
Culligan Investments (which is the direct subsidiary of Culligan Ltd. and the direct or indirect parent of all other entities
comprising the Company) owned by Culligan Ltd., the Recapitalization Plan contemplates that Culligan Ltd. (as defined in more
detail in the Glossary, the Existing Equityholder) will contribute all such interests to NewCo and will provide all necessary
consents to implementation of the First Lien Exchange Offer, the Second Lien Exchange Offer, the Rights Offering and the other
transactions contemplated by the Restructuring, and a release described herein, in exchange for a Cash payment of $474,193, the
retention, following implementation of the Recapitalization Plan, of 2.27% (subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock, the assumption of the
NewCo Assumed Liabilities and the transfer of the NewCo Transferred Receivables. The Recapitalization Plan further
contemplates that, following the Effective Date, the Existing Equityholder will transfer the Cash Pro Rata to its existing holders
of DSUs and intends to transfer the NewCo Stock Pro Rata to its existing equityholders.
7. Means of Implementation of the Recapitalization Plan. Among other things, all interests (whether characterized as equity or
debt under local law) in Culligan Investments owned by the Existing Equityholder will be transferred to NewCo, with the NewCo
Stock being distributed as described above and herein, all subject to dilution on account of a management incentive plan, all as
ii
23633137v19

described in more detail herein. Immediately following the consummation of the Recapitalization Plan, the Company will be
obligated under the Post-Restructuring Debt Facilities that include (a) the Amended First Lien Facility in the approximate
principal amount of $180 million (subject to adjustment as provided herein), (b) the New Revolving Facility with a commitment
of $50 million (with an estimated $10 million of loans outstanding on the Effective Date), (c) the New Second Lien Facility in the
principal amount of $175 million and (d) the New Bridge Loan in the principal amount of an estimated $10.5 million. The
Recapitalization Plan is subject to conditions precedent, described in this Offering Memorandum and Disclosure Statement at
The Recapitalization PlanConditions to the Effective Date of the Recapitalization Plan, which begins on page 21.
OVERVIEW OF THE PROPOSED PRE-PACKAGED PLAN OF REORGANIZATION (THE PRE-PACKAGED PLAN)
(to be implemented if the Recapitalization Plan is not consummated)
1. Treatment of First Lien Debt: With respect to the First Lien Debt, the Pre-Packaged Plan would contemplate substantially the
same treatment as described in connection with the Recapitalization Plan.
2. Treatment of Second Lien Debt: With respect to the Second Lien Debt, the Pre-Packaged Plan would contemplate
substantially the same treatment as described in connection with the Recapitalization Plan, except that Second Lien Lenders will
not have the option of receiving Cash in exchange for their claims.
3. Treatment of Revolving Debt: With respect to the Revolving Debt, the Pre-Packaged Plan would contemplate substantially
the same treatment as described in connection with the Recapitalization Plan.
4. Treatment of Deferred Bonus Obligations: With respect to the holders of Current Employee Deferred Bonus Obligations and
Former Employee Deferred Bonus Obligations, the Pre-Packaged Plan would contemplate substantially the same treatment as
described in connection with the Recapitalization Plan.
5. Treatment of Existing Equityholder: With respect to the Existing Equityholder, the Pre-Packaged Plan would contemplate
substantially the same treatment as described in connection with the Recapitalization Plan.
6. Means of Implementation of the Pre-Packaged Plan: The Pre-Packaged Plan would contemplate substantially the same means
of implementation as described in connection with the Recapitalization Plan. The conditions precedent with respect to the PrePackaged Plan are described in this Offering Memorandum and Disclosure Statement at The Pre-Packaged PlanConditions
Precedent to the Effective Date. For the Pre-Packaged Plan to be confirmed by the Bankruptcy Court without invoking the
cram-down provisions of the Bankruptcy Code, each class of claims or interests that is impaired must vote to accept the PrePackaged Plan. An impaired class of claims is deemed to accept a plan of reorganization if the holders of at least two-thirds in
amount and more than one-half in number of the claims or interests in such class who actually cast ballots vote to accept the PrePackaged Plan. Only those parties who actually vote are counted for these purposes.
OTHER INFORMATION REGARDING THE PROPOSED RESTRUCTURING
We refer to the proposed restructuring, whether accomplished through the Recapitalization Plan or the Pre-Packaged Plan, as the
Restructuring. For a more detailed description of the Offerings being made and the procedures for participating in the Offerings
and delivering consents, see The First Lien Exchange Offer and The Second Lien Exchange Offer, which begin on pages 76 and
79, respectively. For a description of the proposed Current Employee Deferred Bonus Modification and Former Employee Deferred
Bonus Modification, see The Current Employee Deferred Bonus Modification and The Former Employee Deferred Bonus
Modification, which begin on pages 84 and 88, respectively. For a description of the Pre-Packaged Plan and the procedures for
submitting Ballots to vote to accept or reject the Pre-Packaged Plan, see The Pre-Packaged Plan, which begins on page 91.
We have entered into a restructuring support agreement (the Restructuring Support Agreement) with certain holders of First
Lien Debt and Second Lien Debt (as described in more detail in the Glossary, the Initial Lenders) holding an estimated 81.7% of the
principal outstanding indebtedness under the First Lien Facility and an estimated 92% of the principal outstanding indebtedness under
the Second Lien Facility. Pursuant to the Restructuring Support Agreement and subject to the terms thereof, the Initial Lenders have
agreed to, among other things (a) participate in the Restructuring as described in the Restructuring Term Sheet, attached as Exhibit A
thereto, by, among other things, consenting to the proposed treatment of the First Lien Debt and Second Lien Debt and agreeing not to
withdraw such consent, and (b) vote all of their First Lien Debt and Second Lien Debt in favor of the Pre-Packaged Plan. So long as
the Restructuring Support Agreement remains in effect, each of the parties to the Restructuring Support Agreement has agreed to use
commercially reasonable efforts to support and complete the Restructuring.
We have also entered into a backstop agreement (as described in more detail in the Glossary, the Backstop Agreement) whereby
certain of the Second Lien Lenders, for no fee, have agreed to subscribe for any rights that are otherwise unsubscribed for in the
Rights Offering (with respect to both the NewCo Stock and the New Bridge Loan).
Subject to applicable laws and the terms set forth in the Offering Memorandum and Disclosure Statement and the Restructuring
Support Agreement, we reserve the right to waive any and all conditions to the Offerings and to extend or terminate the Offerings and
23633137v19

iii

deadline for voting on the Pre-Packaged Plan, and otherwise to amend the Offerings or Pre-Packaged Plan in any respect.
You should read the entire Offering Memorandum and Disclosure Statement, and consider the risk factors and cautionary
statement regarding forward-looking statements beginning on pages 34 and 59, respectively, of this Offering Memorandum and
Disclosure Statement, before you decide whether to participate in the Offerings being made or vote on the Pre-Packaged Plan.
Before making a decision, we also encourage you to carefully read the consent form for participation in the Offerings, and the PrePackaged Plan and the related Ballot for voting to accept or reject the Pre-Packaged Plan.
THE OFFERING MEMORANDUM AND DISCLOSURE STATEMENT IS BEING FURNISHED TO (A) FIRST LIEN
LENDERS, (B) SECOND LIEN LENDERS, (C) HOLDERS OF CURRENT EMPLOYEE DEFERRED BONUS
OBLIGATIONS (WITH RESPECT TO THE PRE-PACKAGED PLAN, IN CONNECTION WITH SOLICITATION, AND
WITH RESPECT TO THE RECAPITALIZATION PLAN, FOR INFORMATIONAL PURPOSES), (D) HOLDERS OF
FORMER EMPLOYEE DEFERRED BONUS OBLIGATIONS (WITH RESPECT TO THE PRE-PACKAGED PLAN, IN
CONNECTION WITH SOLICITATION, AND WITH RESPECT TO THE RECAPITALIZATION PLAN, FOR
INFORMATIONAL PURPOSES) AND (E) THE EXISTING EQUITYHOLDER, IN EACH CASE PURSUANT TO
CERTAIN EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT. THE COMPANY RESERVES THE
RIGHT TO AMEND THE OFFERING MEMORANDUM AND DISCLOSURE STATEMENT WITH RESPECT TO ANY
INDIVIDUAL RECIPIENT. THIS OFFERING MEMORANDUM AND DISCLOSURE STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED
HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE
SUCH AN OFFER OR SOLICITATION.
IF YOU ARE A FIRST LIEN LENDER, SECOND LIEN LENDER, HOLDER OF CURRENT EMPLOYEE
DEFERRED BONUS OBLIGATIONS, HOLDER OF FORMER EMPLOYEE DEFERRED BONUS OBLIGATIONS OR
EXISTING EQUITYHOLDER, YOU HAVE RECEIVED THIS OFFERING MEMORANDUM AND DISCLOSURE
STATEMENT, THE BALLOT AND THE ENCLOSED MATERIALS BECAUSE YOU ARE ENTITLED TO VOTE ON
THE PRE-PACKAGED PLAN. THE SOLICITATION OF ACCEPTANCES OF THE PRE-PACKAGED PLAN IS BEING
CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF THE PRE-PACKAGED PLAN BEFORE THE FILING OF
VOLUNTARY CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE. BECAUSE NO CHAPTER 11 CASES
HAVE YET BEEN COMMENCED, THE OFFERING MEMORANDUM AND DISCLOSURE STATEMENT HAVE NOT
BEEN APPROVED BY ANY COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF
SECTION 1125(A) OF THE BANKRUPTCY CODE.
In making a decision in connection with the Offerings or the Pre-Packaged Plan, you must rely on your own examination of our
business and the terms of the Offerings and the Pre-Packaged Plan, including the merits and risks involved. You should not construe
the contents of the Offering Memorandum and Disclosure Statement as providing any legal, business, financial or tax advice. You
should consult with your own legal, business, financial and tax advisors with respect to any such matters concerning the Offering
Memorandum and Disclosure Statement, the Offerings, the Pre-Packaged Plan and the Restructuring contemplated hereby.
Each person receiving this Offering Memorandum and Disclosure Statement acknowledges that (i) such person has been afforded
an opportunity to request and to review, and has received, all additional information considered by it to be necessary to verify the
accuracy of, or to supplement, the information contained herein, (ii) such person has not relied on any other person in connection with
any investigation of the accuracy of such information or its investment decision and (iii) no other person has been authorized to give
any information or to make any representation concerning the Company or NewCo Stock (other than as contained herein) and, if given
or made, any such other information or representation should not be relied upon as having been authorized by the Company or
NewCo.
NONE OF THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, ANY OTHER SECURITIES
COMMISSION, INCLUDING ANY STATE SECURITIES COMMISSION, OR ANY OTHER COURT OR REGULATORY
AUTHORITY HAS APPROVED, DISAPPROVED OR RECOMMENDED THE OFFERS, THE PRE-PACKAGED PLAN
OR THE NEWCO STOCK, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED
THE MERITS OF THE OFFERINGS OR THE PRE-PACKAGED PLAN OR THE ACCURACY OR ADEQUACY OF
THIS OFFERING MEMORANDUM AND DISCLOSURE STATEMENT.
ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NONE OF THE COMPANY, THE SOLICITATION, VOTING AND EXCHANGE AGENT, THE INITIAL LENDERS
OR ANY OF THEIR RESPECTIVE AFFILIATES MAKES OR HAS AUTHORIZED ANY PERSONS TO MAKE, ANY
RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD PARTICIPATE IN THE OFFERINGS OR VOTE TO
ACCEPT OR REJECT THE PRE-PACKAGED PLAN. YOU MUST MAKE YOUR OWN DECISION WHETHER TO
PARTICIPATE IN THE OFFERINGS AND WHETHER TO VOTE TO ACCEPT OR REJECT THE PRE-PACKAGED
PLAN.
23633137v19

iv

SECURITIES ISSUED PURSUANT TO THE RECAPITALIZATION PLAN AND THE RIGHTS OFFERING ARE
RESTRICTED AND SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, AND THE
ORGANIZATIONAL DOCUMENTS OF NEWCO. HOLDERS OF NEWCO STOCK ISSUED PURSUANT TO THE
RECAPITALIZATION PLAN SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL
RISKS OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
In this Offering Memorandum and Disclosure Statement, unless the context indicates otherwise, all references to we,
our, ours, and us refer to Culligan Investments S.r.l., a Luxembourg socit responsibilit limite, and its
subsidiaries, except with respect to the summaries of and references to financial statements, in which case such terms refer to
Culligan Holding S.r.l., a Luxembourg socit responsibilit limite, and its subsidiaries.

Solicitation, Voting and Exchange Agent

GCG, INC.

23633137v19

TABLE OF CONTENTS
Page
I.
II.

III.

IV.

V.
VI.
VII.
VIII.

IX.

Presentation of Financial Information ........................................................................................................ 1

Questions and Answers about the Restructuring ....................................................................................... 2
A.
General.............................................................................................................................................. 2
B.
The First Lien Exchange Offer ......................................................................................................... 6
C.
The Second Lien Exchange Offer..................................................................................................... 7
D.
The Current Employee Deferred Bonus Modification.................................................................... 10
E.
The Former Employee Deferred Bonus Modification .................................................................... 11
F.
The Pre-Packaged Plan ................................................................................................................... 12
Summary...................................................................................................................................................... 15
A.
Our Company.................................................................................................................................. 15
B.
De-Leveraging ................................................................................................................................ 17
Risk Factors ................................................................................................................................................. 34
A.
Risks Relating to the Restructuring Not Being Consummated ....................................................... 34
B.
Risks Relating to Not Consenting to the Offerings or Voting Against the Pre-Packaged
Plan ................................................................................................................................................. 34
C.
Risks Relating to Consenting to the Offerings or Voting in Favor of the Pre-Packaged
Plan ................................................................................................................................................. 37
D.
Risks Relating to Becoming Holders of the Former Employee Note Pursuant to the
Separate Former Employee Deferred Bonus Modification............................................................. 39
E.
Risks Relating to Becoming Holders of the NewCo Stock............................................................. 40
F.
Risks of the NewCo Stock to be Issued Pursuant to the Separate Current Employee
Deferred Bonus Modification ......................................................................................................... 42
G.
Risks Relating to the Pre-Packaged Plan ........................................................................................ 43
H.
Risks Relating to Taxation.............................................................................................................. 47
I.
Risks Relating to Business of the Company and NewCo ............................................................... 49
Cautionary Statement Regarding Forward-Looking Statements........................................................... 59
Use of Proceeds............................................................................................................................................ 60
Capitalization of Culligan Holding............................................................................................................ 61
The Restructuring ....................................................................................................................................... 63
A.
The Recapitalization Plan ............................................................................................................... 63
B.
The Pre-Packaged Plan ................................................................................................................... 63
C.
Background to the Restructuring .................................................................................................... 64
D.
Reasons for the Restructuring......................................................................................................... 65
E.
The Restructuring Support Agreement ........................................................................................... 66
F.
The Backstop Agreement................................................................................................................ 66
G.
Management Incentive Plan............................................................................................................ 67
H.
Indemnification Provisions in Organizational Documents ............................................................. 67
I.
The Deferred Bonus Modification Agreements.............................................................................. 67
J.
Releases by NewCo, Existing Equityholder and CD&R ................................................................ 68
K.
Potential Adjustments to Equity Ownership ................................................................................... 68
The First Lien Exchange Offer .................................................................................................................. 76
A.
Purpose of the First Lien Exchange Offer....................................................................................... 76
B.
Terms of the First Lien Exchange Offer ......................................................................................... 76
C.
Releases .......................................................................................................................................... 76
D.
First Lien Exchange Offer Expiration Date .................................................................................... 76
E.
Extensions; Amendments ............................................................................................................... 77
F.
Procedures for Consenting to the First Lien Exchange Offer ......................................................... 77
G.
Delivery of the First Lien Paydown, New Second Lien Facility and Amended First Lien
Facility ............................................................................................................................................ 77
H.
No Withdrawal Rights .................................................................................................................... 77

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vi

X.

XI.

XII.

XIII.

I.
Conditions to Completion of the First Lien Exchange Offer .......................................................... 77
J.
Calculation of Non-US Dollar Claim Amount................................................................................ 78
The Second Lien Exchange Offer .............................................................................................................. 79
A.
Purpose of the Second Lien Exchange Offer .................................................................................. 79
B.
Terms of the Second Lien Exchange Offer..................................................................................... 79
C.
Releases .......................................................................................................................................... 79
D.
Certain Matters Relating to Non-U.S. Jurisdictions........................................................................ 80
E.
Pro Forma Capitalization ................................................................................................................ 80
F.
Second Lien Exchange Offer Expiration Date................................................................................ 80
G.
Extensions; Amendments ............................................................................................................... 80
H.
Procedures for Consenting to the Second Lien Exchange Offer..................................................... 81
I.
Delivery of NewCo Stock and Cash ............................................................................................... 81
J.
No Withdrawal Rights .................................................................................................................... 82
K.
Conditions to Completion of the Second Lien Exchange Offer...................................................... 82
L.
Restrictions on Resale of the NewCo Stock ................................................................................... 82
M.
No Appraisal Rights........................................................................................................................ 82
N.
U.S. Federal Income Tax Treatment of NewCo ............................................................................. 82
O.
New Bridge Loan Issued with Original Issue Discount.................................................................. 82
P.
Calculation of Cash Election with respect to Second Lien Debt .................................................... 83
The Current Employee Deferred Bonus Modification............................................................................. 84
A.
General Terms of the Current Employee Deferred Bonus Modification ........................................ 84
B.
Expiration Date of the Current Employee Deferred Bonus Modification....................................... 84
C.
Extension; Amendments ................................................................................................................. 84
D.
Procedures for Consenting to the Current Employee Deferred Bonus Modification...................... 85
E.
Releases .......................................................................................................................................... 85
F.
Delivery of Cash and NewCo Stock ............................................................................................... 85
G.
Certain Terms regarding NewCo Stock Delivered in Connection with the Current
Employee Deferred Bonus Modification ........................................................................................ 85
H.
Certain Matters Relating to Non-U.S. Jurisdictions........................................................................ 86
The Former Employee Deferred Bonus Modification.............................................................................. 88
A.
General Terms of the Former Employee Deferred Bonus Modification......................................... 88
B.
Expiration Date ............................................................................................................................... 88
C.
Extension; Amendments ................................................................................................................. 88
D.
Procedures for Consenting to the Former Employee Deferred Bonus Modification ...................... 89
E.
Releases .......................................................................................................................................... 89
F.
Delivery of Cash and/or the Former Employee Note...................................................................... 89
G.
Certain Terms of the Former Employee Note for Consenting Employees ..................................... 89
H.
Certain Matters Relating to Non-U.S. Jurisdictions........................................................................ 90
The Pre-Packaged Plan............................................................................................................................... 91
A.
Anticipated Events in a Chapter 11 Case........................................................................................ 92
B.
New Money Investment the Rights Offering ......................................................................... 93
C.
Solicitations of Acceptances of the Pre-Packaged Plan .................................................................. 93
D.
Holders of Claims or Interests Entitled to Vote; Voting Record Date ............................................ 97
E.
Classification and Allowance of Claims and Interests.................................................................... 98
F.
Treatment of Unclassified Claims .................................................................................................. 99
G.
Treatment of Classified Claims .................................................................................................... 101
H.
Confirmation of the Pre-Packaged Plan........................................................................................ 104
I.
Acceptance of the Pre-Packaged Plan........................................................................................... 105
J.
Feasibility of the Pre-Packaged Plan ............................................................................................ 106
K.
Best Interests Test......................................................................................................................... 106
L.
Confirmation of the Pre-Packaged Plan Without Acceptance by All Class of Impaired
Claims ........................................................................................................................................... 106
M.
No Unfair Discrimination ............................................................................................................. 107
N.
Fair and Equitable Test ................................................................................................................. 107

23633137v19

vii

XIV.
XV.
XVI.

XVII.

O.
Solicitation and Voting Procedures............................................................................................... 107
P.
The Solicitation Package .............................................................................................................. 108
Q.
Voting Deadline............................................................................................................................ 108
R.
Voting and Revocation Instructions.............................................................................................. 108
S.
Note to Holders of Claims in the Voting Classes ......................................................................... 109
T.
Voting Tabulation ......................................................................................................................... 110
U.
Means for Implementation of the Pre-Packaged Plan................................................................... 110
V.
Executory Contracts and Unexpired Leases ................................................................................. 114
W.
Distributions ................................................................................................................................. 116
X.
Procedures for Resolving Objections to Claims ........................................................................... 119
Y.
Treatment of Disputed Claims ...................................................................................................... 119
Z.
Effects of Confirmation ................................................................................................................ 119
AA.
Releases, Injunctions and Exculpation.......................................................................................... 120
BB.
Conditions Precedent to Confirmation.......................................................................................... 122
CC.
Conditions Precedent to the Effective Date .................................................................................. 123
DD.
Waiver of Conditions.................................................................................................................... 124
EE.
Effect of Nonoccurrence of Conditions ........................................................................................ 124
FF.
Retention of Jurisdiction............................................................................................................... 124
GG.
Modification or Withdrawal ......................................................................................................... 126
HH.
Miscellaneous ............................................................................................................................... 126
II.
Treatment of Trade Creditors and Employees During Our Reorganization Case......................... 129
JJ.
Other First Day Relief................................................................................................................... 130
KK.
Securities Laws Considerations .................................................................................................... 130
LL.
Issuance of Securities.................................................................................................................... 130
MM.
Subsequent Transfers of Securities ............................................................................................... 131
Unaudited Pro Forma Consolidated Financial Data of Culligan Holding ........................................... 134
Selected Historical Financial Information of Culligan Holding............................................................ 143
Managements Discussion and Analysis of Financial Condition and Results of Operations of
Culligan Holding ....................................................................................................................................... 145
A.
Restructuring................................................................................................................................. 145
B.
Dispositions .................................................................................................................................. 146
C.
Currency Information ................................................................................................................... 147
D.
Results of Operations.................................................................................................................... 147
E.
Description of Key Statement of Operations Items ...................................................................... 149
F.
Liquidity and Capital Resources ................................................................................................... 155
G.
Off-Balance Sheet Arrangements ................................................................................................. 158
H.
Critical Accounting Policies ......................................................................................................... 158
I.
Legal Proceedings......................................................................................................................... 159
J.
Seasonality.................................................................................................................................... 159
K.
Impact of Inflation ........................................................................................................................ 159
L.
Quantitative and Qualitative Disclosure about Market Risk......................................................... 160
M.
Recent Accounting Standards ....................................................................................................... 160
Business...................................................................................................................................................... 162
A.
Overview....................................................................................................................................... 162
B.
Material Trends and Uncertainties Affecting Our Business ......................................................... 164
C.
Our Strengths ................................................................................................................................ 165
D.
Our Products and Services ............................................................................................................ 166
E.
Our Customers: Sales and Marketing .......................................................................................... 169
F.
Our Customers: Distribution........................................................................................................ 169
G.
Geography..................................................................................................................................... 171
H.
Manufacturing & Suppliers.......................................................................................................... 171
I.
Competition .................................................................................................................................. 172
J.
Intellectual Property...................................................................................................................... 172
K.
Research and Development........................................................................................................... 173

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viii

XVIII.

XIX.
XX.
XXI.

XXII.

XXIII.

XXIV.

XXV.
XXVI.

L.
Employees..................................................................................................................................... 173
M.
Properties and Facilities................................................................................................................ 173
N.
Franchise Regulation .................................................................................................................... 174
O.
Non-Franchise Regulation ............................................................................................................ 174
P.
Environmental and Other Regulation ........................................................................................... 174
Q.
Legal Proceedings......................................................................................................................... 175
R.
Additional Information ................................................................................................................. 175
Management .............................................................................................................................................. 177
A.
Existing Executive Officers .......................................................................................................... 177
B.
Directors, Executive Officers and Corporate Governance............................................................ 177
C.
Board of Directors ........................................................................................................................ 178
D.
Committees of the Board of Directors .......................................................................................... 178
E.
Employment Agreements ............................................................................................................. 178
F.
Management Incentive Plan.......................................................................................................... 179
G.
Director Compensation ................................................................................................................. 179
H.
Related Party Transactions ........................................................................................................... 179
Dividend Policy.......................................................................................................................................... 180
NewCo ........................................................................................................................................................ 181
Description of NewCo Stock..................................................................................................................... 182
A.
NewCo Stock Generally ............................................................................................................... 182
B.
Transfer Restrictions..................................................................................................................... 183
C.
Certain Provisions of the Memorandum and Articles and Cayman Law...................................... 184
D.
Limitation of Liability of Shareholders, Directors and Officers; Indemnification........................ 184
The Post-Restructuring Debt Facilities ................................................................................................... 186
A.
Post-Restructuring Debt Facilities ................................................................................................ 186
B.
Maturity; Prepayments.................................................................................................................. 186
C.
Security; Guarantees ..................................................................................................................... 187
D.
Interest .......................................................................................................................................... 188
E.
Fees............................................................................................................................................... 188
F.
Covenants ..................................................................................................................................... 188
G.
Intercreditor Agreement................................................................................................................ 189
Certain U.S. Federal Income Tax Considerations Relating to Certain Holders of the First
Lien Debt or the Second Lien Debt and the Debtors ............................................................................. 193
A.
U.S. Holders of First Lien Debt .................................................................................................... 194
B.
U.S. Holders of Second Lien Debt................................................................................................ 196
C.
Information Reporting and Backup Withholding ......................................................................... 199
D.
The Debtors .................................................................................................................................. 199
Certain U.S. Federal Income Tax Considerations Relating to Current Employees And
Former Employees .................................................................................................................................... 201
A.
Certain U.S. Federal Income Tax Considerations Relating to Current Employees ...................... 201
B.
Certain U.S. Federal Income Tax Considerations Relating to Former Employees....................... 204
Legal Matters............................................................................................................................................. 207
Independent Accountants......................................................................................................................... 208

Exhibit IGlossary
Annex A Pre-Packaged Plan of Reorganization
Annex B Restructuring Support Agreement
Annex C Financial Projections
Annex D Liquidation Analysis
Annex E Consents

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Annex F Ballots
Annex G Backstop Agreement
Annex H Amended First Lien Facility
Annex I New Second Lien Credit Facility
Annex J New Revolving Facility Term Sheet
Annex K New Bridge Loan Term Sheet
Annex L Consolidated Financial Statements
Annex M Form of Amended and Restated Articles and Memorandum of Association of NewCo
Annex N Subscription Form

23633137v19

None of the Company, the Initial Lenders, the Solicitation, Voting and Exchange Agent, or any of their respective
affiliates has authorized any person to provide any information or to make any representation in connection with the
First Lien Exchange Offer, the Second Lien Exchange Offer, the Current Employee Deferred Bonus Modification,
the Former Employee Deferred Bonus Modification, the Rights Offering, the New Bridge Loan or the Pre-Packaged
Plan other than the information contained in the Offering Memorandum and Disclosure Statement or the Consents or
Ballot, and if any person provides any of this information or makes any representation of this kind, that information
or representation must not be relied upon as having been authorized by us, the Initial Lenders, or the Solicitation,
Voting and Exchange Agent.
None of the Company, the Solicitation, Voting and Exchange Agent, or any of their respective affiliates is aware of
any jurisdiction in which the offers would not be in compliance with the laws of such jurisdiction. If you are in a
jurisdiction where offers to sell, or solicitations of offers to purchase, the securities offered by the Offerings are
unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the Offerings and
solicitation of acceptances to the Pre-Packaged Plan presented in this document do not extend to you. The Offerings
and solicitation of acceptances to the Pre-Packaged Plan are being made on the basis of this Offering Memorandum
and Disclosure Statement and the Consents or Ballot and are subject to the terms and conditions described herein.
Any decision to participate in the Offerings or to vote on the Pre-Packaged Plan must be based on the information
contained in this Offering Memorandum and Disclosure Statement, the Consents or the Ballot.
Each prospective investor must comply with all applicable laws and regulations in force in any jurisdiction in which
it participates in the Offerings or in the solicitation for acceptances to the Pre-Packaged Plan, or in which it
possesses or distributes this Offering Memorandum and Disclosure Statement, and must obtain any consent,
approval or permission required by it for participation in the Offerings or in the solicitation for acceptances to the
Pre-Packaged Plan, under the laws and regulations in force in any jurisdiction to which it is subject, and none of the
Company, the Solicitation, Voting and Exchange Agent, the Initial Lenders or any of their respective affiliates shall
have any responsibility therefor.
The information contained or incorporated by reference in this Offering Memorandum and Disclosure Statement is
as of the date hereof or the dates of the documents incorporated by reference herein, and is subject to change or
amendment without notice. Neither the delivery of this Offering Memorandum and Disclosure Statement, nor any
sale made hereunder, shall under any circumstances create any implication that the information contained or
incorporated by reference in this Offering Memorandum and Disclosure Statement is current as of any time
subsequent to the date on the front cover of this Offering Memorandum and Disclosure Statement or the dates of the
documents incorporated by reference herein.
Throughout the Offering Memorandum and Disclosure Statement, we present industry data that are based on our
market knowledge and experience, whether or not these bases are stated where we present these data. While we
believe that our market knowledge and experience is reliable, we, the Solicitation, Voting and Exchange Agent and
our respective affiliates have not verified all such data by independent sources such as market research, publicly
available information and industry publications and we cannot assure you of their accuracy.
The Offering Memorandum and Disclosure Statement contains summaries believed to be accurate and materially
complete with respect to certain documents, but reference is made to the actual documents for complete information.
The Company and other sources identified herein have provided the information contained or incorporated by
reference in this Offering Memorandum and Disclosure Statement. The Solicitation, Voting and Exchange Agent
makes no representation or warranty, express or implied, as to the accuracy or completeness of such information,
and nothing contained or incorporated by reference in this Offering Memorandum and Disclosure Statement is, or
shall be relied upon as, a promise or representation by the Solicitation, Voting and Exchange Agent.
Cayman Islands
A judgment obtained in a foreign court (other than certain judgments of a superior court of any state of the
Commonwealth of Australia) will be recognised and enforced in the courts of the Cayman Islands without any reexamination of the merits at common law, by an action commenced on the foreign judgment in the Grand Court of
the Cayman Islands (the Grand Court), where the judgment (a) is final and conclusive; (b) is one in respect of

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which the foreign court had jurisdiction over the defendant according to Cayman Islands conflict of law rules; (c) is
either for a liquidated sum not in respect of penalties or taxes or a fine or similar fiscal or revenue obligations or, in
certain circumstances, for in personam non-money relief (following Bandone Sdn Bhd v Sol Properties Inc. [2008]
CILR 301); and (d) was neither obtained in a manner, nor is of a kind enforcement of which is contrary to natural
justice or the public policy of the Cayman Islands.
Argentina
Securities of NewCo will not be publicly offered in Argentina. Accordingly, this Offering Memorandum and
Disclosure Statement has not been, and will not be, registered with the Comisin Nacional de Valores. This offer
does not constitute a public offering of securities within the scope of Argentine Securities Law No. 17.811. This
Offering Memorandum and Disclosure Statement and other offering materials relating to the offer of any security of
NewCo are being supplied only to those investors who have expressly requested them. They are strictly confidential
and may not be distributed to any legal or natural person or entity other than the intended recipients thereof.
Canada - Saskatchewan
Under Saskatchewan securities legislation, certain purchasers resident in Saskatchewan who purchase a security
offered by this Offering Memorandum and Disclosure Statement during the period of distribution will have a
statutory right of action for damages against NewCo, every director and promoter of NewCo or any selling security
holder as of the date hereof, every person or company whose consent has been filed under this Offering
Memorandum and Disclosure Statement, and every person or company who sells securities on behalf of NewCo or
selling security holder under this Offering Memorandum and Disclosure Statement, or while still the owner of the
securities, for rescission against NewCo or selling security holder if this Offering Memorandum and Disclosure
Statement contains a misrepresentation without regard to whether the purchasers relied on the misrepresentation.
The right of action for damages is exercisable not later than the earlier of one year from the date the purchaser first
had knowledge of the facts giving rise to the cause of action and six years from the date of the transaction that gave
rise to the cause of action. The right of action for rescission is exercisable not later than 180 days from the date of
the transaction that gave rise to the cause of action. If a purchaser elects to exercise the right of action for rescission,
the purchaser will have no right of action for damages against NewCo or the others listed above. In no case will the
amount recoverable in any action exceed the price at which the securities were offered to the purchaser and if the
purchaser is shown to have purchased the securities with knowledge of the misrepresentation, NewCo and the others
listed above will have no liability. In the case of an action for damages, NewCo and the others listed above will not
be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the
securities as a result of the misrepresentation relied upon. A purchaser who receives an Offering Memorandum and
Disclosure Statement has the right to withdraw from the agreement to purchase the securities by delivering a notice
to NewCo or selling security holder within two business days of receiving the Offering Memorandum and
Disclosure Statement. These rights are in addition to, and without derogation from, any other rights or remedies
available at law to a Saskatchewan purchaser. The foregoing is a summary of the rights available to a Saskatchewan
purchaser under Saskatchewan securities legislation. Not all defenses upon which NewCo or others may rely are
described herein. Saskatchewan purchasers should refer to the complete text of the relevant statutory provisions.
France
NewCo has not been authorized for marketing in France and this Offering Memorandum and Disclosure Statement
has not been approved by the Autorit des Marchs Financiers or any other French authority. The securities of
NewCo described herein will be issued outside of France and may not be, directly or indirectly, offered or sold to
the public in France (Offre au public de titres financiers). No marketing of any security of NewCo has been
carried out on French territory, and this Offering Memorandum and Disclosure Statement and any other offering
materials relating to NewCo are being provided only at the request of interest-holders of Culligan Ltd. in France.
This Offering Memorandum and Disclosure Statement and any other offering materials relating to NewCo are
strictly confidential and may not be distributed to any person or entity other than the intended recipients thereof.

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xii

Italy
Securities of NewCo are not being distributed in Italy pursuant to the framework established by Directive
2009/65/EC (as amended) on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS), and have not been and will not be
authorized by the Bank of Italy for distribution in Italy. The securities of NewCo are offered upon the express
request of the investor, who has directly contacted NewCo or its parent outside Italy at the investors own initiative.
No active marketing of NewCo has been carried out in Italy and this Offering Memorandum and Disclosure
Statement has been sent to the investor at the investors request. The investor acknowledges the above and hereby
agrees not to transfer or otherwise resell any security of NewCo to any other Italian resident investor. This Offering
Memorandum and Disclosure Statement and other offering materials relating to the offer of securities of NewCo are
strictly confidential and may not be distributed to any person or entity other than the intended recipient hereof.
South Korea
This Offering Memorandum and Disclosure Statement is being provided in response to the specific request of the
recipient, and should not be construed in any way as NewCo (or any of its affiliates or agents) soliciting investment
or offering to sell securities of NewCo. NewCo makes no representation with respect to the eligibility of any
recipients of this Offering Memorandum and Disclosure Statement to acquire securities of NewCo under the laws of
Korea, including, without limitation, the Foreign Exchange Transaction Law and Regulations thereunder. Securities
of NewCo have not been registered with the Financial Services Commission of Korea (the FSC) in Korea under
the Financial Investment Services and Capital Markets Act of Korea, and securities of NewCo may not be offered,
sold or delivered, or offered or sold to any person for reoffering or resale, directly or indirectly, in Korea or to any
resident of Korea except pursuant to applicable laws and regulations of Korea. Furthermore, securities of NewCo
may not be resold to Korean residents unless the purchaser of securities of NewCo complies with all applicable
regulatory requirements (including, without limitation, governmental approval requirements under the Foreign
Exchange Transaction Law and its subordinate decrees and regulations) in connection with the purchase of securities
of NewCo.
United Arab Emirates
By receiving this Offering Memorandum and Disclosure Statement, the person or entity to whom it has been issued
understands, acknowledges and agrees that this Offering Memorandum and Disclosure Statement, the offering and
securities of NewCo have not been approved or licensed by the Central Bank of the United Arab Emirates (the
UAE), the Emirates Securities and Commodities Authority, the UAE Ministry of Economy, the Dubai Financial
Services Authority (the DFSA) or any other authority in the UAE, and such offering does not constitute a public
offer of securities in the UAE in accordance with the Federal Law No. 8 of 1984 concerning Commercial
Companies (as amended), the Laws of the Dubai International Financial Centre (the DIFC) including, without
limitation, the Collective Investments Law 2010, or otherwise. Furthermore, no authorization permit or license has
been received from the Central Bank of the UAE, the Emirates Securities and Commodities Authority, the UAE
Ministry of Economy, the DFSA or any other authority in the UAE to market, offer, place or sell securities of
NewCo in the UAE.
This Offering Memorandum and Disclosure Statement is not intended to constitute an offer, sale or delivery of
securities of NewCo or any other securities in the UAE under the laws of the UAE. Securities of NewCo have not
been and will not be registered under the Federal Law No. 4 of 2000 Concerning the Emirates Securities and
Commodities Authority with the Emirates Security and Commodity Exchange, or with the Central Bank of the
UAE, the Dubai Financial Market, the Abu Dhabi Securities Exchange, NASDAQ Dubai or with any other UAE
exchange. No marketing of any financial products or services has been or will be carried out within the UAE and no
sale or subscription for any services, products or financial services may or will be consummated within the UAE.
NewCo is not a licensed broker, dealer or investment advisor under the laws applicable in the UAE, and it does not
advise individuals resident in the UAE as to the appropriateness of investing in, purchasing or selling securities or
transacting in other financial products. Nothing contained in this Offering Memorandum and Disclosure Statement
is intended to constitute UAE investment, legal, tax, accounting or other professional advice. This Offering
Memorandum and Disclosure Statement is for the information of prospective investors only and nothing in this
Offering Memorandum and Disclosure Statement is intended to endorse or recommend a particular course of action.

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xiii

Interest-holders of Culligan Ltd. should consult with an appropriate professional for specific advice rendered on the
basis of their circumstances.
This Offering Memorandum and Disclosure Statement is strictly private and confidential. It is being distributed to a
limited number of investors and cannot be provided to any person other than the original recipient. It may not be
reproduced or used for any other purpose. Securities of NewCo may not be offered or sold directly or indirectly to
the public in the UAE
United Kingdom
This Offering Memorandum and Disclosure Statement may only be communicated to and is only directed at
(a) persons who have professional experience in matters relating to investments falling within article 19(5)
(investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as
amended) (the Order), (b) persons falling within article 49(2)(a) to (d) (high net worth companies,
unincorporated associations etc) of the Order, or (c) persons to whom this Offering Memorandum and Disclosure
Statement may otherwise lawfully be communicated (the persons referred to in (a) to (c) being referred to
collectively as relevant persons). This Offering Memorandum and Disclosure Statement must not be acted on or
relied on by persons who are not relevant persons. Securities of NewCo are available only to relevant persons.
This Offering Memorandum and Disclosure Statement is not a prospectus which has been approved by the Financial
Services Authority or any other United Kingdom regulatory authority for the purposes of section 85 of the Financial
Services and Markets Act 2000.
New Hampshire
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM SECURITIES ACT,
1955, AS AMENDED, OR RSA 421-B, WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE,
TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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xiv

I.

PRESENTATION OF FINANCIAL INFORMATION

Because NewCo was not formed until May 8, 2012, the financial statements included in this Offering
Memorandum and Disclosure Statement consist of the historical consolidated financial statements of Culligan
Holding. The historical consolidated financial information presented in this Offering Memorandum and Disclosure
Statement has been derived from the financial statements of Culligan Holding. Historical consolidated financial
information of Culligan Holding may not be indicative of future performance of NewCo and does not necessarily
reflect what the financial condition and results of operations of NewCo would have been had NewCo been formed
and operated during the periods presented, including due to changes in ownership and capital structure that will
occur as a result of the Restructuring.
We have presented in this Offering Memorandum and Disclosure Statement audited financial information
of Culligan Holding and its subsidiaries as of December 31, 2011 and 2010 and for the fiscal years ended December
31, 2011, 2010 and 2009. In addition, we have provided certain unaudited financial information of Culligan
Holding and its subsidiaries for the fiscal quarters ended March 31, 2012 and March 31, 2011. This financial
information is an important part of this Offering Memorandum and Disclosure Statement, and you should read it
carefully.

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II.

QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING

The following are some questions and answers regarding the Restructuring, including the Recapitalization Plan,
and the Pre-Packaged Plan. It does not contain all of the information that may be important to you. You should
carefully read this Offering Memorandum and Disclosure Statement to fully understand the terms of the
Restructuring, the Recapitalization Plan and the Pre-Packaged Plan, as well as the other considerations that are
important to you in making your investment decision. You should pay special attention to the Risk Factors and
Cautionary Statement Regarding Forward-Looking Statements sections of this Offering Memorandum and
Disclosure Statement.
A.

General

Q:

What is the purpose of the Restructuring?

A:

The Restructuring consists of the transactions summarized on the cover page of this Offering Memorandum
and Disclosure Statement and more fully described herein. The Company believes the Restructuring will
provide it with an improved long-term capital structure and sufficient liquidity to conduct its operations and
satisfy its future obligations. The purpose of the Restructuring is to address upcoming debt maturities, delever our balance sheet and enhance our ability to compete in the water treatment industry.

23633137v19

Q:

What is the Recapitalization Plan?

A:

The Recapitalization Plan is one of two possible methods to accomplish the Restructuring. Under the
Recapitalization Plan, the First Lien Lenders, Second Lien Lenders, Current Employees, Former
Employees and Existing Equityholder are being asked to consent to the proposed treatments described in
more detail in this Offering Memorandum and Disclosure Statement. If the Recapitalization Plan is
consummated, each of the First Lien Lenders will receive, in exchange for its First Lien Debt, its Pro Rata
share of the First Lien Paydown, the New Second Lien Facility and the Amended First Lien Facility. Each
of the Second Lien Lenders will receive, in exchange for its Second Lien Debt, (a) at its election either
(i) its Pro Rata share of 47.64% (subject to adjustment as set forth in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock, or (ii) $0.30 for every
$1.00 of Second Lien Debt held by such Second Lien Lender (calculated as set forth in The Second Lien
Exchange OfferCalculation of Cash Election with respect to Second Lien Debt), and (b) the ability to
participate in the Rights Offering. Centerbridge, in its capacity as a Second Lien Lender, has elected to
receive NewCo Stock, rather than a Cash payment, under the Second Lien Exchange Offer. Each Current
Employee will be separately asked to agree to receive, in exchange for its Current Employee Deferred
Bonus Obligations, (a) 50% of the face amount of such obligations in the form of NewCo Stock (net of
applicable withholding taxes), and (b) 50% of the face amount of such obligations in Cash (net of
applicable withholding taxes). Each Former Employee will be separately asked to agree to receive in
exchange for its Former Employee Deferred Bonus Obligations, at the option of each such Former
Employee either (a) 80% of the face amount of such obligations in Cash (net of applicable withholding
taxes) or (b) (i) 50% of the face amount of such obligations in Cash (net of applicable withholding taxes),
and (ii) 50% in the form of a transferable Pro Rata share of the Former Employee Note (net of applicable
withholding taxes). With respect to the interests (whether characterized as equity or debt under local law)
in Culligan Investments owned by the Existing Equityholder, the Recapitalization Plan contemplates that
the Existing Equityholder will contribute all such interests to NewCo and will provide all necessary
consents to implementation of the First Lien Exchange Offer, the Second Lien Exchange Offer, the Rights
Offering and the other transactions contemplated as part of the Restructuring, and a release described
herein, in exchange for a Cash payment of $474,193, the retention, following implementation of the
Recapitalization Plan, of 2.27% (subject to adjustment as set forth in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock, the assumption of the
NewCo Assumed Liabilities and the transfer of the NewCo Transferred Receivables. The Recapitalization
Plan further contemplates that, following the Effective Date, the Existing Equityholder will transfer the
Cash to its existing holders of DSUs and intends to transfer the shares pro rata to its existing equityholders
The closing of the out-of-court Recapitalization Plan is conditioned upon, among other things, 100%
consent of the First Lien Lenders and the Second Lien Lenders. In the event we do not receive this level of
consent from the First Lien Lenders and the Second Lien Lenders, we may commence chapter 11 cases to
accomplish the Restructuring through the Pre-Packaged Plan. See The Restructuring, which begins on
page 63.

Q:

What is the Pre-Packaged Plan?

A:

The Pre-Packaged Plan is an alternative to the Recapitalization Plan for accomplishing the Restructuring.
We may seek confirmation of the Pre-Packaged Plan through chapter 11 cases if fewer than 100% of the
First Lien Lenders and Second Lien Lenders consent to the Recapitalization Plan or if other conditions to
the Recapitalization Plan are not satisfied. Under the Pre-Packaged Plan, we expect that the First Lien
Lenders, Second Lien Lenders, Current Employees, Former Employees and the Existing Equityholder will
receive the same treatment with respect to their claims and interests as they would in the Recapitalization
Plan, except that the Second Lien Lenders will not have the option of receiving Cash in exchange for their
portion of Second Lien Debt. See The Pre-Packaged Plan, which begins on page 91.

Q:

In what circumstances will we file the Pre-Packaged Plan instead of closing the Recapitalization
Plan?

A:

We may file the Pre-Packaged Plan instead of closing the Recapitalization Plan if the Restructuring Support
Agreement is in effect and (a) we do not receive 100% consent to the Recapitalization Plan from the First

23633137v19

Lien Lenders and the Second Lien Lenders (or if other conditions to the Recapitalization Plan are not
satisfied), and (b) we have received votes to accept the Pre-Packaged Plan from holders of (i) First Lien
Debt holding at least two-thirds in amount and more than one-half in number of such claims who actually
cast Ballots and (ii) Second Lien Debt holding at least two-thirds in amount and more than one-half in
number of such claims who actually cast Ballots. In such circumstances, we may seek to accomplish the
Restructuring on the same terms as the Recapitalization Plan, by way of the Pre-Packaged Plan, except that
Second Lien Lenders will not have the option of receiving cash for their claims under the Second Lien
Facility. See The RestructuringConditions to Completion of the Recapitalization Plan and The PrePackaged Plan, which begin on pages 77 and 91, respectively.
The confirmation and effectiveness of the Pre-Packaged Plan are subject to certain conditions that may not
be satisfied and may be different from those under the Recapitalization Plan. We cannot assure you that all
requirements for confirmation and effectiveness of the Pre-Packaged Plan will be satisfied or that the
Bankruptcy Court will conclude that the requirements for confirmation and effectiveness of the PrePackaged Plan have been satisfied. See The Pre-Packaged PlanConfirmation of the Pre-Packaged Plan
and The Pre-Packaged PlanConditions Precedent to the Effective Date, which begin on pages 104 and
123, respectively.
Q:

What are the costs and benefits of consummating the Restructuring through the Recapitalization
Plan rather than the Pre-Packaged Plan?

A:

Consummating the Restructuring through the Recapitalization Plan provides several benefits, including the
ability to effectuate the Restructuring in a shorter period of time without the extra costs, possible business
disruption and uncertainties inherent to the bankruptcy process. The costs associated with a bankruptcy
could be material and could include both direct costs, including fees paid to attorneys and other
professionals, and indirect costs, including costs related to business disruption. In addition, since there can
be no assurance that the Bankruptcy Court will confirm the Pre-Packaged Plan, a bankruptcy could have an
adverse effect on our business by creating uncertainty about our future. See Risk FactorsRisks Relating
to the Pre-Packaged Plan, which begins on page 43.

Q:

What are the expected results of the Restructuring, whether accomplished through the
Recapitalization Plan or the Pre-Packaged Plan?

A:

We expect that the Restructuring, if successful, will address upcoming debt maturities, de-lever our balance
sheet and enhance our ability to compete in our industry. Specifically, upon the completion of the
Restructuring, we expect our indebtedness to be reduced from an estimated $769 million as of March 31,
2012 to an estimated $376 million at the closing of the Restructuring, consisting of an estimated $1 million
in capital lease obligations and other indebtedness, approximately $180 million in principal amount under
the Amended First Lien Facility (with a five-and-one-half year maturity), $175 million under the New
Second Lien Facility (with a six year maturity), an estimated $10.5 million under the New Bridge Loan
(with a six-and-one-half year maturity) and $10 million of loans out of a commitment of $50 million under
the New Revolving Facility (with a five year maturity). See Capitalization and Unaudited Pro Forma
Consolidated Financial Data of Culligan Holding which begin on pages 61 and 134. The amounts that
will be outstanding under the Amended First Lien Facility and the New Bridge Loan are subject to
adjustment as described herein. See The RestructuringPotential Adjustments to Equity Ownership,
which begins on page 68.
Assuming we are able to complete the Restructuring, we expect that, for the foreseeable future, cash
generated from operations will be sufficient to allow us to fund our operations and to increase working
capital as necessary to support our long-term business plan, though there can be no assurance that such cash
generated will be sufficient for such purposes.

Q:

What is the Restructuring Support Agreement?

A:

We have entered into the Restructuring Support Agreement with the Initial Lenders who together hold an
estimated 81.7% of the outstanding principal amount of indebtedness under the First Lien Facility and an
estimated 92% of the outstanding principal amount of indebtedness under the Second Lien Facility.

23633137v19

Pursuant to the Restructuring Support Agreement, the Initial Lenders have agreed to, among other things
(a) participate in the Restructuring as described in the Restructuring Term Sheet by, among other things,
consenting to the proposed treatment of the First Lien Debt and Second Lien Debt and agreeing not to
withdraw such consent, and (b) vote all of their First Lien Debt and Second Lien Debt in favor of the PrePackaged Plan subject to Bankruptcy Court approval of the Offering Memorandum and Disclosure
Statement. So long as the Restructuring Support Agreement remains in effect, each of the parties to the
Restructuring Support Agreement has agreed to use commercially reasonable efforts to support and
complete the Restructuring (and, if necessary, the Pre-Packaged Plan). See The RestructuringThe
Restructuring Support Agreement, which begins on page 66.
Q:

What happens if the Restructuring Support Agreement is terminated after I have consented to the
Offerings?

A:

If the Restructuring Support Agreement is terminated after you have consented to either the First Lien
Exchange Offer or the Second Lien Exchange Offer, your consent will have no force or effect.

Q:

Why is it important that I consent to the proposed treatment of my claims in the Recapitalization
Plan and vote to accept the Pre-Packaged Plan?

A:

We believe that the Restructuring will address our upcoming debt maturities, de-lever our balance sheet,
and enhance our ability to compete in our industry. If we do not complete the Restructuring either through
the Recapitalization Plan or the Pre-Packaged Plan, we anticipate that we will not be able to meet our
secured debt obligations, all of which mature in the next twelve months. In addition, we have received a
going concern qualification from our auditors in connection with our required delivery of audited annual
financial statements under the Existing Credit Facilities, which would, absent a waiver, trigger a default
under each of our Existing Credit Facilities. Although the Existing Lenders have agreed in the Waivers to
waive defaults related to the going concern qualification so long as the Restructuring Support Agreement
remains in effect (with an outside date of June 29, 2012), the Waivers may terminate if the milestones set
forth in the Restructuring Support Agreement are not met, including the completion of the Recapitalization
Plan or the Pre-Packaged Plan in the timeframe set out in the Restructuring Support Agreement. If the
Waivers terminate or if new defaults occur under the Existing Credit Facilities, then the lenders under each
of the Existing Credit Facilities may cause the acceleration of each of the amounts owed thereunder. If we
do not complete the Restructuring, we do not expect, and we cannot assure you, that we will have, or have
access to, sufficient liquidity to meet our debt repayment obligations, including any obligations arising
from the acceleration of our Existing Credit Facilities.
If all the indebtedness under the Existing Credit Facilities becomes immediately due and payable (as would
be the case in the event of an acceleration of the obligations under the Existing Credit Facilities), we do not
expect, and we cannot assure you, that we will have, or have access to, sufficient liquidity to meet our debt
repayment obligations. Such an acceleration would result in a material adverse effect on our financial
condition, operations and debt service capabilities. As of March 31, 2012, we had an estimated $135
million of Cash with which to satisfy these obligations, and we believe the Company has no ability to
obtain the necessary additional funds in the capital markets. If the Company is unable to repay the
obligations under the Existing Credit Facilities upon an acceleration, the agents and lenders under those
facilities could exercise their remedies as secured creditors with respect to the collateral securing such
borrowings.
In the event that we experience the series of events outlined above, we will have an immediate need to
pursue other alternatives, including commencing chapter 11 cases on terms other than as contemplated by
the Pre-Packaged Plan. If we commence such a bankruptcy filing, the First Lien Lenders, Second Lien
Lenders, Current Employees, Former Employees and Existing Equityholder may receive consideration that
is substantially less than what is being offered under the Restructuring. See Risks Relating to Not
Consenting to the Offerings or Voting Against the Pre-Packaged Plan, which begins on page 34.

23633137v19

Q:

What happens if I consent to the First Lien Exchange Offer or the Second Lien Exchange Offer and
the Recapitalization Plan is unable to be consummated and the Pre-Packaged Plan is filed?

A:

If you consent to the First Lien Exchange Offer or the Second Lien Exchange Offer and the
Recapitalization Plan is unable to be consummated and the Pre-Packaged Plan is filed, your consent will
have no force and effect since the Recapitalization Plan will not be consummated.

Q:

When is the Effective Date of the Recapitalization Plan expected to occur?

A:

The Effective Date of the Recapitalization Plan will not occur until all of the conditions to the
Recapitalization Plan have been satisfied or waived by the required parties as set forth in the Restructuring
Support Agreement. One of these conditions, required approvals, consents, notices or filings required
under any foreign anti-trust, competition or similar laws, is not currently expected to be satisfied until June
2012.

B.

The First Lien Exchange Offer

Q:

What amount of First Lien Debt are you seeking in the First Lien Exchange Offer?

A:

We are seeking to exchange all outstanding First Lien Debt. Our obligation to consummate the First Lien
Exchange Offer is conditioned upon 100% of the First Lien Lenders and Second Lien Lenders consenting
to the Recapitalization Plan.

Q:

What will I receive in the First Lien Exchange Offer if I agree to participate?

A:

In exchange for your share of the First Lien Facility, you will, upon the terms and subject to the conditions
set forth in this Offering Memorandum and Disclosure Statement, receive your Pro Rata share of a
repayment of the First Lien Debt in the amount of $180 million, $175 million of indebtedness under the
New Second Lien Facility and approximately $180 million of indebtedness under the Amended First Lien
Facility.

Q:

Does the closing of the Recapitalization Plan depend on the participation of any minimum percentage
of First Lien Lenders?

A:

Yes. The closing of the Recapitalization Plan is conditioned upon, among other things, 100% of the First
Lien Lenders consenting to the First Lien Exchange Offer. In the event we do not receive the required
threshold of participation from the First Lien Lenders, we may commence chapter 11 cases to accomplish
the Restructuring through the Pre-Packaged Plan.

Q:

How do I consent to the exchange of my First Lien Debt in the First Lien Exchange Offer?

A:

Please follow the procedures for consenting to the First Lien Exchange Offer described in The First Lien
Exchange Offer, which begins on page 76. For further information, contact the Solicitation, Voting and
Exchange Agent at the addresses or telephone numbers on the back cover of this Offering Memorandum
and Disclosure Statement.

Q:

How long will the First Lien Exchange Offer remain open?

A:

The First Lien Exchange Offer will expire at 5:00 p.m., Eastern Daylight Time, on May 30, 2012, unless
extended or earlier terminated by us with the consent of the Initial Lenders, subject to the terms of the
Restructuring Support Agreement.
Subject to applicable laws and the terms set forth in the Offering Memorandum and Disclosure Statement
and the Restructuring Support Agreement, we may extend the Expiration Date or amend any of the terms or
conditions of the First Lien Exchange Offer for any reason. The last date on which consents will be
accepted, whether on May 30, 2012, or any subsequent time or date to which the First Lien Exchange Offer
may be extended, is referred to as the Expiration Date.

23633137v19

Q:

When will I receive my Pro Rata share of the First Lien Paydown, the New Second Lien Facility and
Amended First Lien Facility if I consent to the First Lien Exchange Offer?

A:

The Effective Date of the Recapitalization Plan will occur promptly after the satisfaction or waiver of all of
the conditions to the Recapitalization Plan. The First Lien Paydown, the New Second Lien Facility, and
the Amended First Lien Facility will be delivered on the Effective Date. See The First Lien Exchange
Offer, which begins on page 76.

Q:

Can I withdraw my consent to the First Lien Exchange Offer?

A:

No. Once submitted, you will not be able to withdraw your consent to the First Lien Exchange Offer. See
The First Lien Exchange OfferNo Withdrawal Rights, which begins on page 77.

Q:

What risks should I consider in deciding whether or not to participate in the First Lien Exchange
Offer?

A:

In deciding whether to participate in the First Lien Exchange Offer, you should carefully consider the
discussion of risks and uncertainties affecting the Company, the Recapitalization Plan, the Pre-Packaged
Plan and the NewCo Stock described in the section titled Risk Factors, which do not represent the only
risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem
immaterial, may also affect your investment decision and/or impair our business operations. You should
carefully consider the other information and data included in this Offering Memorandum and Disclosure
Statement for other risks that may affect you.

C.

The Second Lien Exchange Offer

Q:

What amount of Second Lien Debt are you seeking in the Second Lien Exchange Offer?

A:

We are seeking to exchange all outstanding Second Lien Debt. Our obligation to consummate the Second
Lien Exchange Offer is conditioned upon 100% of the First Lien Lenders and Second Lien Lenders
consenting to the Recapitalization Plan.

Q:

What will I receive in the Second Lien Exchange Offer if I agree to participate?

A:

In exchange for your share of the Second Lien Facility, you will, upon the terms and subject to the
conditions set forth in this Offering Memorandum and Disclosure Statement, receive (a) at your option,
either (i) your Pro Rata share of 47.64% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock, or (ii) $0.30 in
Cash for every $1.00 of Second Lien Debt that you hold (calculated as set forth in The Second Lien
Exchange OfferCalculation of Cash Election with respect to Second Lien Debt, which begins on page
83) and (b) the rights to participate in the Rights Offering.

Q:

Does the closing of the Recapitalization Plan depend on the participation of any minimum percentage
of Second Lien Lenders?

A:

Yes. The closing of the Recapitalization Plan is conditioned upon, among other things, 100% of the
Second Lien Lenders consenting to the Second Lien Exchange Offer. In the event we do not receive the
required threshold of participation from the Second Lien Lenders, we may pursue the Pre-Packaged Plan.

Q:

How do I consent to the exchange of my Second Lien Debt in the Second Lien Exchange Offer?

A:

Please follow the procedures for consenting to the Second Lien Exchange Offer described in The Second
Lien Exchange Offer. For further information, contact the Solicitation, Voting and Exchange Agent at the
addresses or telephone numbers on the back cover of this Offering Memorandum and Disclosure Statement.

23633137v19

Q:

How long will the Second Lien Exchange Offer remain open?

A:

The Second Lien Exchange Offer will expire at 5:00 p.m., Eastern Daylight Time, on May 30, 2012, unless
extended or earlier terminated by us with the consent of the Initial Lenders, subject to the terms of the
Restructuring Support Agreement.
Subject to applicable laws and the terms set forth in the Offering Memorandum and Disclosure Statement
and the Restructuring Support Agreement, we may extend the Expiration Date or amend any of the terms or
conditions of the Second Lien Exchange Offer for any reason. The last date on which consents will be
accepted, whether on May 30, 2012, or any subsequent time or date to which the Second Lien Exchange
Offer may be extended, is referred to as the Expiration Date.

Q:

When will I receive my NewCo Stock or Cash if I consent to the Second Lien Exchange Offer?

A:

The Effective Date of the Recapitalization Plan will occur promptly after the satisfaction or waiver of all of
the conditions to the Recapitalization Plan. The NewCo Stock or Cash will be delivered as promptly as
practicable on or after the Effective Date. See The Second Lien Exchange Offer, which begins on page
79.

Q:

Can I withdraw my consent to the Second Lien Exchange Offer?

A:

No. Once submitted, you will not be able to withdraw your consent to the Second Lien Exchange Offer or
your election under the Second Lien Exchange Offer. See The Second Lien Exchange OfferNo
Withdrawal Rights, which begins on page 82.

Q:

What is the Rights Offering and the Backstop Agreement?

A:

Pursuant to the Restructuring, each holder of Second Lien Debt will receive rights to participate in the
Rights Offering for 49.65% (subject to adjustment as set forth in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock and an estimated $10.5
million of indebtedness under the New Bridge Loan with an aggregate offering amount for the Rights
Offering of $104.5 million, subject to adjustment as described in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68. Specifically, each holder of Second Lien
Debt will have the right to purchase its Pro Rata share of the NewCo Stock and participate in its Pro Rata
share of the New Bridge Loan being offered pursuant to the Rights Offering for its Pro Rata share of the
aggregate offering amount price. See The Second Lien Exchange OfferTerms of the Second Lien
Exchange Offer, which begins on page 79. If you elect to participate in the Rights Offering, you must
fully subscribe for your Pro Rata share of both the NewCo Stock and the New Bridge Loan offered in the
Rights Offering.
Certain of the Second Lien Lenders, for no fee, have agreed, pursuant to the Backstop Agreement and
subject to the conditions thereof, to purchase any unsubscribed shares of the NewCo Stock, and to
subscribe for any unsubscribed amounts of the New Bridge Loan offered in the Rights Offering.

Q:

Who may participate in the Second Lien Exchange Offer?

A:

All Second Lien Lenders to which the Second Lien Exchange Offer is being made may participate in the
Second Lien Exchange Offer. The Second Lien Exchange Offer is only being made to persons who are
accredited investors within the meaning of Rule 501 of Regulation D under the Securities Act. Pursuant
to the consent form with respect to the Second Lien Exchange Offer, each Second Lien Lender
participating in the Second Lien Exchange Offer will represent that it is an accredited investor pursuant
to Rule 501 of Regulation D.

Q:

Who may participate in the Rights Offering?

A:

All Second Lien Lenders to which the Rights Offering is being made may participate in the Rights
Offering. The Rights Offering is only being made to persons who are accredited investors within the

23633137v19

meaning of Rule 501 of Regulation D under the Securities Act. Pursuant to the Subscription Form attached
hereto as Annex N, each Second Lien Lender participating in the Rights Offering will represent that it is an
accredited investor pursuant to Rule 501 of Regulation D.
Q:

When can I participate in the Rights Offering?

A:

You may indicate your intention to participate in the Rights Offering by submitting the Subscription Form
and all documents required by the Subscription Form by the Expiration Date. Upon satisfaction or waiver
of all of the conditions to the Recapitalization Plan, the transactions contemplated by the Rights Offering
will occur on the Effective Date.

Q:

When will I submit my subscription amount for the Rights Offering?

A:

At least five Business Days prior to the Effective Date, a notice will be sent to you with wire transfer
instructions for the payment of the subscription purchase price for the Rights Offering (the Effective Date
Notice). You must pay the subscription purchase price for the Rights Offering as instructed in the
Effective Date Notice within two Business Days of our sending of the Effective Date Notice, or your right
to participate in the Rights Offering will terminate and be cancelled and your subscription will be rejected.

Q:

What will the Company do with the money it gets from the Rights Offering?

A:

We will use the proceeds from the Rights Offering to fund the cash-out option under the Second Lien
Exchange Offer, Cash payments made in connection with the Deferred Bonus Modifications, the First Lien
Paydown, the payment of fees and expenses incurred in connection with the Restructuring, and for working
capital and other general corporate purposes of the Company. See Use of Proceeds, which begins on
page 60.

Q:

Is the percentage of NewCo Stock I will be eligible to receive in the Second Lien Exchange Offer or
purchase in the Rights Offering fixed?

A:

No. The percentage of NewCo Stock each Second Lien Lender will be eligible to receive in the Second
Lien Exchange Offer or purchase in the Rights Offering is subject to adjustment. See the following
question and The RestructuringPotential Adjustments to Equity Ownership, which begins on page 68.

Q:

What are the factors that could affect the amount of NewCo Stock and percentage ownership of
NewCo being granted to Second Lien Lenders and the amount of NewCo Stock and percentage
ownership of NewCo being offered in the Rights Offering?

A:

The total percentage of NewCo Stock being granted to Second Lien Lenders in the Second Lien Exchange
Offer depends on (a) the number of Second Lien Holders that choose to receive Cash rather than NewCo
Stock in the Second Lien Exchange Offer and (b) the percentage of NewCo Stock that is offered for
purchase in the Rights Offering. The amount of NewCo Stock offered in the Rights Offering depends, in
turn, on the size of the New Bridge Loan included in the Rights Offering and the amount of Cash on hand
of the Company available for use to accomplish the Restructuring. Other factors as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on page 68, could affect the
NewCo ownership percentages. The estimates in this Offering Memorandum and Disclosure Statement, of
47.64% (subject to adjustment as set forth in The RestructuringPotential Adjustments to Equity
Ownership, which begins on page 68) of NewCo Stock being granted to Second Lien Lenders in the
Second Lien Exchange Offer and 49.65% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock being offered for
purchase in the Rights Offering, are based upon the assumption that all Second Lien Lenders (other than
Centerbridge) opt to receive Cash rather than NewCo Stock in the Second Lien Exchange Offer and that the
Cash raised in the Rights Offering is $104.5 million. These estimates are subject to change as described in
The RestructuringPotential Adjustments to Equity Ownership, which begins on page 68.

23633137v19

Q:

What risks should I consider in deciding whether or not to participate in the Second Lien Exchange
Offer?

A:

In deciding whether or not to participate in the Second Lien Exchange Offer, you should carefully consider
the discussion of risks and uncertainties affecting the Company, the Recapitalization Plan, the PrePackaged Plan and the NewCo Stock described in the section titled Risk Factors, which do not represent
the only risks that we face. Additional risks and uncertainties not currently known to us, or that we
currently deem immaterial, may also affect your investment decision and/or impair our business operations.
You should carefully consider the other information and data included in this Offering Memorandum and
Disclosure Statement for other risks that may affect you.

D.

The Current Employee Deferred Bonus Modification

Q:

What will I receive under the Current Employee Deferred Bonus Modification?

A:

In satisfaction of the Current Employee Deferred Bonus Obligations, you will, upon the terms and subject
to the conditions set forth in the Deferred Bonus Modification Agreement, separately receive (a) 50% of the
face amount of such obligations (net of applicable withholding taxes) in the form of Cash and (b) 50% of
the face amount of such obligations (net of applicable withholding taxes) in the form of NewCo Stock.

Q:

Who may participate in the Current Employee Deferred Bonus Modification?

A:

All Current Employees who have a claim to a vested bonus arising under, or relating to, the Special Bonus
Plan.

Q:

How do I consent to the Current Employee Deferred Bonus Modification?

A:

By signing the Deferred Bonus Modification Agreement, which separately governs the proposed treatment
of the Current Employee Deferred Bonus Obligations, you will be consenting to the Current Employee
Deferred Bonus Modification. See The Current Employee Deferred Bonus Modification, which begins
on page 84.

Q:

Is there a deadline for me to submit my executed copy of the Deferred Bonus Modification
Agreement demonstrating my consent to the Current Employee Deferred Bonus Modification?

A:

The last date on which the Deferred Bonus Modification Agreement will be accepted is at 5:00 p.m.,
Eastern Daylight Time, on May 30, 2012, unless extended or earlier terminated. We may extend the
deadline to submit the Deferred Bonus Modification Agreement in our sole discretion.

Q:

When will I receive my Cash and NewCo Stock if I consent to the Current Employee Deferred Bonus
Modification?

A:

Upon satisfaction or waiver of all of the conditions to the Recapitalization Plan, the NewCo Stock and Cash
(each net of applicable withholding taxes) will be delivered within ten (10) days of the Effective Date.

Q:

Can I withdraw my consent to the Current Employee Deferred Bonus Modification?

A:

You may not validly withdraw your consent to the Current Employee Deferred Bonus Modification after
delivery of the Deferred Bonus Modification Agreement to the Solicitation, Voting and Exchange Agent.

Q:

What if I do not return the Deferred Bonus Modification Agreement?

A:

If you do not return the Deferred Bonus Modification Agreement, we may not compel you to participate in
the Restructuring. However, we may, for reasons related or unrelated to your consent, choose to restructure
under the Pre-Packaged Plan. If we pursue the Restructuring through the Pre-Packaged Plan, and the PrePackaged Plan is confirmed, your Current Employee Deferred Bonus Obligation will be treated on the
same terms as the proposed Current Employee Deferred Bonus Modification regardless of whether you
voted in favor of the Pre-Packaged Plan.

23633137v19

10

Q:

How will the share price for the NewCo Stock that will be issued to me in the Current Employee
Deferred Bonus Modification be determined?

A:

The price will be determined based on the assumed equity value upon which the Rights Offering is based.

Q:

What risks should I consider in deciding whether or not to agree to the proposed Current Employee
Deferred Bonus Modification?

A:

In deciding whether to agree to the proposed Current Employee Deferred Bonus Modification, you should
carefully consider the discussion of risks and uncertainties affecting the Company, the Recapitalization
Plan, the Pre-Packaged Plan and the NewCo Stock described in the section titled Risk Factors, which
begins on page 34,which do not represent the only risks that we face. Additional risks and uncertainties not
currently known to us, or that we currently deem immaterial, may also affect your investment decision
and/or impair our business operations. You should carefully consider the other information and data
included in the Offering Memorandum and Disclosure Statement, including the sections regarding U.S.
federal income tax considerations, for other risks that may affect you.

E.

The Former Employee Deferred Bonus Modification

Q:

What will I receive in the Former Employee Deferred Bonus Modification?

A:

In satisfaction of the Former Employee Deferred Bonus Obligations, you will, upon the terms and subject
to the conditions set forth in the Deferred Bonus Modification Agreement, separately receive, in your sole
option, either (a) 80% of the face amount of such obligation (net of applicable withholding taxes) in Cash
or (b) a combination of (i) 50% of the face amount of such obligation (net of applicable withholding taxes)
in Cash, and (ii) 50% of the face amount of such obligation (net of applicable withholding taxes) in the
form of the Former Employee Note Amount.

Q:

Who may participate in the Former Employee Deferred Bonus Modification?

A:

All Former Employees who have a claim to a vested bonus arising under, or relating to, the Special Bonus
Plan.

Q:

How do I consent to the separate Former Employee Deferred Bonus Modification?

A:

By signing the Deferred Bonus Modification Agreement, which separately governs the proposed treatment
of the Former Employee Deferred Bonus Obligations, you will be consenting to the Former Employee
Deferred Bonus Modification and making your election pursuant to such modification. See The Former
Employee Deferred Bonus Modification, which begins on page 88.

Q:

Is there a deadline for me to submit my executed copy of the Deferred Bonus Modification
Agreement demonstrating my consent to the Former Employee Deferred Bonus Modification?

A:

The last date on which consents in the form of the Deferred Bonus Modification Agreement will be
accepted is at 5:00 p.m., Eastern Daylight Time, on May 30, 2012, unless extended or earlier terminated.
We may extend the deadline to submit the Deferred Bonus Modification Agreement in our sole discretion.

Q:

When will I receive my Cash and/or share of the Former Employee Note if I consent to the Former
Employee Deferred Bonus Modification?

A:

Upon the satisfaction or waiver of all of the conditions to the Recapitalization Plan, the Cash and Former
Employee Note Amount (each net of applicable withholding taxes) will be delivered within ten (10) days of
the Effective Date.

23633137v19

11

Q:

Can I withdraw my consent to the Former Employee Deferred Bonus Modification?

A:

Once you have executed the Deferred Compensation Modification Agreement, you cannot withdraw your
consent to the Former Employee Deferred Bonus Modification or your election under the Former
Employee Deferred Bonus Modification.

Q:

What if I do not consent to the Former Employee Deferred Bonus Modification (or do not return the
Employee Deferred Bonus Modification Agreement)?

A:

If you do not consent to the separate Former Employee Deferred Bonus Modification or do not return the
Deferred Bonus Modification Agreement, we may not compel you to participate in the Restructuring.
However, we may, for reasons related or unrelated to your consent, choose to restructure under the PrePackaged Plan. If we pursue the Restructuring through the Pre-Packaged Plan, and the Pre-Packaged Plan
is confirmed, your Former Employee Deferred Bonus Obligation claim will be treated on the same terms as
the proposed Former Employee Deferred Bonus Modification regardless of whether you voted in favor of
the Pre-Packaged Plan.

Q:

What risks should I consider in deciding whether or not to participate in the Former Employee
Deferred Bonus Modification?

A:

In deciding whether to agree to the proposed Former Employee Deferred Bonus Modification, you should
carefully consider the discussion of risks and uncertainties affecting the Company, the Recapitalization
Plan and the Pre-Packaged Plan described in the section titled Risk Factors, which starts on page 34,
which do not represent the only risks that we face. Additional risks and uncertainties not currently known
to us, or that we currently deem immaterial, may also affect your investment decision and/or impair our
business operations. You should carefully consider the other information and data included in the Offering
Memorandum and Disclosure Statement and this supplement, including the sections regarding U.S. federal
income tax considerations, thereto for other risks that may affect you.

F.

The Pre-Packaged Plan

Q:

Why are we soliciting votes on the Pre-Packaged Plan if the Restructuring can be accomplished
through the Recapitalization Plan?

A:

We have prepared the Pre-Packaged Plan as an alternative to the Recapitalization Plan if we do not receive
100% consent for the Recapitalization Plan from the First Lien Lenders and the Second Lien Lenders or
other conditions to the Recapitalization Plan are not satisfied, but we receive acceptances from a sufficient
number of holders of First Lien Claims and Second Lien Claims to allow the Pre-Packaged Plan to be
confirmed under the Bankruptcy Code. The Pre-Packaged Plan consists of a plan of reorganization under
chapter 11 of the Bankruptcy Code that would effect the same transactions contemplated by the
Recapitalization Plan, except that Second Lien Lenders will not have the option of receiving Cash in
exchange for their claims. See The Pre-Packaged Plan, which begins on page 91.
For the Pre-Packaged Plan to be confirmed by the Bankruptcy Court without invoking the cram-down
provisions of the Bankruptcy Code, holders of First Lien Claims, Second Lien Claims and other impaired
classes must vote to accept the Pre-Packaged Plan. An impaired class of claims is conclusively presumed
to accept a plan of reorganization if the holders of at least two-thirds in amount and more than one-half in
number of the claims or interests in such class who actually cast ballots vote to accept the Pre-Packaged
Plan. Only those parties who actually vote are counted for this purpose.
Therefore, assuming the Pre-Packaged Plan satisfies the other requirements of the Bankruptcy Code, a
significantly smaller number of claim holders can bind other claim holders to the terms of the Pre-Packaged
Plan to accomplish the Restructuring than is required to effect the Recapitalization Plan.
The confirmation and effectiveness of the Pre-Packaged Plan are subject to certain conditions that may not
be satisfied and are different from those under the Recapitalization Plan. We cannot assure you that all
requirements for confirmation and effectiveness of the Pre-Packaged Plan will be satisfied or that the

23633137v19

12

Bankruptcy Court will conclude that the requirements for confirmation and effectiveness of the PrePackaged Plan have been satisfied. See The Pre-Packaged PlanConfirmation of the Pre-Packaged Plan
and The Pre-Packaged PlanConditions Precedent to the Effective Date, which begin on pages 104 and
123, respectively.
Q:

Who is eligible to vote for the Pre-Packaged Plan?

A:

Generally, holders of claims or interests in classes that are impaired (other than classes that receive no
distribution under the Pre-Packaged Plan and are, therefore, deemed to reject the Pre-Packaged Plan) are
eligible to vote on the Pre-Packaged Plan. As more fully explained in this Offering Memorandum and
Disclosure Statement, a claim or equity interest is impaired, generally speaking, if its treatment under a
plan of reorganization alters the terms of, or rights associated with, that claim or interest. The holders of
First Lien Debt, Second Lien Debt, Current Employee Deferred Bonus Claims, Former Employee Deferred
Bonus Claims and Existing Equity Interests are all deemed to be impaired and, consequently, may vote on
the Pre-Packaged Plan.

Q:

What will I receive under the Pre-Packaged Plan if it is confirmed and consummated?

A:

The Pre-Packaged Plan contemplates substantially the same treatment for First Lien Lenders, holders of
Deferred Bonus Obligations and the Existing Equityholder as the Recapitalization Plan. If, however, the
Restructuring is consummated through the Pre-Packaged Plan, Second Lien Lenders will not have the
option of receiving Cash in exchange for their claims. The treatment of each of the classes under the PrePackaged Plan is described in more detail in The Pre-Packaged Plan, which starts on page 91.

Q:

What vote is needed to confirm the Pre-Packaged Plan?

A:

The Bankruptcy Code provides that only holders of claims and interests entitled to vote and who actually
cast a Ballot will be counted for purposes of determining whether acceptances from a sufficient number of
holders of impaired claims in an impaired class have been received to allow the Pre-Packaged Plan to be
confirmed under the Bankruptcy Code, including confirmation through the nonconsensual cram-down
provisions of Section 1129(b) of the Bankruptcy Code with respect to non-accepting impaired classes.
Failure by a holder to deliver an original, facsimile or electronic duly completed and signed Ballot will not
be counted as a vote to accept or reject the Pre-Packaged Plan. See The Pre-Packaged PlanAcceptance
of the Pre-Packaged Plan, which begins on page 105.
For the Pre-Packaged Plan to be confirmed by the Bankruptcy Court without invoking the cram-down
provisions of the Bankruptcy Code, each class of claims or interests that is impaired must vote to accept the
Pre-Packaged Plan. An impaired class of claims is deemed to accept a plan of reorganization if the holders
of at least two-thirds in amount and more than one-half in number of the claims and interests in such class
who actually cast Ballots vote to accept the Pre-Packaged Plan. Under the Pre-Packaged Plan, holders of
First Lien Lender Claims, Second Lien Lender Claims, Current Employee Deferred Bonus Claims, Former
Employee Deferred Bonus Claims and holders of Existing Equity Interests constitute separate impaired
classes of claims and interests. In addition, under the Pre-Packaged Plan, other classes of claims against
and interests in the Company are unimpaired and deemed to accept the Pre-Packaged Plan.
If we do not receive acceptances from a sufficient number of holders in an impaired class to allow the PrePackaged Plan to be confirmed under the Bankruptcy Code, including confirmation through the
nonconsensual cram-down provisions of Section 1129(b) of the Bankruptcy Code with respect to nonaccepting impaired classes, the Pre-Packaged Plan will not be confirmed or become effective.

Q:

What are the effects of the Pre-Packaged Plan?

A:

Under the Pre-Packaged Plan, we expect that holders of First Lien Debt, Current Employee Deferred Bonus
Obligations, Former Employee Bonus Obligations and Existing Equity Interests will receive the same
treatment with respect to their claims and interests as they would in the Recapitalization Plan. Holders of
Second Lien Debt will receive the same treatment as they would in the Recapitalization Plan, except they

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will not have the option of receiving Cash under the Pre-Packaged Plan. See The Pre-Packaged Plan,
which begins on page 91.
Q:

When is the deadline for submitting Ballots?

A:

The Ballots must be received by the Solicitation, Voting and Exchange Agent, by 5:00 p.m., Eastern
Daylight Time, on May 30, 2012 (the Voting Deadline). If the Voting Deadline is extended, then the
Ballots must be received by the Solicitation, Voting and Exchange Agent by any such extended Voting
Deadline. Ballots must be sent electronically or by fax, mail, hand delivery or overnight courier to the
Solicitation, Voting and Exchange Agent, at its address on the back cover of this Offering Memorandum
and Disclosure Statement, by the Voting Deadline. See The Pre-Packaged PlanHolders of Claims
Entitled to Vote; Voting Record Date and The Pre-Packaged PlanSolicitation and Voting Procedures,
and The Pre-Packaged PlanVoting Deadline, which begin on pages 97, 107 and 108, respectively.

Q:

How do I vote on the Pre-Packaged Plan?

A:

Please follow the procedures for voting on the Pre-Packaged Plan described in the section titled The PrePackaged PlanSolicitation and Voting Procedures. For further information, contact the Solicitation,
Voting and Exchange Agent at its address and telephone number on the back cover of this Offering
Memorandum and Disclosure Statement

Q:

Can I revoke my vote?

A:

Unless you are a party to the Restructuring Support Agreement and are otherwise restricted by the
Restructuring Support Agreement, any party who has previously submitted to the Solicitation, Voting and
Exchange Agent before the Voting Deadline a properly completed Ballot may revoke such Ballot and
change its vote by submitting to the Solicitation, Voting and Exchange Agent, before the Voting Deadline,
a subsequent properly completed Ballot for acceptance or rejection of the Pre-Packaged Plan.

Q:

Whom do I call if I have any questions about how to submit Ballots or any other questions relating to
the Pre-Packaged Plan?

A:

Questions and requests for assistance with respect to the procedures for voting on the Pre-Packaged Plan, as
well as requests for additional copies of this Offering Memorandum and Disclosure Statement and the
Ballot, may be directed to the Solicitation, Voting and Exchange Agent at its address and telephone number
set forth on the back cover of this Offering Memorandum and Disclosure Statement.

Q:

What risks should I consider in deciding whether to accept or reject the Pre-Packaged Plan?

A:

In deciding whether to vote to accept or reject the Pre-Packaged Plan, you should carefully consider the
discussion of risks and uncertainties affecting the Company, the Recapitalization Plan, the Pre-Packaged
Plan and, if applicable, the NewCo Stock and the Former Employee Note described in the section titled
Risk Factors, which do not represent the only risks that we face. Additional risks and uncertainties not
currently known to us, or that we currently deem immaterial, may also affect your investment decision
and/or impair our business operations. You should carefully consider the other information and data
included in this Offering Memorandum and Disclosure Statement and information and data contained in
our public filings for other risks that may affect you.

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III.

SUMMARY

This summary highlights some of the information contained in this Offering Memorandum and Disclosure
Statement to help you understand our business and the Restructuring, including the Recapitalization Plan and the
Pre-Packaged Plan. It does not contain all of the information that may be important to you. You should carefully
read this Offering Memorandum and Disclosure Statement to fully understand the terms of the Restructuring (which
includes the Recapitalization Plan and the Pre-Packaged Plan), as well as the other considerations that are
important to you in making your investment decision. You should pay special attention to the sections titled Risk
Factors and Cautionary Statement Regarding Forward-Looking Statements.
A.

Our Company

With over 75 years of history and an installed base of over three million customers worldwide, the
Company is a leading pure-play provider of water treatment solutions globally. The Culligan brand is the most
recognized in the industry, with a reputation based on quality, innovation, service and local water expertise. The
Company provides comprehensive, customizable solutions to its customers through an unparalleled dealer
distribution network that is more than twice the size of the nearest competitor and that includes 900 Culliganbranded locations across 90 countries. Our expansive channel to market delivers one of the industrys broadest and
most technologically-advanced product portfolios along with an extensive range of services to a diversified
customer base.
Our broad mix of products and services, distribution, customers, and geographies generates a diverse
revenue base that is largely recurring in nature. We operate in 10 countries around the world and generate the bulk
of our revenue from operations in the United States and Canada, France and Italy. We also sell products to our
licensees in 90 additional countries. For the twelve months ended December 31, 2011, our revenue was $602.6
million, our net income was $1.4 million and our adjusted EBITDA was $45.9 million.
We generate revenue from two end markets:
x

Consumer solutions (76 % of 2011 revenue). We offer point-of-entry water softeners, problem water
filters and point-of-use drinking water systems that are tailored to meet local water conditions.

Commercial and industrial (C&I) solutions (24% of 2011 revenue). We offer large point of entry
softeners and filtration to commercial end users. We also offer larger scale, highly customized turnkey solutions, including pre-treatment, membrane systems, polish, disinfection and distribution
equipment, to address the specific customer needs across a wide range of end markets.

Both markets are supported by a full line of services including water testing, product design assistance and
installation, ongoing repair and maintenance, technical support and consumables supply. Our fully integrated
product and service solutions are provided through our Culligan network of franchisees, company-owned dealers
and licensees and provides us with differentiated end consumer access and the ability to bring new product or
service solutions to market rapidly and at low cost.
No single customer accounts for more than 5% of our revenue in either the Consumer solutions or C&I
solutions markets.
Consumer solutions business
The Company is a leader in consumer water treatment solutions with a leadership position in North
America, leading market positions in Europe and a growing presence in other key markets. The Companys history
of technology leadership, product innovation and customer service has enabled us to solidify our position as a
premier water treatment company that we believe will continue to gain share in the growing consumer market.
The consumer solutions business offers water treatment and filtration equipment, aftermarket supply of
consumables and services to end users in homes and offices worldwide. Our product offering includes whole-house

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softening, drinking water systems and problem water solutions, each custom-tailored by highly trained technicians
to local water conditions. The Companys products are supported by value-added services, including water testing,
installation, ongoing repair and maintenance, filter changes and supply of consumables such as salt, which provide a
stable recurring revenue stream.
The Company offers its consumer solutions predominantly through a global distribution network that
includes franchisees, company-owned dealers and licensees. With approximately 900 Culligan-branded locations,
1,000 highly trained sales representatives and 4,100 customer service representatives and technicians worldwide as
of March 31, 2012, the Companys network has enabled us to establish an installed base of over two and half million
consumer solutions customers. These customers are reached through our high-touch sales and service model that
provides end user knowledge for tailoring solutions.
C&I solutions business
Leveraging our consumer-oriented roots, Culligans C&I water treatment history dates back to 1940. More
than just a vendor of products, Culligans C&I solutions business offers customized water treatment solutions to
businesses globally, with global brand equity and recognized expertise across geographies, end markets and
applications. Culligans product offering, which addresses customer needs, includes pre-treatment, membrane and
de-ionization systems, storage and distribution equipment, and is typically packaged by Culligan into a complete
turn-key solution with controls, instrumentation and skid mounting. Our C&I products are typically backed by a full
range of services including installation, maintenance, extended service contracts, spare parts and specialty chemicals
supply.
Culligans C&I business is well positioned as a global player with the scale, service network and brand
recognition to cover large, multi-location corporate accounts, but with the agility to maintain industry leading speed
to market (time to bid / order to ship) and customization a unique advantage compared to other key competitors.
Culligan seeks projects where we are able to provide the most value-added customized equipment and engineering
expertise, and as such, does not generally engage in large, project oriented construction bids.
Culligans global C&I sales are driven by a dedicated direct sales force, with the support of a highly
engaged franchisee and licensee network. As of March 31, 2012, our direct sales force consisted of 62 experienced
global representatives, the majority of which have engineering backgrounds, providing the know-how and domain
expertise to offer the customized solutions that major industrial clients require. In addition, as of March 31, 2012,
142 of Culligans 753 global franchisees had strong C&I businesses that provide access to industrial accounts in
certain geographies as well as the on-the-ground presence to service multi-location light commercial accounts such
as restaurants, hotels and retailers. Finally, as of March 31, 2012, Culligan had 94 licensees focused on C&I
solutions in 79 countries.
Existing Credit Facilities
If we do not complete the Restructuring either through the Recapitalization Plan or the Pre-Packaged Plan
we anticipate that we will not be able to meet our secured debt obligations, all of which mature in the next twelve
months. In addition, we have received a going concern qualification from our auditors in connection with our
required delivery of audited annual financial statements under the Existing Credit Facilities, which would, absent a
waiver, trigger a default under each of our Existing Credit Facilities. Although the Existing Lenders have agreed in
the Waivers to waive defaults related to the going concern qualification so long as the Restructuring Support
Agreement remains in effect (with an outside date of June 29, 2012), the Waivers may terminate if the milestones set
forth in the Restructuring Support Agreement are not met, including the completion of the Recapitalization Plan or
the Pre-Packaged Plan in the timeframe set out in the Restructuring Support Agreement. If the Waivers terminate or
if new defaults occur under the Existing Credit Facilities, then the lenders under each of the Existing Credit
Facilities may cause the acceleration of each of the amounts owed thereunder.
If all the indebtedness under the Existing Credit Facilities, a principal amount which totaled an estimated
$768 million as of March 31, 2012, becomes immediately due and payable (as would be the case in the event of an
acceleration of the obligations under the Existing Credit Facilities), we do not expect, and we cannot assure you, that
we will have, or have access to, sufficient liquidity to meet our debt repayment obligations. Such an acceleration

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would result in a further material adverse effect on our financial condition, operations and debt service capabilities.
As of March 31, 2012, we had an estimated $135 million of Cash with which to satisfy these obligations, and we
believe the Company has no ability to obtain the necessary additional funds in the capital markets. If the Company
is unable to repay the obligations under the Existing Credit Facilities upon an acceleration, the agents and lenders
under those facilities could exercise their remedies as secured creditors with respect to the collateral securing such
borrowings.
In the event that we experience the series of events outlined above, we will have an immediate need to
pursue other alternatives, including commencing chapter 11 cases on terms other than as contemplated by the PrePackaged Plan. Based upon our efforts to identify alternatives to the Restructuring described under The
RestructuringBackground to the Restructuring, we do not expect, and there can be no assurance, that any
alternative to such bankruptcy filing would be found. If we commence such a bankruptcy filing, the First Lien
Lenders, Second Lien Lenders, Current Employees, Former Employees and Existing Equityholder may receive
consideration that is substantially less than what is being offered under the Restructuring. See Risk FactorsRisks
Relating to Not Consenting to the Offerings or Voting Against the Pre-Packaged Plan, which begins on page 34.
B.

De-Leveraging

We believe that the completion of the Restructuring through the Recapitalization Plan, or, in the alternative,
through the Pre-Packaged Plan, is critical to our continuing viability. The Restructuring, if successful, will reduce
the amount of our outstanding indebtedness, and we believe this improvement in our balance sheet will enable us to
continue as a leader in our industry. Specifically, upon the completion of the Restructuring, we expect our
indebtedness to be reduced from an estimated $769 million as of March 31, 2012 to an estimated $376 million at the
closing of the Restructuring, consisting of an estimated $1 million in capital lease obligations and other
indebtedness, approximately $180 million in principal amount under the Amended First Lien Facility (with a fiveand-one-half year maturity), $175 million under the New Second Lien Facility (with a six year maturity), an
estimated $10.5 million under the New Bridge Loan (with a six-and-one-half year maturity) and $10 million of loans
out of a commitment of $50 million under the New Revolving Facility (with a five year maturity). The amounts that
will be outstanding under the Amended First Lien Facility and the New Bridge Loan are subject to adjustment as
described herein. See The Post-Restructuring Debt Facilities, which begins on 186.

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THE RESTRUCTURING
The Restructuring.................................

The Restructuring consists of the transactions described in this Offering

Memorandum and Disclosure Statement.
The Restructuring may be accomplished either through the
Recapitalization Plan or, in the alternative, the Pre-Packaged Plan. See
The Restructuring, which begins on page 63.

Pro Forma Equity Capitalization ........

Assuming that we complete the Restructuring on the terms described in

this Offering Memorandum and Disclosure Statement, and based on a
Rights Offering of $104.5 million and the assumption that all Second
Lien Lenders (other than Centerbridge) will opt to receive Cash rather
than NewCo Stock in the Second Lien Exchange Offer, at the closing of,
and after giving effect to, the Restructuring:
x The Second Lien Lenders will receive 47.64% of the NewCo
Stock;
x The Second Lien Lenders will have the opportunity to purchase
an additional 49.65% of NewCo Stock in the Rights Offering;
x The holders of Current Employee Deferred Bonus Obligations
will receive 0.44% of NewCo Stock; and
x The Existing Equityholder will hold 2.27% of NewCo Stock,
which is then intended to be distributed to existing holders of
equity in Culligan Ltd.
All of these holdings in NewCo Stock will be subject to adjustment as
set forth in The RestructuringPotential Adjustments to Equity
Ownership, which begins on page 68, and to dilution on account of
stock issued under the Management Incentive Plan, described below.
See Capitalization, The Second Lien Exchange Offer and The
RestructuringPotential Adjustments to Equity Ownership, which
begin on pages 61, 79 and 68 respectively.

Restructuring Support Agreement......

Pursuant to the Restructuring Support Agreement, the Lenders

(including the Initial Lenders) party thereto have agreed to, among other
things (a) participate in the Restructuring on the terms set forth in the
Restructuring Support Agreement, by, among other things, consenting to
the proposed treatment of the First Lien Debt and Second Lien Debt in
the Recapitalization Plan and agreeing not to withdraw such consent,
and (b) vote all of their First Lien Debt and Second Lien Debt in favor
of the Pre-Packaged Plan subject to the terms thereof. So long as the
Restructuring Support Agreement remains in effect, each of the parties
to the Restructuring Support Agreement has agreed to use commercially
reasonable efforts to support and complete the Restructuring. See The
RestructuringThe Restructuring Support Agreement, which begins
on page 66.

Pro Forma Indebtedness ......................

Assuming that we complete the Restructuring on the terms described in

this Offering Memorandum and Disclosure Statement, following the
Restructuring, we will be obligated under the following PostRestructuring Debt Facilities:
x The Amended First Lien Facility in a principal amount of
approximately $180 million.
x $10 million of loans out of a $50 million commitment under the
New Revolving Facility.
x The New Second Lien Facility in a principal amount of $175

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million.
The New Bridge Loan in an estimated principal amount of
$10.5 million.

See Post-Restructuring Debt Facilities, which begins on page 186.

Current Employee Deferred Bonus
Obligations.............................................

We are seeking separate consent, pursuant to the Deferred Bonus

Modification Agreement, from holders of Current Employee Deferred
Bonus Obligations to satisfy such obligations by delivering (a) 50% of
the face amount of such obligations (net of applicable withholding taxes)
in the form of NewCo Stock, and (b) 50% of the face amount of such
obligations (net of applicable withholding taxes) in the form of Cash, in
full satisfaction of such obligations. See Current Employee Deferred
Bonus Modification, which begins on page 84.

Former Employee Deferred Bonus

Obligations.............................................

We are seeking separate consent, pursuant to the Deferred Bonus

Modification Agreement, from holders of Former Employee Deferred
Bonus Obligations to satisfy such obligations by delivering, at the option
of each Former Employee, either (a) 80% of the face amount of such
obligation (net of applicable withholding taxes) in Cash or (b) a
combination of (i) 50% of the face amount of such obligation (net of
applicable withholding taxes) in Cash, and (ii) 50% of the face amount
of such obligation (net of applicable withholding taxes) in the form of
the Former Employee Note Amount in full satisfaction of such
obligations. See Former Employee Deferred Bonus Modification,
which begins on page 88.

Rights Offering; Backstop

Agreement..............................................

Pursuant to the Restructuring, each Second Lien Lender will receive

rights to purchase its Pro Rata portion of 49.65% of the NewCo Stock
and to subscribe to its Pro Rata portion of the New Bridge Loan that will
have an estimated principal amount of $10.5 million (each subject to
adjustment as set forth in The RestructuringPotential Adjustments to
Equity Ownership, which begins on page 68). The Backstop Parties,
for no fee, have agreed, pursuant to the Backstop Agreement and subject
to the conditions thereof, to purchase all shares of NewCo Stock and
subscribe for all amounts of the New Bridge Loan that are offered but
unsubscribed in the Rights Offering.

Certain U.S. Federal Income Tax

Considerations.......................................

For a discussion of certain U.S. federal income tax considerations for

certain holders of the First Lien Debt or the Second Lien Debt and for
Current Employees and Former Employees, see Certain U.S. Federal
Income Tax Considerations Relating to Certain Holders of the First Lien
Debt or the Second Lien Debt and the Debtors on page 193 and
Certain U.S. Federal Income Tax Considerations Relating to Current
Employees and Former Employees on page 201.

Management Incentive Plan.................

Up to 15% of NewCo Stock will be reserved for issuance as grants of

options, stock, restricted stock or similar equity awards in connection
with a Management Incentive Plan. The Management Incentive Plan
will be adopted on or after the Effective Date of the Restructuring by the
New Board of Directors of NewCo for the benefit of members of
management, employees and directors of NewCo as designated by the
initial board. Any issuance of stock, restricted stock or similar equity
awards in connection with the Management Incentive Plan will have the
effect of diluting all other equity holdings.

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Fees and Expenses.................................

In connection with the Restructuring, the Company will pay certain

reasonable and documented fees and expenses of the Initial Lenders, the
First Lien Agent and the Second Lien Agent, including the costs of
certain legal and financial advisors, all as more fully set forth in the
Restructuring Support Agreement.

Risk Factors...........................................

You should carefully consider the matters described in this Offering

Memorandum and Disclosure Statement under Risk Factors beginning
on page 34.

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The Recapitalization Plan

The Recapitalization Plan ....................

The Recapitalization Plan is one of two possible methods to accomplish

the Restructuring. Under the Recapitalization Plan, the First Lien
Lenders and the Second Lien Lenders are being asked to consent to the
proposed treatments described in more detail in this Offering
Memorandum and Disclosure Statement. The Current Employees and
Former Employees are being separately asked to consent to the proposed
treatment set forth in the Deferred Modification Agreement.
The closing of the Recapitalization Plan is conditioned upon, among
other things, 100% consent of the First Lien Lenders and the Second
Lien Lenders. In the event we do not receive the required threshold of
participation from the First Lien Lenders and the Second Lien Lenders,
we may commence chapter 11 cases to accomplish the Restructuring
through the Pre-Packaged Plan.

Record Date ...........................................

The record date for determining eligibility to participate in the

Recapitalization Plan is May 14, 2012.

Conditions to the Effective Date of the

Recapitalization Plan ............................

The effectiveness of the Recapitalization Plan is contingent upon the

satisfaction or waiver of each of the following conditions, as further set
forth in the Restructuring Support Agreement:

23633137v19

All documents required to be executed in connection with the

Post-Restructuring Debt Facilities have been executed and all
conditions to the effectiveness thereof having been satisfied
(other than the occurrence of the Effective Date) or having been
waived in accordance with the applicable terms thereunder.

100% of the First Lien Lenders and the Second Lien Lenders
having consented to the First Lien Exchange Offer and the
Second Lien Exchange Offer, respectively.

All fees contemplated to be paid pursuant to the

Recapitalization Plan having been paid or being paid
substantially contemporaneously with the consummation of the
other transactions contemplated by the Restructuring.

The Restructuring Support Agreement being in full force and

effect;

All of the Current Employees and Former Employees having

executed Deferred Bonus Modification Agreements;

Each of the Transaction Documents, as defined in the

Restructuring Support Agreement, being in full force and
effect, as and to the extent set forth in the Restructuring Support
Agreement.

The Rights Offering having been completed and/or being

completed substantially contemporaneously with the Effective
Date of the Recapitalization Plan in an aggregate amount not
less than $90 million.

The Backstop Purchasers having satisfied all of their

21

obligations under the Backstop Agreement substantially

contemporaneously with the Effective Date of the
Recapitalization Plan.
x

Immediately prior to the Effective Date, Culligan Investments

and its subsidiaries having at least $92 million (or $90 million,
if the Effective Date occurs after May 31, 2012 but on or before
June 30, 2012) in Available Cash (as defined in the
Restructuring Support Agreement), as set forth, and to be used
as provided, in the Restructuring Support Agreement.

No court of competent jurisdiction or other competent

governmental or regulatory authority having issued a final and
non-appealable order making illegal or otherwise restricting,
preventing or prohibiting the consummation of the
Restructuring Support Agreement.

Upon the Effective Date and immediately after giving effect to

the transactions contemplated by the Restructuring, NewCo and
its subsidiaries having at least $21 million in Minimum Cash
(as such term is defined in the Restructuring Support
Agreement) (the Cash Condition).

Any required approvals under the Hart-Scott-Rodino Antitrust

Improvements Act of 1976 having been obtained.

To the extent necessary, any approvals, consents, notices or

filings required under any foreign anti-trust, competition or
similar laws having been obtained or made.

The Company and/or one or both of the Initial Lenders, to the extent set
forth in the Restructuring Support Agreement, may waive the conditions
set forth above at any time.

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The First Lien Exchange Offer in the Recapitalization Plan

The First Lien Exchange Offer ..............

We are offering to exchange each First Lien Lenders First Lien Debt
for a Pro Rata share of the First Lien Paydown, the New Second Lien
Facility and the Amended First Lien Facility.

Expiration Date; Withdrawal Rights ....

The First Lien Exchange Offer will expire at 5:00 PM, Eastern
Daylight Time on May 30, 2012, unless extended or earlier terminated
by us with the consent of the Initial Lenders. Consents to the First
Lien Exchange Offer may not be withdrawn once submitted. See The
First Lien Exchange Offer No Withdrawal Rights, which begins on
page 77.

Conditions to the Exchange Offer .........

The Companys obligation to exchange First Lien Debt pursuant to the

First Lien Exchange Offer is conditioned upon (a) 100% of First Lien
Lenders consenting to the First Lien Exchange Offer, (b) 100% of the
Second Lien Lenders consenting to the Second Lien Exchange Offer
and (c) consummation of the transactions contemplated by the
Recapitalization Plan on or substantially contemporaneous with the
Effective Date.

Releases ....................................................

By consenting to the First Lien Exchange Offer, all consenting First

Lien Lenders will, to the fullest extent permitted by applicable law,
release from liability the Released Parties from the Released Claims,
except for any claims and causes of action for fraud, gross negligence
or willful misconduct. Notwithstanding anything to the contrary in the
foregoing, the release set forth above does not release any postEffective Date obligations of any Released Party under the First Lien
Exchange Offer, the Amended First Lien Facility, the New Second
Lien Facility or any other transaction contemplated by the
Recapitalization Plan. See The First Lien Exchange Offer
Releases, which begins on page 76.
In consideration for each First Lien Lenders and the Initial Lenders
consent to the First Lien Exchange Offer, the Company will, to the
fullest extent permitted by applicable law, release from liability each
such First Lien Lender, the Initial Lenders and the Backstop Purchasers
(all in their capacities as such) and each of their respective current and
former direct and indirect equityholders, members, partners,
subsidiaries, affiliates, funds, managers, managing members, officers,
directors, employees, advisors, principals, attorneys, professionals,
accountants, investment bankers, consultants, agents, and other
representatives (including their respective equityholders, members,
partners, subsidiaries, affiliates, funds, managers, managing members,
officers, directors, employees, advisors, principals, attorneys,
professionals, accountants, investment bankers, consultants, agents,
and other representatives) from the Released Claims, except for any
claims and causes of action for fraud, gross negligence or willful
misconduct.
Notwithstanding anything to the contrary in the
foregoing, the release set forth above does not release any postEffective Date obligations of any First Lien Lender, Initial Lender or
Backstop Purchaser under the First Lien Exchange Offer, the Amended
First Lien Facility, the New Second Lien Facility or any other
transaction contemplated by the Recapitalization Plan. See The First
Lien Exchange OfferReleases, which begins on page 76.

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Use of Proceeds........................................

We will not receive any Cash proceeds from the First Lien Exchange
Offer. See Use of Proceeds, which begins on page 60.

Further Information ...............................

Additional copies of this Offering Memorandum and Disclosure

Statement may be obtained by contacting the Solicitation, Voting and
Exchange Agent, at the address and telephone numbers set forth on the
back cover of this Offering Memorandum and Disclosure Statement.

Solicitation, Voting and Exchange

Agent ........................................................

The Garden City Group, Inc.

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The Second Lien Exchange Offer in the Recapitalization Plan

The Second Lien Exchange Offer ........

We are offering to exchange each Second Lien Lenders Second Lien

Debt for (a) at the Second Lien Lenders option, either a Pro Rata share
of 47.64% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68)
of NewCo Stock, or a Cash payment of $0.30 for every $1.00 of
Second Lien Debt (calculated as set forth in The Second Lien
Exchange OfferCalculation of Cash Election with respect to Second
Lien Debt, which begins on page 83), and (b) rights to purchase a Pro
Rata portion of 49.65% of the NewCo Stock and to subscribe to a Pro
Rata portion of a New Bridge Loan in an estimated principal amount of
$10.5 million pursuant to the Rights Offering (subject to adjustments
as set forth herein). See The RestructuringPotential Adjustments to
Equity Ownership, which begins on page 68. Centerbridge, in its
capacity as a Second Lien Lender, has elected to receive NewCo Stock,
rather than a Cash payment, under the Second Lien Exchange Offer.

Expiration Date;
Withdrawal Rights................................

The Second Lien Exchange Offer will expire at 5:00 PM, Eastern
Daylight Time on May 30, 2012, unless extended or earlier terminated
by us with the consent of the Initial Lenders. Consents to the Second
Lien Exchange Offer may not be withdrawn once submitted. See The
Second Lien Exchange Offer No Withdrawal Rights, which begins
on page 82.

Conditions to the Exchange Offer .......

The Companys obligation to exchange Second Lien Debt pursuant to

the Second Lien Exchange Offer is conditioned upon (a) 100% of First
Lien Lenders consenting to the First Lien Exchange Offer, (b) 100% of
the Second Lien Lenders consenting to the Second Lien Exchange
Offer and (c) consummation of the transactions contemplated by the
Recapitalization Plan on or substantially contemporaneous with the
Effective Date.

Releases ..................................................

By consenting to the Second Lien Exchange Offer, all consenting

holders of Second Lien Debt will, to the fullest extent permitted by
applicable law, release from liability the Released Parties from the
Released Claims, except for any claims and causes of action for fraud,
gross negligence or willful misconduct. Notwithstanding anything to
the contrary in the foregoing, the release set forth above does not
release any post-Effective Date obligations of any Released Party
under the Second Lien Exchange Offer, the Rights Offering or the
Backstop Agreement or any other transaction contemplated by the
Recapitalization Plan. See The Second Lien Exchange Offer
Releases, which begins on page 79.
In consideration for each Second Lien Lenders and the Initial Lenders
consent to the Second Lien Exchange Offer, the Company will, to the
fullest extent permitted by applicable law, release from liability each
such Second Lien Lender, the Initial Lenders and the Backstop
Purchasers (all in their capacities as such) and all of their respective
current and former direct and indirect equityholders, members,
partners, subsidiaries, affiliates, funds, managers, managing members,
officers, directors, employees, advisors, principals, attorneys,
professionals, accountants, investment bankers, consultants, agents,
and other representatives (including their respective equityholders,
members, partners, subsidiaries, affiliates, funds, managers, managing

23633137v19

25

members, officers, directors, employees, advisors, principals,

attorneys, professionals, accountants, investment bankers, consultants,
agents, and other representatives) from the Released Claims, except for
any claims and causes of action for fraud, gross negligence or willful
misconduct.
Notwithstanding anything to the contrary in the
foregoing, the release set forth above does not release any postEffective Date obligations of any Second Lien Lender, Initial Lender
or Backstop Purchaser under the Second Lien Exchange Offer, the
Rights Offering or the Backstop Agreement or any other transaction
contemplated by the Recapitalization Plan. See The Second Lien
Exchange OfferReleases, which begins on page 79
Use of Proceeds......................................

We anticipate that the Rights Offering will result in net proceeds of up

to $104.5 million, subject to downward adjustment as a result of the
RO Reduction, which is described in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68. The net
proceeds of the Rights Offering will be used to fund the cash-out
option under the Second Lien Exchange Offer, Cash payments made in
connection with the Deferred Bonus Modifications, the First Lien
Paydown, the payment of fees and expenses incurred in connection
with the Restructuring, and for working capital and other general
corporate purposes of the Company. See Use of Proceeds, which
begins on page 60.

Further Information .............................

Additional copies of this Offering Memorandum and Disclosure

Statement may be obtained by contacting the Solicitation, Voting and
Exchange Agent at the address and telephone numbers set forth on the
back cover of this Offering Memorandum and Disclosure Statement.

Solicitation, Voting and Exchange

Agent ......................................................

The Garden City Group, Inc.

Accredited Investors .............................

The Second Lien Exchange Offer is only being made to persons who
are accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act. Pursuant to the consent form
with respect to the Second Lien Exchange Offer, each Second Lien
Lender participating in the Second Lien Exchange Offer will represent
that it is an accredited investor pursuant to Rule 501 of Regulation
D.

Transfer Restrictions ............................

The NewCo Stock is being offered and sold pursuant to exemptions

from registration under U.S. and applicable state securities laws. The
NewCo Stock has not been registered under the Securities Act, any
state securities laws or any other applicable foreign securities laws and
we do not intend to register the NewCo Stock under the Securities Act
or any such other laws. Therefore, the holders of the NewCo Stock
will hold restricted stock and may transfer or resell their NewCo Stock
only in a transaction exempt from the registration requirements of the
U.S. and applicable state or other foreign securities laws in addition to
other transfer restrictions imposed by the Amended and Restated
Memorandum and Articles of Association of NewCo, and all holders
of the NewCo Stock may be required to bear the risk of their
investment for an indefinite period of time. This risk may be
exacerbated by the absence of registration rights for the holders of the
NewCo Stock. See Description of NewCo Stock, which starts on
page 182.

23633137v19

26

U.S. Federal Income Tax Treatment of

NewCo

23633137v19

We intend to treat NewCo as a partnership for U.S. federal income tax

purposes. As a partnership, NewCo generally will not be subject to
U.S. federal income tax, and a holder of NewCo Stock generally will
be required to take into account its distributive share, whether or not
distributed, of the items of income, gain, loss, deduction and credit of
NewCo in determining its U.S. federal income tax liability, if any. See
Certain U.S. Federal Income Tax Considerations Relating to Certain
Holders of the First Lien Debt or the Second Lien Debt and the
Debtors, beginning at page 193 for a discussion of certain U.S. federal
income tax considerations relating to an investment in NewCo Stock.
This summary is not intended or written to be used, and cannot be used
by the taxpayer, for the purpose of avoiding penalties that may be
imposed on the taxpayer under U.S. federal tax law. This summary is
written to support the promotion or marketing of the transactions or
matters addressed herein, and the taxpayer should seek advice based on
its particular circumstances from an independent tax advisor.

27

Current Employee Deferred Bonus Modifications

The Current Employee
Deferred Bonus Modification...............

We are separately requesting that each Current Employee consent,

pursuant to the Deferred Modification Agreement, to the full and final
satisfaction, settlement, release and discharge of such Current
Employees Current Employee Deferred Bonus Obligations through
the delivery of (a) 50% of the face amount of such obligations (net of
applicable withholding taxes) in the form of NewCo Stock, and (b)
50% of the face amount of such obligations (net of applicable
withholding taxes) in the form of Cash.
For a description of the terms of the proposed treatment of Current
Employee Deferred Bonus Obligations, see The Current Employee
Deferred Bonus Modifications, which begins on page 84.

Releases ..................................................

All Current Employees consenting to the Current Employee Deferred

Bonus Modification by executing the Deferred Bonus Modification
Agreement will release the Released Parties from any claims and
causes of action in connection with or arising from the Current
Employee Deferred Bonus Obligations or the Special Bonus Plan.

Further Information .............................

Additional copies of this Offering Memorandum and Disclosure

Statement and the Deferred Modification Agreement may be obtained
by contacting the Solicitation, Voting and Exchange Agent, at the
address and telephone numbers set forth on the back cover of this
Offering Memorandum and Disclosure Statement.

Solicitation, Voting and Exchange

Agent ......................................................

The Garden City Group, Inc.

Transfer Restrictions ............................

The NewCo Stock is being offered and sold pursuant to an exemption

from registration under U.S. and applicable state securities laws. The
NewCo Stock has not been registered under the Securities Act, any
state securities laws or any other applicable foreign securities laws and
we do not intend to register the NewCo Stock under the Securities Act
or any such other laws. Therefore, the holders of the NewCo Stock
will hold restricted stock and may transfer or resell their NewCo Stock
only in a transaction exempt from the registration requirements of the
U.S. and applicable state or other foreign securities laws in addition to
other transfer restrictions imposed by the Memorandum and Articles,
and all holders of the NewCo Stock may be required to bear the risk of
their investment for an indefinite period of time. This risk may be
exacerbated by the absence of registration rights for the holders of the
NewCo Stock. See Description of NewCo Stock, which starts on
page 182.
Additionally, the shares of NewCo Stock that will be separately
delivered to Current Employees in connection with the Current
Employee Deferred Bonus Modification are subject to substantial
restrictions on transfer. The Current Employee may not sell, transfer,
assign, gift, pledge, grant a security interest in, distribute, encumber,
hypothecate or otherwise dispose of the shares of NewCo Stock, and
any attempted sale, transfer or other distribution will be null and void.
These restrictions will lapse if the NewCo Stock becomes publicly
traded on an established securities exchange, subject to any applicable

23633137v19

28

lock-up restrictions in connection with the shares becoming publicly

traded and any continuing transfer restrictions imposed by the
Memorandum and Articles; however, the Company has no current
plans to complete a public offering and may never do so. See The
Current Employee Deferred Bonus Modification, which starts on page
84.

U.S. Federal Income Tax Treatment of

NewCo

23633137v19

We intend to treat NewCo as a partnership for U.S. federal income tax

purposes. As a partnership, NewCo generally will not be subject to
U.S. federal income tax, and a holder of NewCo Stock generally will
be required to take into account its distributive share, whether or not
distributed, of the items of income, gain, loss, deduction and credit of
NewCo in determining its U.S. federal income tax liability, if any. See
Certain U.S. Federal Income Tax Considerations Relating to Current
Employees and Former Employees, which begins on page 201, for a
discussion of certain U.S. federal income tax considerations relating to
an investment in NewCo Stock.
This summary is not intended or written to be used, and cannot be used
by the taxpayer, for the purpose of avoiding penalties that may be
imposed on the taxpayer under U.S. federal tax law. This summary is
written to support the promotion or marketing of the transactions or
matters addressed herein, and the taxpayer should seek advice based on
its particular circumstances from an independent tax advisor.

29

Former Employee Deferred Bonus Modification

The Former Employee Deferred Bonus
Modification ..........................................

We are separately requesting that each Former Employee consents,

pursuant to the Deferred Bonus Modification Agreement, to the full
and final satisfaction, settlement, release and discharge of each Former
Employee Deferred Bonus Obligation through the delivery to such
Former Employee of, at his or her option, either (a) 80% of the face
amount of such obligation (net of applicable withholding taxes) in
Cash or (b) a combination of (i) 50% of the face amount of such
obligation (net of applicable withholding taxes) in Cash, and (ii) 50%
of the face amount of such obligation (net of applicable withholding
taxes) in the form of the Former Employee Note Amount.
For a description of the terms of the proposed treatment of Former
Employee Deferred Bonus Obligations, see The Former Employee
Deferred Bonus Modification, which begins on page 88.

Releases ..................................................

All Former Employees consenting to the separate Former Employee

Deferred Bonus Modification by executing the Deferred Bonus
Modification Agreement and submitting their election thereunder will
release the Released Parties from any claims and causes of action in
connection with or arising from the Former Employee Deferred Bonus
Obligations, the Special Bonus Plan or any applicable Equity
Separation Agreement.

Further Information .............................

Additional copies of this Offering Memorandum and Disclosure

Statement and the Deferred Bonus Modification Agreement may be
obtained by contacting the Solicitation, Voting and Exchange Agent, at
the address and telephone numbers set forth on the back cover of this
Offering Memorandum and Disclosure Statement.

Solicitation, Voting and Exchange

Agent ......................................................

The Garden City Group, Inc.

23633137v19

30

The Pre-Packaged Plan

The Pre-Packaged Plan ........................

We have prepared the Pre-Packaged Plan as an alternative to the

Recapitalization Plan for accomplishing the Restructuring if we do not
receive 100% consent to the First Lien Exchange Offer and the Second
Lien Exchange Offer.
Holders of First Lien Debt, Second Lien Debt, Current Employee
Deferred Bonus Obligations, Former Employee Deferred Bonus
Obligations and Existing Equity Interests will receive the same treatment
under the Pre-Packaged Plan as contemplated by the out-of-court
Recapitalization Plan, except that holders of Second Lien Debt will not
have the option of receiving $.30 in Cash for every $1.00 of their
outstanding Second Lien Debt under the Pre-Packaged Plan. See The
Pre-Packaged Plan, which begins on page 91.
If we do not receive sufficient acceptances to allow the Pre-Packaged
Plan to be confirmed under the Bankruptcy Code, the Pre-Packaged Plan
will not be confirmed or become effective. In that event, we anticipate
that we will face problems with respect to our ability to meet our secured
debt obligations and we may be forced to file for chapter 11 on terms
other than those contemplated by the Pre-Packaged Plan.

Voting Record Date...............................

The voting record date for determining the holders of claims entitled to
vote on the Pre-Packaged Plan is May 14, 2012. See The Pre-Packaged
PlanHolders of Claims Entitled to Vote; Voting Record Date, which
begins on page 97. For purposes of determining the U.S. dollar value of
any Euro claims for voting purposes only (and not for distribution
purposes), such claims will be converted at a rate of $1.2936 to 1, the
exchange rate as of May 10, 2012.

Conditions to the Effective Date of the

Pre-Packaged Plan ................................

The effectiveness of the Pre-Packaged Plan is contingent upon the

satisfaction or waiver of each of the following conditions:

23633137v19

The Pre-Packaged Plan and the Plan Supplement, including any

schedules, documents, supplements and exhibits being in form
and substance acceptable to the Debtors and the Initial Lenders,
in each case, to the extent set forth in the Restructuring Support
Agreement.

The Bankruptcy Court having entered one or more Final Orders

(which may include the Confirmation Order) authorizing the
assumption and rejection of executory contracts and unexpired
leases by the Debtors.

The Confirmation Order having become a Final Order in form

and substance acceptable to the Debtors and the Initial Lenders.

The documents required to be executed in connection with the

Post-Restructuring Debt Facilities having been executed and all
conditions to the effectiveness thereof having been satisfied
(other than the occurrence of the Effective Date) or have been
waived in accordance with the applicable terms thereunder.

All fees contemplated to be paid pursuant to the Pre-Packaged

Plan having been paid or being paid on the Effective Date
without any requirement of the filing of fee or retention
31

applications in the Chapter 11 Cases.

x

The Restructuring Support Agreement being in full force and

effect;

Each of the Transaction Documents, as defined in the

Restructuring Support Agreement, being in full force and
effect, as and to the extent set forth in the Restructuring
Support Agreement.

The Rights Offering having been completed and/or completed

substantially contemporaneously with the Effective Date of the
Pre-Packaged Plan in an aggregate amount of not less than
$101 million, less the aggregate amount of the RO Reduction
described in clause (1) of The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68,
under the heading RO Reduction, or a greater amount in
Centerbridges sole discretion.

The Backstop Purchasers having satisfied all of their

obligations under the Backstop Agreement substantially
contemporaneously with the Effective Date of the PrePackaged Plan.

Immediately prior to the Effective Date, Culligan Investments

and its subsidiaries having at least $92 million (or $90 million,
if the Effective Date occurs after May 31, 2012 but on or before
June 30, 2012) in Available Cash (as defined in the
Restructuring Support Agreement), as set forth, and to be used
as provided, in the Restructuring Support Agreement.

The Cash Condition.

Any required approvals under the Hart-Scott-Rodino Antitrust

Improvements Act of 1976 having been obtained.

To the extent necessary, any approvals, consents, notices or

filings required under any foreign anti-trust, competition or
similar laws having been obtained or made.

The Effective Date occurring no later than the date that is thirty
(30) calendar days following entry by the Bankruptcy Court of
the Confirmation Order.

Subject in all respects to the rights or limitations contained in the

Restructuring Support Agreement, the Debtors, with the consent of the
Initial Lenders, may waive the conditions set forth above at any time,
without notice, leave or order of the Bankruptcy Court, and without any
formal action other than proceeding to consummate the Pre-Packaged
Plan.
Transfer Restrictions ............................

23633137v19

If the Restructuring is accomplished through the Pre-Packaged Plan, we

expect that the Confirmation Order will provide that the issuance of the
NewCo Stock distributed under the Pre-Packaged Plan will be exempt
from the registration requirements of the Securities Act in accordance
with Section 1145 of the Bankruptcy Code and therefore will be freely
transferable by most recipients thereof, and all resales and subsequent
32

transactions involving the NewCo Stock will be exempt from

registration under federal and state securities laws, unless the holder is
an underwriter with respect to such securities. In addition, the
Memorandum and Articles contain certain provisions that restrict the
transfer of the NewCo Stock. Therefore, all holders of the NewCo Stock
may be required to bear the risk of their investment for an indefinite
period of time. See Description of NewCo StockTransfer
Restrictions, which begins on page 183
Solicitation, Voting and Exchange
Agent ......................................................

23633137v19

The Garden City Group, Inc.

33

IV.

RISK FACTORS

Before you participate in the Offerings or vote on the Pre-Packaged Plan, you should carefully consider
the risks and uncertainties described below. The risks described below are not the only ones facing our business or
investments in companies similar to ours in general. Additional risks not presently known to us or which we
currently deem immaterial may also impair our business. If one or more of these risks actually occurs, it could have
a material adverse effect on our business, financial position or results of operations, and you could lose all or a part
of your investment.
This Offering Memorandum and Disclosure Statement also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forwardlooking statements as a result of certain factors, including the risks we face described below and elsewhere in this
Offering Memorandum and Disclosure Statement. See Cautionary Statement Regarding Forward-Looking
Statements, which begins on page 59.
A.

Risks Relating to the Restructuring Not Being Consummated

The Restructuring Support Agreement may terminate.

The Restructuring Support Agreement may terminate if, among other things, termination events occur,
including if timing milestones are not met, or if the conditions precedent to the respective parties obligations to
support the Restructuring are not satisfied in accordance with the terms of such agreement. If the Restructuring
Support Agreement is terminated, we may not be able to obtain the support of the Initial Lenders required to
consummate the Recapitalization Plan or the Pre-Packaged Plan. See RestructuringRestructuring Support
Agreement, which begins on page 66.
The Backstop Agreement may terminate.
The Backstop Agreement may terminate if, among other things, certain conditions precedent to the
respective parties obligations are not satisfied in accordance with the terms of such agreement or the termination
events set forth therein occur. If the Backstop Agreement is terminated, we may not be able to raise the proceeds
necessary to fund our cash obligations under either the Recapitalization Plan or the Pre-Packaged Plan and the
Restructuring would not be consummated. See RestructuringBackstop Agreement, which begins on page 66.
We may not be able to meet conditions to closing for the Post-Restructuring Debt Facilities.
The commitment that we have obtained for the New Revolving Facility contains a number of conditions
precedent, including the absence of any material disruption or material adverse change in the financial, banking or
capital markets prior to the funding of such facility and the satisfaction of a minimum pro forma EBITDA condition.
If we are unable to meet these conditions, we may not be able to refinance the Revolving Debt with the New
Revolving Facility and we may not be able to consummate the Restructuring.
B.

Risks Relating to Not Consenting to the Offerings or Voting Against the Pre-Packaged Plan

If the conditions to the Restructuring are not met and we cannot implement the out-of-court Recapitalization
Plan, there nonetheless may be sufficient votes to accept the Pre-Packaged Plan to accomplish the
Restructuring.
The consummation of the Recapitalization Plan is subject to the satisfaction or, where possible, waiver of
several conditions. If we are not able to complete the Recapitalization Plan out-of-court because any condition is
not met or waived or for any other reason, but we receive the requisite acceptances to allow the Pre-Packaged Plan
to be confirmed under the Bankruptcy Code, as an alternative to the Recapitalization Plan, we may, subject to the
terms of the Restructuring Support Agreement, seek confirmation of the Pre-Packaged Plan through the chapter 11
cases.

23633137v19

34

To obtain confirmation of the Pre-Packaged Plan (without utilizing the cramdown provision of section
1129(b) of the Bankruptcy Code), each class of claims or interests that is impaired must vote to accept the PrePackaged Plan. An impaired class of claims (such as First Lien Lender Claims, Second Lien Lender Claims or
Deferred Bonus Claims) is deemed to accept a plan of reorganization if the holders of at least two-thirds in amount
and more than one-half in number of the claims in such class who actually cast ballots vote to accept the PrePackaged Plan. An impaired class of interests, such as Existing Equity Interests, is deemed to accept a plan of
reorganization if the holders of at least two-thirds in amount who actually cast ballots vote to accept the PrePackaged Plan. If the Pre-Packaged Plan is confirmed by the Bankruptcy Court, it will bind all holders of claims
against and interests in the Company regardless of whether they voted for, against or did not vote at all on the PrePackaged Plan. See Risks Relating to the Pre-Packaged Plan, which begins on page 43.
Therefore, assuming the Pre-Packaged Plan satisfies the other requirements of the Bankruptcy Code, a
significantly smaller number of claim or interest holders can bind other claim or interest holders to the terms of the
Pre-Packaged Plan than are required to effect the Offerings and the other transactions contemplated by the
Recapitalization Plan out-of-court. Additionally, since claims and interests are grouped in classes for the purpose of
voting on the Pre-Packaged Plan, holders of claims and interests may be bound by the decisions of other claim or
interest holders in a way that they otherwise would not outside of bankruptcy.
The confirmation and effectiveness of the Pre-Packaged Plan are subject to certain conditions that may not
be satisfied and are different from those under the Restructuring. We cannot assure you that all requirements for
confirmation and effectiveness of the Pre-Packaged Plan will be satisfied or that the Bankruptcy Court will conclude
that the requirements for confirmation and effectiveness of the Pre-Packaged Plan have been satisfied. See The
Pre-Packaged Plan Conditions Precedent to the Effective Date, which begins on page 123.
If we are unable to consummate the Recapitalization Plan or the Pre-Packaged Plan we do not expect to be
able to meet our obligations under our Existing Credit Facilities and our obligations under such agreements
may become immediately due and payable.
If we do not complete the Restructuring either through the Recapitalization Plan or the Pre-Packaged Plan,
we anticipate that we will not be able to meet our secured debt obligations, all of which mature in the next twelve
months. In addition, we have received a going concern qualification from our auditors in connection with our
required delivery of audited annual financial statements under the Existing Credit Facilities, which would, absent a
waiver, trigger a default under each of our Existing Credit Facilities. Although the Existing Lenders have agreed in
the Waivers to waive defaults related to the going concern qualification, the Waivers may terminate if (among
other things) certain milestones set forth in the Restructuring Support Agreement are not met, including the
completion of the Recapitalization Plan or the Pre-Packaged Plan in the timeframe set out in the Restructuring
Support Agreement. If the Waivers terminate or if new defaults occur under the Existing Credit Facilities, then the
lenders under each of the Existing Credit Facilities may cause the acceleration of each of the amounts owed
thereunder.
If all the indebtedness under the Existing Credit Facilities becomes immediately due and payable (as would
be the case in the event of an acceleration of the obligations under the Existing Credit Facilities), we do not expect,
and we cannot assure you, that we will have, or have access to, sufficient liquidity to meet our debt repayment
obligations. Such an acceleration would result in a material adverse effect on our financial condition, operations and
debt service capabilities. As of March 31, 2012, we had an estimated $135 million of Cash with which to satisfy
these obligations, and we believe the Company has no ability to obtain the necessary additional funds in the capital
markets. If the Company is unable to repay the obligations under the Existing Credit Facilities upon an acceleration,
the agents and lenders under those facilities could exercise their remedies as secured creditors with respect to the
collateral securing such borrowings
As a result of the foregoing, if we do not complete the Restructuring, we will have an immediate need to
pursue other alternatives, including commencing chapter 11 cases on terms other than as contemplated by the PrePackaged Plan. If we commence such a bankruptcy filing, the First Lien Lenders, Second Lien Lenders, Current
Employees, Former Employees and Existing Equityholder may receive consideration that is substantially less than
what is being offered under the Restructuring. The Second Lien Lender Claims are secured but, pursuant to the
Existing Intercreditor Agreement, rank junior to the secured obligations under the First Lien Facility and Revolving

23633137v19

35

Facility. The Deferred Bonus Obligations are unsecured obligations of the Company and rank junior to the secured
obligations under the First Lien Facility, the Revolving Facility and the Second Lien Facility. Accordingly, upon
any distribution to our creditors in any foreclosure, dissolution, winding-up, liquidation or reorganization, or other
bankruptcy proceeding relating to us or our property, our lenders under the First Lien Facility and Revolving
Facility will be entitled to be paid in full before any payment may be made with respect to either the Second Lien
Facility or the Deferred Bonus Obligations. Lenders under the Second Lien Facility will be entitled to be paid in full
before any payment may be made with respect to the Deferred Bonus Obligations. Holders of the Deferred Bonus
Obligations will share in the funds available for distribution to general unsecured creditors only after payment of the
Second Lien Debt in full, with interest. Finally, holders of the Existing Equity Interests will only receive payment
on account of such interests after payment of the First Lien Debt, Second Lien Debt, Deferred Bonus Obligations
and all other unsecured claims in full, with interest.
If we file for bankruptcy protection on terms other than as contemplated by the Pre-Packaged Plan, that
filing could materially adversely affect the relationships between us and our existing and potential dealers,
customers, vendors, employees, lenders, partners and other stakeholders.
We believe that seeking relief under the Bankruptcy Code by filing for bankruptcy protection on terms
other than as contemplated by the Pre-Packaged Plan could materially adversely affect the relationships between us
and our existing and potential dealers, customers, vendors, employees, partners and other stakeholders. For
example:
x

a bankruptcy filing could erode our customers confidence in our ability to provide our products and
services and, as a result, there could be a significant and precipitous decline in our revenues and
profitability and ability to collect on existing receivables;

employees could be distracted from performance of their duties, or more easily attracted to other career
opportunities;

it may be more difficult to attract, retain or replace key employees;

dealers, vendors, lenders and other partners could seek to terminate their relationship with us, require
financial assurances or enhanced performance, or refuse to provide credit on the same terms as before
the reorganization case;

we could be forced to operate in bankruptcy for an extended period of time while we tried to develop a
reorganization plan that could be confirmed, which we believe may impair our business and prospects;

we may not be able to obtain debtor-in-possession financing or secure the use of cash collateral to
sustain us during an extended bankruptcy case; or

if we were not able to confirm and implement a plan of reorganization or if sufficient debtor-inpossession financing were not available, we might be forced to liquidate under chapter 7 of the
Bankruptcy Code.

In addition, under a liquidation or under a reorganization case or cases under the Bankruptcy Code, other
than in connection with the Pre-Packaged Plan, any distributions that holders of First Lien Lender Claims, Second
Lien Lender Claims, Deferred Bonus Claims or Existing Equity Interests may receive in respect of their claims or
interests would likely be substantially delayed and the value of any potential recovery likely would be adversely
impacted by such delay.
Furthermore, in the event of any foreclosure, dissolution, winding-up, liquidation or reorganization, or
other bankruptcy proceeding other than in connection with the Pre-Packaged Plan, there can be no assurance as to
the value, if any, that would be available to holders of First Lien Lender Claims, Second Lien Lender Claims,
Deferred Bonus Claims or Existing Equity Interests. The Second Lien Lender Claims are secured but, pursuant to
the Intercreditor Agreement, rank junior to the secured obligations under the First Lien Facility and Revolving

23633137v19

36

Facility. The Deferred Bonus Obligations are unsecured obligations of the Company and rank junior to the secured
obligations under the First Lien Facility, the Revolving Facility and the Second Lien Facility. Accordingly, upon
any distribution to our creditors in any foreclosure, dissolution, winding-up, liquidation or reorganization, or other
bankruptcy proceeding relating to us or our property, our lenders under the First Lien Facility and the Revolving
Facility will be entitled to be paid in full before any payment may be made with respect to either the Second Lien
Facility or the Deferred Bonus Obligations. Lenders under the Second Lien Facility will be entitled to be paid in full
before any payment may be made with respect to the Deferred Bonus Obligations. Holders of the Deferred Bonus
Obligations will share in the funds available for distribution to general unsecured creditors only after payment in full
of the Second Lien Debt. Finally, holders of the Existing Equity Interests will only receive payment on account of
such Interests after payment of the First Lien Debt, Second Lien Debt and Deferred Bonus Obligations and all other
unsecured claims. If you do not consent to the Offerings or vote to accept the Pre-Packaged Plan, you may receive
less value for your claims in the event of any foreclosure, dissolution, winding-up, liquidation or reorganization, or
other bankruptcy proceeding other than the Pre-Packaged Plan, than you would under the Restructuring.
C.

Risks Relating to Consenting to the Offerings or Voting in Favor of the Pre-Packaged Plan

You may not revoke your consent to the Offerings.

Once you have consented to the Offerings, you will not be able to withdraw or revoke such consent in
whole or in part for any reason. Therefore, even if circumstances arise after you have consented to the Offerings
that change your mind about the Recapitalization Plan, including events that might have a material adverse effect on
our business, your consent will nonetheless count in favor of the Recapitalization Plan. Further, the consummation
of the Recapitalization Plan is contingent upon receipt of certain foreign anti-trust approvals, which are not expected
to be received until June 2012. Notwithstanding any delay caused by such anti-trust approvals or otherwise, you
will not be able to withdraw or revoke your consent to the Offerings.
By contrast, solely with respect to the Pre-Packaged Plan, unless you are a party to the Restructuring
Support Agreement and are otherwise restricted by the Restructuring Support Agreement, you may change your vote
as to the Pre-Packaged Plan by submitting to the Solicitation, Voting and Exchange Agent, before the Voting
Deadline, a subsequent properly completed Ballot for acceptance or rejection of the Pre-Packaged Plan.

The financial projections may not be relied upon as a guarantee or other assurance of the actual results that
will occur.
A premise of the Restructuring is that, following consummation, our indebtedness will be restructured as
reflected in the projections attached hereto as Annex C. Our actual results may vary materially from those
contemplated by the projections for a variety of reasons. The projections reflect numerous assumptions concerning
our anticipated future performance and prevailing and anticipated market and economic conditions, that were and
continue to be beyond our control and that may not occur. Such assumptions include, among others, assumptions
concerning the general economy, our ability to establish market strength, consumer purchasing trends and
preferences, the ability to stabilize and grow our sales base and control future operating expenses and other risk
factors described below. Projections are inherently subject to uncertainties and to a wide variety of significant
business, economic and competitive risks and are limited by the information available to us as of the date of the
preparation of the projections. Unanticipated events and circumstances occurring subsequent to the preparation of
the projections may also affect our actual financial results.
Even if we consummate the Restructuring, we may face future challenges with respect to our liquidity.
Our expected financial condition after the consummation of the transactions contemplated by the
Restructuring is based on various assumptions concerning these transactions, including accounting and tax
treatment. There can be no assurance that the assumptions will not differ materially from the ultimate treatment of
such transactions and any differences may be material. In addition, while the transactions contemplated by the
Restructuring were designed to improve our financial condition, we will continue to be subject to risks and
uncertainties that could materially affect our financial position. Therefore, even if the transactions contemplated by

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the Restructuring are consummated, we may face future challenges with respect to our liquidity or be required to
undergo additional restructuring.
Holders of certain claims who participate in the Offerings will lose their existing rights under currently
governing documents.
Upon consummation of the Recapitalization Plan, $175 million of outstanding First Lien Debt will no
longer be subject to the First Lien Credit Agreement, but will instead be governed by the New Second Lien Credit
Agreement and the liens securing the New Second Lien Credit Agreement shall be subordinated to the liens securing
the obligations under the Amended First Lien Facility pursuant to the New Intercreditor Agreement. Second Lien
Lenders will lose all rights associated with the Second Lien Credit Agreement, including their status as secured
creditors.
To service our indebtedness, we will require a significant amount of Cash. Our ability to generate Cash
depends on many factors beyond our control and any failure to meet our debt service obligations could harm
our business, financial condition and results of operations.
If we do not generate sufficient cash flow from operations to satisfy our required payments under the PostRestructuring Debt Facilities, we may have to undertake alternative financing plans, such as refinancing or
restructuring our indebtedness, selling assets, reducing or delaying capital investments or seeking to raise additional
capital. These alternative measures may not be successful or may not generate proceeds adequate to meet our debt
service obligations when due. Our ability to restructure or refinance our Post-Restructuring Debt Facilities will
depend on the conditions of the capital markets and our financial condition at such time. Any refinancing of our
debt could be at higher interest rates and may require us to comply with more onerous covenants, which could
further restrict our business operations. The terms of our existing or future debt instruments, including our
Amended First Lien Facility, New Revolving Facility and our New Second Lien Facility may restrict us from
adopting some of these alternatives. In addition, any failure to make scheduled payments of interest and principal
on our outstanding indebtedness would likely result in a reduction of our credit rating, which could harm our ability
to incur additional indebtedness on acceptable terms. Our inability to generate sufficient cash flow to satisfy our
debt service obligations, or to refinance our obligations at all or on commercially reasonable terms, would have an
adverse effect, which could be material, on our business, financial condition and results of operations, as well as on
our ability to satisfy our obligations in respect of the Post-Restructuring Debt Facilities.
We may have difficulties complying with certain financial covenants in the New Revolving Facility.
The New Revolving Facility will contain a financial covenant requiring the Company to maintain a
minimum pro forma LTM EBITDA (to be defined in the New Revolving Facility). If the Company is unable to
meet its obligations under this financial covenant, it might not be able to draw under the New Revolving Facility.

The terms of our Post-Restructuring Debt Facilities may restrict our current and future operations, including
particularly our ability to respond to changes in our business or to take certain actions.
Our Amended First Lien Facility, New Revolving Facility and New Second Lien Facility contain, and the
terms of any of our future indebtedness would likely contain, a number of restrictive covenants that impose certain
operating and other restrictions. Among other things, such covenants limit or restrict our ability and our
subsidiaries ability to:
x

incur or assume additional indebtedness or guarantees (including by redemption, repayment or

repurchase of certain disqualified or preferred stock);

incur liens;

engage in consolidations, mergers, asset sales, sale/leaseback transactions, dispositions of collateral

and transactions with affiliates;

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pay dividends or make other distributions, purchases, redemptions or other restricted payments with
respect to capital stock;

prepay indebtedness under the New Second Lien Facility upon a change of control or amend or
refinance certain debt and other agreements; and

incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other
distributions, or make loans, investments or asset transfers.

The operating and financial restrictions and covenants in these debt agreements and any future financing
agreements may adversely affect our ability to finance future operations or capital needs or to engage in other
business activities.
D.

Risks Relating to Becoming Holders of the Former Employee Note Pursuant to the Separate Former
Employee Deferred Bonus Modification

The following risks specifically apply only to Former Employees who separately elect, pursuant to the
Deferred Bonus Modification Agreement, to receive 50% of the Former Employee Deferred Bonus Obligations in
Cash (net of applicable withholding taxes) and 50% of the Former Employee Deferred Bonus Obligations in the
form of the Former Employee Note Amount (net of applicable withholding taxes) and should be considered along
with the other risk factors set forth in this Offering Memorandum and Disclosure Statement.
The Former Employee Note will be junior to the Post-Restructuring Debt Facilities.
The Former Employee Note is junior to all of our obligations under the Post-Restructuring Debt Facilities
and is not secured by any of our collateral. In addition, the Former Employee Note is an obligation of Culligan
International, and is not guaranteed by any of its subsidiaries or any other person. As a result, our existing and
future secured indebtedness will rank senior to the Former Employee Note as to rights upon any foreclosure,
dissolution, winding-up, liquidation or reorganization, or other bankruptcy proceeding relating to us. In the event of
any distribution or payment of our assets in any such circumstance, holders of claims under the Post-Restructuring
Debt Facilities will have a superior claim to the holders of the Former Employee Note. If any of the foregoing
events occur, we cannot assure you that there will be sufficient assets for distribution in respect of the Former
Employee Note.
There are significant restrictions on the ability to transfer or resell the Former Employee Note.
While the Company does not consider the Former Employee Note to be a security and does not intend to
treat it as such, if the Former Employee Note is deemed to be a security, there would be significant legal restrictions
on the ability to transfer or resell the Former Employee Note.
The Former Employee Note has not been registered under the Securities Act, any state securities laws or
any other applicable foreign securities law. Therefore, if the Former Employee Note is deemed to be a security, the
holders of the Former Employee Note may transfer or resell their interest in the Former Employee Note only in a
transaction exempt from the registration requirements of the U.S. and applicable state or other foreign securities
laws, and all holders of the Former Employee Note may be required to bear the risk of their investment for an
indefinite period of time.
An active trading market for the Former Employee Note does not exist and may never develop.
The holders of the Former Employee Note may transfer or resell their interest in the Former Employee
Note in a transaction exempt from the registration requirements of the U.S. and applicable state or other foreign
securities laws, provided the transaction complies with applicable law and the holder complies with any notice
requirements as set forth in the Former Employee Note. However, there is no currently existing market for the
Former Employee Note. Further, no assurances can be provided regarding the future development of a market for
the sale, purchase or other transfer of any interest in the Former Employee Note. If such a market were to develop,

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there can be no assurances that such market would value an interest in the Former Employee Note at the stated
principal amount of the holders interest in the Former Employee Note.
The Former Employee Note will be redeemed upon the occurrence of a change in control of Culligan
Investments or Culligan International.
Culligan International will redeem the Former Employee Note without your consent upon the occurrence of
a post-restructuring change in control (as defined in the Former Employee Note) at a redemption price equal to
100% of the principal amount of the Former Employee Note plus accrued and unpaid interest. If the redemption
were to occur, we cannot assure you that you will be able to reinvest the amounts received upon the redemption at a
rate that will provide you with the same return as your participating interest in the Former Employee Note.
E.

Risks Relating to Becoming Holders of the NewCo Stock

The following risks specifically apply to holders of NewCo Stock and should be considered, along with the
other risk factors, by the Second Lien Lenders, holders of Current Employee Deferred Bonus Obligations and the
Existing Equityholder.
The contemplated allocation of NewCo Stock among holders of Second Lien Debt, participants in the Rights
Offering, the Existing Equityholder and Current Employees under the separate Current Employee Deferred
Bonus Modification is a negotiated result that is not based upon any independent valuation of the Company
or the relative values of the claims and interested being exchanged.
We have not obtained or requested, and do not intend to obtain or request, a fairness opinion from any
banking or other firm as to the fairness of the allocation of NewCo Stock among holders of claims and interests as
contemplated by the Restructuring, or as to the relative values of the Second Lien Debt, the Current Employee
Deferred Bonus Obligations or the Existing Equity Interests. If you consent to the Second Lien Exchange Offer
and/or subscribe in the Rights Offering, if you execute the Deferred Bonus Modification Agreement or if you vote to
accept the Pre-Packaged Plan and the Pre-Packaged Plan is confirmed and becomes effective, you may or may not
receive more than or as much value as you would if you do not consent to the Recapitalization Plan. In the event of
any foreclosure, dissolution, winding-up, liquidation or reorganization, or other bankruptcy proceeding following
consummation of the Restructuring, you may recover less than if you had retained your Second Lien Debt, Current
Employee Deferred Bonus Obligation or Existing Equity Interests.
There are risks associated with the NewCo Stock.
The value of the NewCo Stock may be adversely affected by a number of factors, including many of the
risks described in this Offering Memorandum and Disclosure Statement. If, for example, our business is adversely
affected by adverse market conditions or other factors, or if we fail to comply with the covenants in the PostRestructuring Debt Facilities resulting in an event of default and subsequent acceleration of our outstanding
indebtedness, these factors could have a material adverse effect on the value of the NewCo Stock.
The NewCo Stock will be junior to the Post-Restructuring Debt Facilities, the Former Employee Note and
other creditor obligations.
The NewCo Stock is the most junior of all of our obligations under our capital structure and is not secured
by any of our collateral. As a result, our existing and future indebtedness and other non-equity claims will rank
senior to the NewCo Stock as to rights upon any foreclosure, dissolution, winding-up, liquidation or reorganization,
or other bankruptcy proceeding relating to us. In the event of any distribution or payment of our assets in any
foreclosure, dissolution, winding-up, liquidation or reorganization, or other bankruptcy proceeding, our creditors
will have a superior claim and interest, as applicable, to the interests of holders of NewCo Stock. If any of the
foregoing events occur, we cannot assure you that there will be sufficient assets for distribution in respect of the
NewCo Stock.

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There are significant restrictions on the ability to transfer or resell the NewCo Stock.
The NewCo Stock issued pursuant to the Recapitalization Plan and the Rights Offering is being offered and
sold pursuant to an exemption from registration under U.S. and applicable state securities laws. The shares of
NewCo Stock issued pursuant to the Recapitalization Plan and Rights Offering have not been registered under the
Securities Act, any state securities laws or any other applicable foreign securities laws and we do not intend to
register the NewCo Stock under the Securities Act or any such other laws. Therefore, the NewCo Stock issued
pursuant to the Recapitalization Plan and the Rights Offering is restricted stock and may not be transferred or resold
except in transactions exempt from the registration requirements of the U.S. federal securities laws and applicable
state or other foreign securities laws. In addition, regardless of whether NewCo Stock is received pursuant to the
Recapitalization Plan or the Pre-Packaged Plan, the Amended and Restated Memorandum and Articles of
Association of NewCo contain certain restrictions on transfer of the NewCo Stock. All holders of the NewCo Stock
may be required to bear the risk of their investment for an indefinite period of time. This risk may be exacerbated
by the absence of registration rights for the holders of the NewCo Stock.
In addition to the restrictions disclosed above, the shares of NewCo Stock that will be delivered to Current
Employees in connection with the Restructuring have substantial contractual restrictions on transfer, which make it
virtually impossible to transfer or pledge such NewCo Stock. These restrictions will become less burdensome after
the Company completes an initial public offering of shares of NewCo Stock; however, we have no current plans to
complete a public offering and may never do so. See The Current Employee Deferred Bonus Modification, which
begins on page 84 for a more detailed description of the transfer restrictions applicable to the NewCo Stock that will
be issued in connection with the Current Employee Deferred Bonus Modification.
There is no public market for NewCo Stock.
There is no public market for NewCo Stock and it is not expected that an active public market for the
NewCo Stock will develop in the foreseeable future. In addition, we are not required to undertake a public offering
of the NewCo Stock.
There can be no assurance that the value of the NewCo Stock will increase over time, and it is possible that
the value will decrease. In addition, if a public market for the NewCo Stock develops, there can be no assurance
that the public will value the NewCo Stock in the same manner as we have. Furthermore, following the
consummation of the Restructuring, Centerbridge will have a substantial majority interest in the NewCo Stock and
all other holders will have a minority interest. If you are a holder of a minority interest, that minority interest
together with the substantial restrictions on the transfer of your shares further limits the liquidity of your NewCo
Stock.
A single majority shareholder controls NewCo.
Assuming all Second Lien Lenders (other than Centerbridge) elect to receive Cash under the Second Lien
Exchange Offer and no Second Lien Lenders (other than Centerbridge) participate in the Rights Offering,
Centerbridge is expected to hold an estimated 97.30% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68) of the outstanding NewCo Stock
immediately following the Offerings. Centerbridge will therefore control NewCo and has the power to elect all of
the members of the Board of Directors. The interests of Centerbridge could conflict with your interests as a
shareholder.
Your investment is dependent on our subsidiaries performance.
NewCo will be a holding company after the Restructuring. It will have no independent operations and its
most significant asset will be its indirect ownership of the capital stock of Culligan Holding S.r.l. (formerly CDRC
Holding S.r.l.), and its subsidiaries. As a consequence, the success of your investment will be entirely dependent
upon the future performance of Culligan Holding S.r.l. and its other subsidiaries and will depend upon the
financial, business and other factors affecting Culligan Holding S.r.l. and its other subsidiaries and the markets in
which they do business, as well as general economic and financial conditions.

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We may not pay dividends.

NewCo will be a holding company and its ability to pay dividends on NewCo Stock will depend on its
ability to borrow money for that purpose or the ability of its subsidiaries, principally Culligan Holding S.r.l., to pay
dividends to NewCo. Culligan Holding S.r.ls business needs and financing agreements may severely limit its
ability to pay dividends, which in turn would limit NewCos ability to pay dividends on your shares. Furthermore,
the terms of the Post-Restructuring Debt Facilities will restrict our ability to pay such dividends. Our other future
indebtedness may also restrict availability to pay such dividends. See Post-Restructuring Debt Facilities, which
begins on page 186.
Certain investors may not be permitted to invest in NewCo Stock.
It is not anticipated that any dividend will be paid on the NewCo Stock in the foreseeable future and the
Post-Restructuring Debt Facilities will likely restrict the payment of dividends. In any event, the payment of
dividends on the NewCo Stock will also be subject to applicable legal restrictions. Therefore, certain institutional
investors who are only permitted to invest in dividend-paying equity securities or operate under other restrictions
prohibiting or limiting their ability to invest in securities similar to the NewCo Stock may not be permitted to invest
in the NewCo Stock, which would further adversely affect the liquidity of the NewCo Stock.
Issuance of equity interests to NewCos management and directors will dilute NewCo Stock.
Up to 15% of NewCo Stock will be reserved for issuance as grants of options, stock, restricted stock or
similar equity awards in connection with the Management Incentive Plan. The Management Incentive Plan will be
adopted by the New Board of Directors of NewCo for the benefit of such members of management, employees and
directors of NewCo as designated by the New Board of Directors. The amount, form, exercise price, allocation and
vesting of equity awards under the Management Incentive Plan, and any limitations thereon, shall be determined and
approved by the New Board of Directors of NewCo. If the New Board of Directors of NewCo distributes such
equity-based awards to management or directors pursuant to the Management Incentive Plan or any other
management equity incentive plan that may be adopted by the board of directors following the Effective Date, such
distributions will dilute the ownership percentage represented by the NewCo Stock issued as part of the
Restructuring.
Future offerings or acquisitions may dilute your interests.
Future issuances of authorized but unissued common shares will have the effect of diluting your equity
interest and there are limited restrictions on the ability of Centerbridge to dilute your equity interest in NewCo. The
number of authorized common shares cannot be increased without shareholder approval.
We may consider acquiring other companies from time to time. If we issue common shares as all or part of
the purchase price in an acquisition, your interest in NewCo will be diluted. We may also make additional offerings
to our employees in the future, and may grant shares, restricted shares, deferred share units, options or other equityrelated awards to our employees on terms that are substantially different from those of this offering. You will not
have any automatic right to participate in any such future offerings or to receive any such awards.
F.

Risks of the NewCo Stock to be Issued Pursuant to the Separate Current Employee Deferred Bonus
Modification

The following risks specifically apply only to Current Employees who separately receive NewCo Stock pursuant to
the Deferred Bonus Modification Agreement and should be considered along with the other risk factors set forth in
this Offering Memorandum and Disclosure Statement.
There are significant restrictions on the ability to transfer or resell the NewCo Stock.
The NewCo Stock is being offered and sold pursuant to an exemption from registration under U.S. and
applicable state securities laws. The NewCo Stock has not been registered under the Securities Act, any state

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securities laws or any other applicable foreign securities laws and we do not intend to register the NewCo Stock
under the Securities Act or any such other laws. Therefore, the holders of the NewCo Stock may transfer or resell
their NewCo Stock only in a transaction exempt from the registration requirements of the U.S. and applicable state
or other foreign securities laws. In addition, the Memorandum and Articles contain certain restrictions on transfer of
the NewCo Stock. All holders of the NewCo Stock may be required to bear the risk of their investment for an
indefinite period of time. This risk may be exacerbated by the absence of registration rights for the holders of the
NewCo Stock.
In addition, the shares of NewCo Stock that will be delivered to Current Employees in connection with the
separate Current Employee Deferred Bonus Modification have substantial contractual restrictions on transfer, which
make it virtually impossible to transfer or pledge such NewCo Stock. These restrictions will become less
burdensome after the Company completes an initial public offering of shares of NewCo Stock; however, we have no
current plans to complete a public offering and may never do so. See The Current Employee Deferred Bonus
Modification, which begins on page 84 hereto, for a more detailed description of the transfer restrictions applicable
to the NewCo Stock that will be issued in connection with the separate Current Employee Deferred Bonus
Modification.
NewCo Stock held by Current Employees may be repurchased on termination of such Current Employees
employment.
If a Current Employees employment with NewCo or its subsidiaries terminates before NewCo completes
an initial public offering of NewCo Stock, such terminated employee may have to sell his or her shares of NewCo
Stock back to NewCo. The price NewCo will pay such terminated employee for his or her shares will be the fair
market value of NewCo Stock, as determined by the New Board of Directors of NewCo reasonably and in good
faith on the date of the repurchase. NewCo is not required to buy a Current Employees shares of NewCo Stock in
any circumstance, however, and may choose not to do so. See The Current Employee Deferred Bonus
Modification, which begins on page 84 hereto, for a more detailed description of NewCos right of repurchase of
the NewCo Stock in the event of a termination of employment.
G.

Risks Relating to the Pre-Packaged Plan

Commencing chapter 11 cases may have a material adverse effect on our operations.
The Pre-Packaged Plan solicitation or any subsequent commencement of a pre-packaged chapter 11 case
could adversely affect the relationships between us and our dealers, customers, employees, vendors, lenders,
partners and others. There is a risk, due to uncertainty about our future, that:
x

customers could seek alternative sources of products from our competitors, including competitors that
have comparatively greater financial resources and that are in little or no relative financial or
operational distress;

such a bankruptcy filing could erode our customers confidence in our ability to provide our products
and services and, as a result, there could be a significant and precipitous decline in our revenues,
profitability and cash flow;

employees could be distracted from performance of their duties or more easily attracted to other career
opportunities;

it may be more difficult to attract, retain or replace key employees; and

dealers, vendors, lenders and other partners could seek to terminate their relationship with us, require
financial assurances or enhanced performance, or refuse to provide credit on the same terms as before
the reorganization case.

These factors could adversely affect our ability to obtain confirmation of the Pre-Packaged Plan.

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We cannot predict the amount of time we would spend in bankruptcy for the purpose of implementing the
Pre-Packaged Plan, and lengthy chapter 11 cases could disrupt our business, as well as impair the prospect for
reorganization on the terms contained in the Pre-Packaged Plan. While we expect that any chapter 11 bankruptcy
filings solely for the purpose of implementing the Pre-Packaged Plan would be of short duration and would not be
unduly disruptive to our business, we cannot be certain that this would be the case. Although the Pre-Packaged Plan
is designed to minimize the length of the chapter 11 cases, it is impossible to predict with certainty the amount of
time that we may spend in bankruptcy, and we cannot be certain that the Pre-Packaged Plan would be confirmed.
Even if the Pre-Packaged Plan is confirmed on a timely basis, commencement of chapter 11 cases to confirm the
Pre-Packaged Plan could itself have an adverse effect on our business.
The disruption that chapter 11 cases would inflict upon our business would increase with the length of time
it takes to complete the proceeding and the severity of that disruption would depend upon the attractiveness and
feasibility of the Pre-Packaged Plan of reorganization from the perspective of the constituent parties on whom we
depend, including dealers, vendors, employees, and customers. If we are unable to obtain confirmation of the PrePackaged Plan on a timely basis, because of a challenge to the Pre-Packaged Plan or a failure to satisfy the
conditions to the effectiveness of the Pre-Packaged Plan of reorganization, we may be forced to operate in chapter
11 for an extended period while we try to develop a different reorganization plan that can be confirmed. Protracted
chapter 11 cases would increase both the probability and the magnitude of the adverse effects described above.
Our business may be negatively impacted if we are unable to assume certain of our executory contracts.
The Pre-Packaged Plan provides for the assumption of all executory contracts and unexpired leases, other
than those leases and contracts that we specifically reject. Our intention is to preserve as much of the benefit of our
existing contracts and leases as possible. We will fully honor all of our franchise agreements. However, some
limited classes of executory contracts, such as certain types of intellectual property licenses, may not be assumed in
this way. In these cases we would need the consent of the counterparty to maintain the benefit of the contract.
There is no guarantee that such consent would either be forthcoming or that conditions would not be attached to any
such consent that make assuming the contracts unattractive. We would then be required to either forego the benefits
offered by such contracts or to find alternative arrangements to replace them. We intend to attempt to pass through
to the reorganized company all licenses in respect of patents, trademarks, copyright or other intellectual property
which cannot otherwise be assumed pursuant to Section 365(c) of the Bankruptcy Code. The counterparty to any
contract that we seek to pass through may object to our attempt to pass through the contract and require us to seek to
assume or reject the contract or seek approval of the Bankruptcy Court to terminate the contract. In such an event,
we could lose the benefit of the contract, which could harm our business.
We may not be successful in obtaining first day orders to permit us to pay certain vendors and suppliers in
the ordinary course of business.
We have tried to address potential concerns of our customers, vendors, employees, licensors/licensees and
other key parties in interest that might arise from the filing of the Pre-Packaged Plan through a variety of provisions
incorporated into or contemplated by the Pre-Packaged Plan, including our intention to seek appropriate court orders
to permit us to pay these parties in the ordinary course of business without interruption caused by the bankruptcy
filing. However, there can be no guarantee that we would be successful in obtaining the necessary approvals of the
Bankruptcy Court for such arrangements or for every party in interest we may seek to treat in this manner, and as a
result, our business might suffer.
Even if we obtain the necessary votes to approve the Pre-Packaged Plan, the Bankruptcy Court may not
confirm the Pre-Packaged Plan.
We cannot assure you that the Pre-Packaged Plan, if filed, will be confirmed by the Bankruptcy Court even
if we obtain the necessary votes Section 1129 of the Bankruptcy Code, which sets forth the requirements for
confirmation of a plan of reorganization, requires, among other things, a finding by the Bankruptcy Court that the
chapter 11 plan is feasible, that all claims and interests have been classified in compliance with the provisions of
Section 1122 of the Bankruptcy Code, and that, under the Pre-Packaged Plan, each holder of a claim or interest
within each impaired class either accepts the Pre-Packaged Plan or receives or retains Cash or property of value, as
of the date the Pre-Packaged Plan becomes effective, that is not less than the value such holder would receive or

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retain if the debtor were liquidated under chapter 7 of the Bankruptcy Code. See The Pre-Packaged Plan
Confirmation of the Pre-Packaged Plan, which begins on page 104.
There can be no assurance that the Bankruptcy Court will conclude that the feasibility test and other
requirements of section 1129 of the Bankruptcy Code have been met with respect to the Pre-Packaged Plan.
If chapter 11 cases are commenced and the Pre-Packaged Plan is filed, there can be no assurance that
modifications thereto would not be required for confirmation, or that such modifications would not require a
resolicitation of votes on the Pre-Packaged Plan.
Moreover, the Bankruptcy Court could determine that the disclosures made herein were inadequate and that
the votes in favor of the Pre-Packaged Plan therefore were not valid. We would then be required to commence the
solicitation process again, which would include re-filing a plan of reorganization and disclosure statement.
Typically, this process involves a 90-day or longer period and includes a court hearing for the required approval of
the revised disclosure statement, followed by (after Bankruptcy Court approval of the disclosure statement) another
solicitation of claim and interest holder votes, and another hearing for determination by the Bankruptcy Court
whether the requirements for confirmation have been satisfied.
If no plan of reorganization can be confirmed, our reorganization case may be converted to a case under
chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets
for distribution in accordance with the priorities established by the Bankruptcy Code. A discussion of the effects that
a chapter 7 liquidation would have on the recoveries of holders of claims and interests and our liquidation analysis is
set forth under The Pre-Packaged PlanLiquidation Analysis. We believe that liquidation under chapter 7 would
result in (a) delays in any distributions to all constituents as compared to the Pre-Packaged Plan, (b) smaller or no
distributions being made to certain creditors than those provided for in the Pre-Packaged Plan because of (i) the
likelihood that our assets would have to be sold or otherwise disposed of in a less orderly fashion over a short period
of time, (ii) additional administrative expenses involved in the appointment of a bankruptcy trustee and
(iii) additional expenses and claims, some of which would be entitled to priority, which would be generated during
the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of our
operations, (c) reduced distributions, or no distributions, to creditors, and (d) no distributions being made to holders
of our equity interests.
If we commence a chapter 11 case, other parties in interest might be permitted to propose alternative plans of
reorganization that may be less favorable to certain of our constituencies than the Pre-Packaged Plan.
Once our chapter 11 case has commenced, other parties in interest could seek authority from the
Bankruptcy Court to propose one or more alternative chapter 11 plans. Under the Bankruptcy Code a debtor in
possession initially has the exclusive right to propose and solicit acceptances of a chapter 11 plan. However, such
exclusivity period can be reduced, limited or terminated upon order of the Bankruptcy Court. Were an order to be
entered reducing, limiting or terminating exclusivity, other parties in interest would then have the opportunity to
propose alternative plans.
If other parties in interest were to propose an alternative plan or plans, any such plan may be less favorable
to, among others, the holders of Deferred Bonus Claims or the Existing Equityholder. Alternative plans of
reorganization also may treat less favorably the claims of a number of other constituencies, including our dealers,
employees, vendors and customers. We consider maintaining relationships with our dealers, employees, customers
and vendors as critical to maintaining the value of our business as we restructure, and have sought to treat those
constituencies accordingly. However, proponents of alternate plans may not share our assessment and may seek to
impair the claims of these constituencies. If there are competing proposed plans, our reorganization case is likely to
become longer and more complicated. If this were to occur, or if our employees or other constituencies important to
our business reacted adversely to an alternative plan of reorganization, the adverse consequences discussed in the
risk factor in this section titled The Pre-Packaged Plan may have a material adverse effect on our operations could
occur. Such delays could also cause of a failure of certain conditions precedent for the consummation of the PrePackaged Plan.

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The Bankruptcy Court may disagree with our classification of claims and interests.
Section 1122 of the Bankruptcy Code provides that a plan of reorganization may place a claim or an
interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of
such class. We believe that the classification of claims and interests under the Pre-Packaged Plan complies with the
requirements set forth in the Bankruptcy Code; however, once a chapter 11 case has been commenced, a claim or
interest holder could challenge the classification. In such event, the cost of the Pre-Packaged Plan and the time
needed to confirm the Pre-Packaged Plan may increase and we cannot assure you that the Bankruptcy Court will
agree with our classification of claims and interests. If the Bankruptcy Court concludes that the classification of
claims and interests under the Pre-Packaged Plan does not comply with the requirements of the Bankruptcy Code,
we may need to modify the Pre-Packaged Plan. There can be no assurances that the Initial Lenders would agree to
any such modification. Further, depending on its terms, any such modification could require a resolicitation of votes
on the Pre-Packaged Plan. If the Bankruptcy Court determines that our classification of claims and interests was not
appropriate and no modification can be made that revises the Pre-Packaged Plan in a manner than the Bankruptcy
Court finds is appropriate, the Pre-Packaged Plan may not be confirmed.
The Bankruptcy Court may find the solicitation of acceptances inadequate.
Usually, a plan of reorganization is filed and votes to accept or reject a plan of reorganization are solicited
after the filing of a petition commencing a chapter 11 case. Nevertheless, a debtor may solicit votes before the
commencement of a chapter 11 case in accordance with Section 1126(b) of the Bankruptcy Code and Bankruptcy
Rule 3018(b). Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b) require that:
x

the plan of reorganization is transmitted to substantially all creditors and other interest holders entitled
to vote;

the time prescribed for voting is not unreasonably short; and

the solicitation of votes is in compliance with any applicable non-bankruptcy law, rule or regulation
governing the adequacy of disclosure in such solicitation or, if no such law, rule or regulation exists,
votes be solicited only after the disclosure of adequate information.

Section 1125(a)(1) of the Bankruptcy Code describes adequate information as being information of a kind
and in sufficient detail as would enable a hypothetical reasonable investor typical of holders of claims and interests
to make an informed judgment about the Pre-Packaged Plan. With regard to solicitation of votes before the
commencement of a bankruptcy case, if the Bankruptcy Court concludes that the requirements of Bankruptcy Rule
3018(b) have not been met, then the Bankruptcy Court could deem such votes invalid, whereupon the Pre-Packaged
Plan could not be confirmed without a resolicitation of votes to accept or reject the Pre-Packaged Plan. While we
believe that the requirements of Section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018 will be met,
there can be no assurance that the Bankruptcy Court will reach the same conclusion.
We may fail to meet all conditions precedent to effectiveness of the Pre-Packaged Plan.
Although we believe that the effective date of the Pre-Packaged Plan will occur very shortly after
confirmation of the Pre-Packaged Plan, there can be no assurance as to such timing.
We may be unable to obtain authority to use cash collateral or adequate financing during the pendency of the
bankruptcy proceeding.
At the same time as, or shortly after commencing the chapter 11 cases, we intend to ask the Bankruptcy
Court to authorize us to use cash collateral to fund the chapter 11 cases. Such financing arrangements and access to
cash collateral will provide liquidity during the pendency of the chapter 11 cases. While the Restructuring Support
Agreement provides that the Initial Lenders will consent to the use of cash collateral on certain terms, there can be
no assurance that the Bankruptcy Court will approve the use of cash collateral on the terms requested. Further, if the
Restructuring Support Agreement is not in effect, there is no assurance that our secured lenders will consent to the

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use of cash collateral from our secured lenders. Moreover, if the chapter 11 cases take longer than expected to
conclude, we may exhaust our available cash collateral. In the event that we are unable for any reason to use cash
collateral, the liquidity necessary for the orderly functioning of our businesses will be materially impaired.
H.

Risks Relating to Taxation

The Debtors may incur tax liability as a result of the consummation of the Restructuring.
The Debtors expect that the amount of cancellation of indebtedness (COD) income realized by Culligan
upon the consummation of the Restructuring will be significant. To the extent Culligan International is considered
insolvent for U.S. federal income tax purposes immediately before the consummation of the Restructuring, any such
COD income generally will be excluded from the Debtors U.S. federal taxable income. If, however, the discharge
of Culligans debt occurs pursuant to the Pre-Packaged Plan, any COD income resulting from such discharge
generally will be excluded from the Debtors U.S. federal taxable income. If any COD income is not excluded from
the Debtors U.S. federal taxable income and the Debtors do not have sufficient U.S. federal losses to fully offset
such COD income, the Debtors may incur tax liability.
The Debtors may realize income for U.S. federal income tax purposes in connection with the Restructuring
that is not excludible from their U.S. federal taxable income. For example, Culligan International may realize
foreign currency gain for U.S. federal income tax purposes upon the payment or discharge of any Lender Claim
denominated in Euro in connection with the Restructuring. In addition, the tax considerations relating to the
Restructuring are complex and subject to uncertainties. If any taxing authority were to disagree with any of the
Debtors interpretations of tax rules applicable to, or tax positions taken with respect to, transactions contemplated
by the Restructuring and were to successfully challenge any such interpretation or position, the Debtors may
recognize additional taxable income. If the Debtors were to realize such foreign currency gain or additional taxable
income, the Debtors may incur additional tax liabilities. See the discussion, Certain U.S. Federal Income Tax
Considerations Relating to Certain Holders of the First Lien Debt or the Second Lien Debt and the Debtors, which
begins on page 193, regarding certain U.S. federal income tax considerations relevant to the Debtors in connection
with the Restructuring.
The tax considerations relating to the Restructuring are complex and subject to uncertainties. If an
applicable taxing authority were to successfully challenge any tax interpretation or position taken by the
Debtors regarding transactions contemplated by or undertaken to effect the Restructuring, there may be
adverse consequences to NewCo, the Debtors and holders or beneficial owners of Lender Claims. Under
certain circumstances, beneficial owners of Lender Claims may incur significant tax liabilities without
receiving corresponding cash payments.
The tax considerations relating to the Restructuring are complex and subject to uncertainties. No assurance
can be given that an applicable taxing authority will agree with the discussion, Certain U.S. Federal Income Tax
Considerations Relating to Certain Holders of the First Lien Debt or the Second Lien Debt and the Debtors, which
begins on page 193, or will agree with the Debtors interpretations of the tax rules applicable to, or tax positions
taken with respect to, the transactions contemplated by or undertaken to effect the Restructuring. If an applicable
taxing authority were to successfully challenge any such interpretation or position, there may be adverse
consequences to NewCo, the Debtors and holders or beneficial owners of Lender Claims.
Under certain circumstances, beneficial owners of Lender Claims may incur significant tax liabilities
without receiving corresponding cash payments. For example, because of NewCos partnership status for U.S.
federal income tax purposes, a beneficial owner of NewCo Stock generally will be required to include in income
amounts such as actual or deemed distributions received by NewCo or gain recognized by NewCo on actual or
deemed dispositions of its assets, regardless of whether NewCo distributes cash corresponding to such amounts. In
addition, under the terms of the Post-Restructuring Debt Facilities, the Debtors generally face restrictions on their
ability to make distributions to NewCo to enable it to make distributions to its equity holders while a loan under the
Post-Restructuring Debt Facilities remains outstanding. Therefore, it is possible that in any given year, a beneficial
owners U.S. federal income tax liability arising from holding NewCo Stock could significantly exceed the
distributions, if any, made by NewCo to such beneficial owner. Currently, the Debtors have not yet determined
whether the exchange of the Second Lien Debt for NewCo Stock will be effected in a tax-deferred or fully taxable

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manner to a beneficial owner of the Second Lien Debt for U.S. federal income tax purposes. If such exchange is
effected in a fully taxable manner to a beneficial owner of the Second Lien Debt, such beneficial owner generally
will be required to recognize the full amount of gain realized on such exchange for U.S. federal income tax purposes
even if such beneficial owner does not receive any Cash from such exchange.
All persons (including all non-U.S. persons) that are holders or beneficial owners of any Lender Claim
should consult their own tax advisors regarding the U.S. federal, state and local and non-U.S. tax considerations
relating to the Restructuring (including the ownership and disposition of interests in the Amended First Lien
Facility, the New Second Lien Facility, NewCo Stock and the New Bridge Loan) applicable to them in light of their
particular circumstances.
The tax considerations relating to the Deferred Bonus Modifications are complex and subject to
uncertainties. If an applicable taxing authority were to successfully challenge any tax interpretation or
position taken by the Debtors regarding the Current Employee Deferred Bonus Modification or Former
Employee Deferred Bonus Modification there may be adverse consequences to Current Employees and
Former Employees. Current Employees who own NewCo Stock may incur significant tax liabilities without
receiving corresponding cash payments.
The tax considerations relating to the Deferred Bonus Modifications are complex and subject to
uncertainties. No assurance can be given that an applicable taxing authority will agree with the discussion, Certain
U.S. Federal Income Tax Considerations Relating to Current Employees and Former Employees, which begins on
page 201, or will agree with the Debtors interpretations of the tax rules applicable to, or tax positions taken with
respect to, the transactions contemplated by or undertaken to effect the Deferred Bonus Modifications. If an
applicable taxing authority were to successfully challenge any such interpretation or position, there may be adverse
consequences to Current Employees and Former Employees.
Because of NewCos partnership status for U.S. federal income tax purposes, a Current Employee who
owns NewCo Stock generally will be required to take into account his or her distributive share of items of NewCos
income, gain, loss, deduction or credit (which may include amounts such as actual or deemed distributions received
by NewCo or gain recognized by NewCo on actual or deemed dispositions of its assets), regardless of whether
NewCo distributes cash corresponding to such items. In addition, under the terms of the Post-Restructuring Debt
Facilities, the Debtors generally face restrictions on their ability to make distributions to NewCo to enable it to make
distributions to its equity holders while a loan under the Post-Restructuring Debt Facilities remains outstanding.
Therefore, it is possible that in any given year, a Current Employees U.S. federal income or withholding tax
liability arising from holding NewCo Stock could significantly exceed the distributions, if any, made by NewCo to
such Current Employee.
The Debtors intend, for U.S. federal income tax purposes, to treat the full amount of the Former Employee
Deferred Bonus Obligation due to each Former Employee as ordinary compensation income in the taxable year of
such Former Employee during which the Former Employee Note is delivered. If the U.S. Internal Revenue Service
were to disagree with and successfully challenge such treatment by the Debtors, holders of the Former Employee
Note could be subject to additional taxes, penalties and interest.
All Current Employees and Former Employees (including all non-U.S. individuals) should consult their
own tax advisors regarding the U.S. federal, state and local and non-U.S. tax considerations relating to the Deferred
Bonus Modifications (including the receipt of cash; the receipt, ownership and disposition of NewCo Stock; and the
receipt, ownership and disposition of the Former Employee Note) applicable to them in light of their particular
circumstances.

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I.

Risks Relating to Business of the Company and NewCo

We will have substantial existing debt immediately following the Restructuring and may incur substantial
additional debt, which could adversely affect our financial health and our ability to obtain financing in the
future, react to changes in our business and make payments to repurchase shares.
After consummation of the Restructuring, we will have approximately $376 million of outstanding
indebtedness under the Post-Restructuring Debt Facilities. The Post-Restructuring Debt Facilities permit the
incurrence or guarantee of additional indebtedness.
The amount of debt under our Post-Restructuring Debt Facilities plus any additional debt incurred could
have important consequences to you:
x

our ability to obtain additional financing for working capital, capital expenditures, acquisitions or
general corporate purposes and our ability to satisfy our obligations with respect to the PostRestructuring Debt Facilities may be impaired in the future;

a portion of cash flow from operations must be dedicated to the payment of principal and interest on
our indebtedness, thereby reducing the funds available to us for operations, capital expenditures, future
business opportunities and other purposes;

we will be exposed to the risk of increased interest rates because our borrowings will be at variable
rates of interest; and

our flexibility to adjust to changing market conditions and ability to withstand competitive pressures
could be limited, and we may be more vulnerable to the effect of a downturn in general economic
conditions or our business.

The agreements and instruments governing our debt contain restrictions and limitations that could significantly
impact our ability to operate our business and adversely affect our shareholders. The Post-Restructuring Debt
Facilities contain covenants that, among other things, restrict our ability to:
x

incur or assume additional indebtedness or guarantees (including by redemption, repayment or

repurchase of certain disqualified or preferred stock);

incur liens;

engage in consolidations, mergers, asset sales, sale/leaseback transactions, dispositions of collateral

and transactions with affiliates;

pay dividends or make other distributions, purchases, redemptions or other restricted payments with
respect to capital stock;

prepay indebtedness under the New Second Lien Facility upon a change of control or amend or
refinance certain debt and other agreements; and

incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other
distributions, or make loans, investments or asset transfers.

Our ability to comply with the covenants and restrictions contained in the Post-Restructuring Debt
Facilities will depend on our ongoing financial and operating performance, which in turn will be subject to
economic conditions and to financial, market and competitive factors, many of which are beyond our control. The
breach of any of these covenants or restrictions could result in a default under the Post-Restructuring Debt Facilities
that would permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable,
together with accrued and unpaid interest. In any such case, we may be unable to make borrowings under the New

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Revolving Facility and may not be able to repay the amounts due under the Post-Restructuring Debt Facilities. This
could have serious consequences to our financial condition and results of operations and could cause us to become
bankrupt or insolvent.
Our ability to generate the cash needed to pay our debt and our ability to refinance all or a portion of our
indebtedness or obtain additional financing depend on many factors beyond our control.
Our ability to make scheduled payments or to refinance our obligations with respect to our debt will depend
on our financial and operating performance which, in turn, is subject to prevailing economic and competitive
conditions and to the following financial and business factors, some of which may be beyond our control:
x

operating difficulties;

increased operating costs;

decreased demand for our products;

market cyclicality;

product prices;

the development or exploitation of advantages held by our competitors;

regulatory developments;

failure to successfully integrate acquisitions; and

delays in implementing strategic projects.

In the future, our cash flow and capital resources may not be sufficient to fund our debt service obligations.
If such a situation develops, we may be forced to further reduce or delay capital expenditures, sell assets or seek to
obtain additional equity capital, or restructure our debt, each of which could adversely affect our business and
further limit our ability to make payments on our indebtedness. Furthermore, such alternative measures may not be
successful and may not permit us to meet our scheduled debt service obligations. We also cannot assure you that we
will be able to refinance any of our indebtedness or obtain additional financing due to prevailing market conditions.
For example, the recent crisis in the global credit and financial markets and the limited ability of corporate
borrowers to access the debt markets may materially and adversely affect our ability to obtain sufficient financing to
operate our businesses on a going forward basis.
If we do not successfully implement our business plan, our business, financial position and results of
operations could suffer.
Pursuing certain business strategies involves significant risk. We will need to devote attention and
resources from current areas of our business toward the implementation of these strategies. We may have difficulty
properly executing these strategies, or the strategies may have unforeseen or unintended consequences that are
harmful to us. Ultimately, the degree of success we have in pursuing these strategies will depend on different
factors, such as the business practices and performance of our independent dealers, market cyclicality, international
economic conditions, legal changes in the many countries in which we operate, competition in our markets, and
product innovation in our industry. The degree of success or failure we have in choosing and executing appropriate
business strategies will have a direct, commensurate impact on our business, financial condition and results of
operations.
Over time, we intend to expand into new markets and develop and launch new products to sell though our
existing and new markets. Such an expansion involves our doing business in areas with which we have limited
familiarity, and our business will be exposed to new legal structures, cultures, and markets and related risks.

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Furthermore, such an expansion and developing and launching new products will also require us to devote capital
resources and management time and attention that might better be spent on other areas of our business. We may not
be successful in some or all of these new markets or in the development of new products, and we may not recover
the amounts we invest in them.
We operate in a highly competitive environment and may not be able to compete successfully.
We operate in highly competitive markets that are served by many domestic and international companies.
The bases upon which we compete include brand recognition, distribution capabilities and costs, product
specifications, product knowledge, reputation, technology, service and price. Some of our competitors are multi-line
companies with other principal sources of income who have substantially greater resources than us. Additionally,
some of our competitors may have lower costs associated with manufacturing and distributing their products.
Furthermore, this competition may intensify as new competitors enter some of the markets in which we operate and
existing competitors expand their operations.
Certain of our consumer products compete with lower priced products sold by retail do-it-yourself, or
DIY, chains, which have in recent years captured a large market share. In addition, while sales by these companies
through the Internet continue to grow, we offer only our smaller retail product on the Internet. To the extent DIY
chains maintain or increase their market share through lower prices and their Internet sales continue to grow, our
sales and our operating results may be harmed.
Certain of our products and services, especially in our commercial and industrial business, compete with
companies having much greater market share than we do, which may enable those companies to compete more
efficiently, including by providing them a cost advantage. Additionally, many of our products and services compete
indirectly with alternative products and services. For example, customers who may purchase our drinking water
systems may instead choose to purchase retail bottled water offered by us or our competitors.
Developments in demand for water filtration and water softener products, technological changes,
demographics and other factors have and may continue to alter the market and the competitive landscape in which
we operate. If we do not react to these developments in a manner that preserves our competitive advantages, our
business and ability to meet our financial obligations will suffer.
Our business and financial success are dependent upon our independent Culligan dealers.
We rely on our independent Culligan dealers for a significant portion of our business and they are our
exclusive distribution channel for certain Culligan branded products in North America. For example, we can only
sell larger Culligan branded household water softeners and filtration equipment through non-dealer channels if we
pay a reverse royalty to our dealers. Our franchise agreements permit dealers to terminate their agreements, for any
reason or no reason, upon 90 days written notice. The nonrenewal, termination or any deterioration in our
relationships with our independent Culligan dealers could adversely affect our sales and consequently our income,
cash from operations and ability to meet our obligations.
Our franchise agreement imposes certain limits on our operations.
Most of our franchise agreements with our North American independent dealers contain material
restrictions on our ability to raise prices. For example, our ability to raise the price of existing products we sell to
our independent franchise dealers is generally limited to increases in a broad-based US inflation index. That index
may not reflect increases in costs we experience in producing or acquiring the products we sell or the other costs of
running our business. Furthermore, our franchise agreements also provide for us to assume certain warranty and
indemnification costs, which may materially increase the cost of running our business.
The Company and NewCo depend upon independent franchisees.
If our independent franchisees do not use ethical business practices or comply with applicable laws and
regulations, the Culligan brand name and other brands under which our subsidiaries operate could be harmed due to

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negative publicity and results of our operations could be adversely affected. While our internal and vendor operating
guidelines will promote ethical business practices, we may not control our independent franchisees, or their business
practices. Accordingly, we cannot guarantee their compliance with our guidelines. Violation of labor or other laws,
such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, by independent franchisees, or the divergence
from labor practices generally accepted as ethical in the United States, could diminish the value of the Culligan
brand name and other brands under which NewCos subsidiaries operate and reduce demand for merchandise if, as a
result of such violation, we were to attract negative publicity.
Our franchise agreements may be terminated upon notice to the Company.
Under our form of franchise agreement with all of our North American independent dealers, dealers may
terminate the agreement at any time on 90 days notice. Although the Restructuring will not impair or otherwise
change in any way the Companys obligations to its dealers under their franchise agreements, certain dealers may
decide to terminate their franchise agreements in connection with, or as a result of, the Restructuring. The
termination of franchise agreements could adversely affect our sales and consequently our income, cash from
operations and ability to meet our obligations.
We are subject to environmental, health and safety laws and regulations.
We are subject, in various jurisdictions, to a broad range of environmental, health and safety laws and
regulations, including those governing releases of hazardous substances and the investigation and remediation of
contaminated sites. Our failure to comply with environmental laws or environmental permits issued by regulatory
authorities could result in certain liabilities, including fines and penalties. We are presently, and may in the future
be, subject to liability for the investigation and remediation of environmental contamination, including
contamination caused by other parties, at properties that we own or operate or that we formerly owned or operated
and at other properties where we or our predecessors have arranged for the disposal of hazardous substances. As a
result, we are involved from time to time in administrative and judicial proceedings and inquiries relating to
environmental matters. We could incur material costs related to any present or future investigations and remedial
efforts and any present or future environmental liabilities.
We cannot predict what environmental legislation or regulations will be enacted in the future, how existing
or future laws or regulations will be administered or interpreted, or what environmental conditions may be found to
exist at our facilities or at third party sites for which we are liable. Enactment of stricter laws and regulations,
stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or
remediation of currently unknown environmental contamination at our own or third party sites may require us to
make additional expenditures, some of which could be material.
Product liability claims or recalls could harm our business.
We may be required to pay for losses or injuries purportedly caused by our products. To date, we have not
been subject to any material product liability lawsuits, however, our form of franchise agreement provides for dealer
indemnification in the event of defects in our products or services. We could become subject to product-related suits
in the future. Claims could be based on allegations that, among other things, our products are not installed properly,
contain defects in design or manufacturing or include inadequate instructions regarding their use or inadequate
warnings concerning their functionality, in most cases that result in leaks. In addition, any product-liability claims
may result in negative publicity that may adversely affect our net sales. Also, if one of our products is found to be
defective we may be required to recall it, which may result in substantial expense and adverse publicity and
adversely affect our net sales. Although we maintain product liability insurance coverage, potential product liability
claims may exceed the amount of insurance coverage or potential product liability claims may be excluded under the
terms of the policy, which could hurt our financial condition. In addition, we may also become required to pay
higher premiums and accept higher deductibles in order to secure adequate insurance coverage in the future.
We have been receiving and paying claims intermittently since 2001 relating to ruptures and water leakage
in our Tripl-Hull tanks that have resulted in warranty and/or property damage claims by consumers. We have sold
and installed a significant number of products that include these tanks. However, only a fraction have manifested a
defect. As part of the 2004 Acquisition, the seller, Water Applications & Systems Corporation (WASCO), is

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obligated to indemnify us for claims relating to these tanks. This indemnity covers 50% of the cumulative cost of
such claims up to $5,000,000 and 100% of such costs above $5,000,000. Veolia Environnement S.A., parent
company of WASCO, guarantees the indemnity. Disputes have arisen with respect to WASCOs obligations under
the indemnity which are the subject of a pending arbitration. At the current rates of claim, the costs of settlement are
not material to our results from operations. If the rate increases substantially, the amount we pay to settle the claims
could materially affect our results of operations. Although we have no reason to believe that the rate at which
claims are filed will change, it is possible that the rate will increase and/or that the mitigating effect of the indemnity
may diminish or disappear.
The installation of a new information technology (IT) system in France and changes to our financial
accounting systems and personnel may result in increased costs and adversely affect our business.
We continue to implement a new IT system to improve the management of our customer base and integrate
the various billing, accounts receivable, cash application and financial accounting systems of our French companyowned dealer network. Administrative difficulties in the implementation process or the failure of this system could
adversely affect the management of our business, as we may not have access to reliable data. As a result, we may
not be able to, among other things, effectively market our business or track our performance. In addition, the new
system may produce billing errors, delays and other customer service problems. To the extent that the new system
fails to work properly, we could lose the net book value of our investment in the system, which we estimate to be
approximately $1.0 million as of December 31, 2011.
We are also in the process of upgrading our financial accounting systems and changing personnel. These
improvement efforts may result in short-term operational and administrative difficulties, and may also result in
accounting inaccuracies. This could adversely affect our business, financial condition and results of operations.
We will rely on the Companys IT systems to assist with the management of its business and customer and
supplier relationships, and a disruption of these systems could adversely affect NewCos business.
IT systems will be an integral part of NewCos business. The Company depends on IT systems to bill
customers, process orders, provide customer service, manage projects, manage financial records, track assets,
remotely monitor certain facilities and manage human resources, inventory and accounts receivable collections.
IT systems also enable the Company to purchase products from suppliers and bill customers on a timely basis,
maintain cost-effective operations and provide service to customers. A serious disruption of our IT systems
could significantly limit our ability to manage and operate its business efficiently, which, in turn, could cause
its business and competitive position to suffer and adversely affect operations. Such disruptions may result from:
IT upgrades; power loss, computer systems failures, and internet, telecommunications or data network failures;
operator negligence or improper operation by, or supervision of, employees; physical and electronic loss of
customer data due to security breaches, misappropriation and similar events computer viruses; intentional acts of
vandalism and similar events; and hurricanes, fires, floods, earthquakes and other natural disasters.
In addition, progress in this area has brought with it cybersecurity risks. Recently, the frequency and
severity of cyber attacks on companies has increased resulting in a disruption to business operations and the
corruption or misappropriation of proprietary data. If such an attack were to occur, customer information could be
misappropriated, networks could be down for an extended period of time and it could require costly replacement of
hardware and software.
The international scope of our operations may adversely affect our business.
We operate in ten different countries, primarily in the United States, Canada, France, Italy, Belgium, Spain
and Dubai. We also believe that certain markets in the Asia-Pacific region and the Middle East may present
attractive growth opportunities. During the twelve months ended December 31, 2011, we derived approximately
55% of our revenue from our North American operations and 45% from our European operations. This international
scope exposes us to certain risks, including:
x

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restrictions on foreign ownership of subsidiaries;

tariffs and other trade barriers;

social and political turmoil, official corruption and civil unrest;

less effective protection of intellectual property; and

potentially adverse tax consequences of operating in multiple jurisdictions.

In addition, an adverse change in laws or administrative practices in countries where we operate could have
a material adverse effect on us.
Our results of operations depend on the ability of our management team, many of whom are new to our
business, to execute our strategy and the ability to attract and retain highly qualified personnel to supplement
the existing management team.
Our success will be substantially dependent upon the efforts and skills of our senior management team and
our management teams ability to execute the strategy we have developed for our business. Several members of our
senior management team are new to our business, including the CFO, who joined the Company in May 2011 and our
interim CEO, who joined the Company in January 2012. If we were to lose the services rendered by these or other
members of the senior management team, or if the New Board of Directors of NewCo is unable to attract and
succeed in hiring and retaining qualified employees to supplement the senior management team, our operations
could be adversely affected.
If we engage in acquisitions or business combinations, we will be exposed to a variety of other risks that could
harm our business.
We may engage in selective acquisitions from time to time. Any future acquisitions could result in a
variety of other risks:
x

we may need to spend substantial operational, financial and management resources in integrating new
businesses, technologies and products, and management may encounter difficulties in integrating the
operations, personnel or systems of the acquired business;

future acquisitions or business combinations might have a material adverse effect on our business
relationships with our dealers or suppliers, or both, and could lead to a termination of or otherwise
affect our relationships with our dealers or suppliers;

we may assume substantial actual or contingent liabilities;

we may incur substantial unanticipated costs or other problems associated with acquired businesses;
and

we may not be able to retain the key personnel, customers and suppliers of the acquired business.

Because we generate revenue denominated in several different currencies, fluctuations in the value of those
currencies may impair our ability to service our indebtedness and other obligations and may adversely affect
our financial results.
We generate revenue denominated in several different currencies, principally U.S. dollars and euro. After
the consummation of the Restructuring our principal indebtedness will consist of the Amended First Lien Facility,
which is denominated in U.S. dollars, the New Revolving Facility, which is denominated in U.S. dollars and the
Second Lien Facility, which is denominated in U.S. dollars. We also have other financial obligations, including our
cost of goods sold, denominated in various currencies, principally U.S. dollars. We generate revenue in currencies

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other than those in which our debt and other obligations are denominated. Accordingly, currency fluctuations may
materially impair our ability to meet our various financial obligations, including our indebtedness.
Furthermore, it is possible that the current debt crisis in Europe could lead to the re-introduction of
individual currencies in certain European Union countries or in the wholesale dissolution of the euro currency. The
resulting impact of any such change is impossible to predict, but it could also have a material adverse effect on us,
either directly or by impacting: the ability of our business and financial partners to finance their businesses on
acceptable terms, if at all; the availability of materials and supplies; and demand for our products and services.
We generate a significant portion of our revenue from sales to Western Europe.
We generate a significant portion of our revenue from sales to Western Europe. The current sovereign debt
crisis affecting certain European countries, including Greece, Italy, Ireland, Portugal and Spain, and related
European financial restructuring efforts, may cause the value of European currencies, including the euro, to
deteriorate. Recent rating agency downgrades on European sovereign debt and growing concern over the potential
default of European government issuers have further contributed to this uncertainty.
In an attempt to address these issues, governments in certain countries are cutting spending and raising
taxes to reduce deficits. As a result, many economies are experiencing slow growth and unemployment rates
continue to increase. The impact of these measures on our business is impossible to predict, but together they could
have a material adverse effect on us, either directly or by impacting the ability of our business and financial partners
to finance their businesses on acceptable terms, if at all, the availability of materials and supplies, and overall
demand for our products and services in Western Europe.
We generate a portion of our revenue from sales in the Middle East.
In 2011, $22.3 million of our total net revenues came from sales in the Middle East. The continued threat of
terrorist activity and other acts of war or hostility, including the wars in Afghanistan and Iraq, the current violence
and potential war in Syria, the ongoing uncertainty related to Irans nuclear ambitions and threats against Israel and
the ongoing Israeli-Palestinian conflict, create uncertainty throughout the Middle East and significantly increase the
political, economic, and social instability in the Middle East. To the extent terrorism, or the political, economic or
social instability results in a disruption of our operations, then our business, operating results and financial condition
could be adversely affected.
We are growing our international C&I business through emerging markets.
Conducting operations in developing countries may present significant commercial challenges for our
business. A disruption of activities, or loss of use of equipment or installations, at any location in which we have
significant assets or operations, could have a material adverse effect on our financial condition and results of
operations. Accordingly, we may be subject to risks that ordinarily would not be expected to exist to the same extent
in the United States, Canada or Western Europe. Some of these risks include:
x

civil uprisings, terrorism, riots and war, which can make it impractical to continue operations,
adversely affect both budgets and schedules and expose us to losses;

difficulties in repatriating foreign currency received in excess of local currency requirements and
converting it into dollars or other fungible currency;

exchange rate fluctuations, which can reduce the purchasing power of local currencies and cause our
costs to exceed our budget, reducing our operating margin in the affected country;

expropriation of assets, which can disrupt our business activities and create delays and corresponding
losses;

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limited availability of suitable personnel and equipment, which can be affected by government policy,
or changes in policy, which limit the importation of skilled craftsmen or specialized equipment in areas
where local resources are insufficient;

governmental instability, which can cause investment in capital projects by our potential customers to
be withdrawn or delayed, reducing or eliminating the viability of some markets for our services;

decrees, laws, regulations, interpretations and court decisions under legal systems which are not always
fully developed and which may be retroactively applied and cause us to incur unanticipated and/or
unrecoverable costs as well as delays which may result in real or opportunity costs; and

restrictive governmental registration and licensing requirements, which can limit the pursuit of certain
business activities.

Our operations in developing countries may be adversely affected in the event any governmental agencies
in these countries interpret laws, regulations or court decisions in a manner which might be considered inconsistent
or inequitable in the United States, Canada or Western Europe. We may be subject to unanticipated taxes, including
income taxes, excise duties, import taxes, export taxes, sales taxes or other governmental assessments, which could
have a material adverse effect on our results of operations for any quarter or year. These risks may result in a
material adverse effect on our results of operations.
We depend on our relationships with our suppliers and a disruption of these relationships or of our suppliers
operations could have an adverse effect on our business and results of operations.
Our business depends on developing and maintaining productive relationships with our suppliers. Many
factors outside of our control may harm these relationships. Our suppliers ability to supply products to us is also
subject to a number of risks, including destruction of their facilities or work stoppages. In addition, our failure to
promptly pay, or order sufficient quantities of inventory from, our suppliers may increase the cost of products we
purchase or may lead to suppliers refusing to sell products to us at all.
We rely on credit terms offered by our suppliers to finance our purchases. The inability of our suppliers to
continue to offer these credit terms or significant shortening of the terms of that trade credit could place further
pressure on our credit agreements and borrowing availability. Further, we maintain mutually beneficial
relationships with several strategic suppliers which provide us with financial benefits and competitive positioning
advantages. Failure to continue these relationships could have an impact on our financial performance.
We rely heavily on suppliers in China.
We purchase the majority of the materials and goods used to manufacture, assemble and distribute our
products from suppliers based in China. There can be no assurance that Chinas economic, political or legal systems
will not develop in a way that becomes detrimental to our business, results of operations and financial condition.
Our activities may be materially and adversely affected by changes in Chinas economic and social conditions and
by changes in the policies of the government, such as measures to control inflation, changes in the rates or method
of taxation and the imposition of additional restrictions on currency conversion.
We rely on foreign manufacturers to obtain adequate, timely and cost-effective inventory.
We rely to a significant extent on foreign manufacturers of products that we sell. This reliance increases
the risk that we will not have adequate and timely supplies of various products due to local political, economic,
social or environmental conditions (including acts of terrorism, the outbreak of war or the occurrence of natural
disaster), transportation delays (including dock strikes and other work stoppages), restrictive actions by foreign
governments, or changes in United States laws and regulations affecting imports or domestic distribution. Reliance
on foreign manufacturers will also increase our exposure to trade infringement claims and reduce their ability to
return products for various reasons.

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Many of our products manufactured overseas and imported into the United States are expected to be subject
to duties collected by the United States Customs Service. We may be subject to additional duties, significant
monetary penalties, the seizure and the forfeiture of the products that we attempt to import, or the loss of import
privileges if they or their suppliers are found to be in violation of United States laws and regulations applicable to
the importation of our products.
We are dependent on a limited number of facilities for distribution, manufacturing, assembly and supply of
various of our products.
We have one distribution center, located in Libertyville, IL for most of our products in North America.
Similarly, we have one C&I manufacturing and assembly facility for North America, located in Vernon Hills, IL and
another for Europe, located in Cadriano, Italy. Furthermore, in China, we have only one source for manufacturing
our new household softener and one source for our new drinking water filtration unit. Any significant interruption
in the operation of any of these facilities or sources due to natural disasters, accidents, system failures or other
events beyond our control or unforeseen causes could delay or impair our ability to distribute, manufacture,
assemble or otherwise supply our products, which could cause sales to decline and have a material adverse effect on
our earnings and financial position. In addition, because our suppliers are in Asia, we would have difficulty
replacing the products, unless we incurred significant costs freighting them by air.
Our continued ability to achieve cost reduction and productivity efficiency improvements is important to our
ability to remain competitive within the industry.
We are continuing to implement a number of cost reduction and productivity improvement initiatives in our
operations. Difficulties that we may encounter in implementing future initiatives could also have a negative effect
on our results of operations and financial condition. Moreover, we may not fully realize the anticipated benefits of
the initiatives, and associated cost to implement may exceed anticipated amounts. Our continued success in
implementing such initiatives is an important component to our future competitiveness and long term financial
goals.
We are subject to extensive governmental regulation.
We are subject to U.S. Federal Trade Commission regulations and various U.S. state and foreign laws
regulating the offer and sale of franchises. We must also comply with a number of state and foreign laws that
regulate substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisors ability to:
terminate or not renew a franchise without good cause; interfere with the right of free association among
franchisees; disapprove the transfer of a franchise; discriminate among franchisees with regard to charges, royalties
and other fees or place new dealerships near existing dealerships.
In the United States, the water treatment and filtration industry is subject to numerous U.S. federal, state
and local government regulations, including those relating to the sale and promotion of water devices, product
disclosure, water testing, advertising restrictions and product registration. In Europe, the EU recently enacted the
EU Drinking Water Directive that introduces water quality standards for drinking water, including specific standards
for bottled water. This directive is being adopted through legislation in many of the EU member states where we do
business.
We are also subject to U.S. FDA regulations and various U.S. federal, state and local laws that regulate our
production of bottled water. Our facilities are subject to inspections and audits that could result in the incurrence of
penalties, product recalls or necessitate changes in the manner in which we operate our business.
Changes in or expansions of government regulations that affect us could impair our ability to compete
effectively and harm our business. We cannot predict the effect of any future legislation or regulation. Our failure
to comply with laws and regulations that apply to us, including, but not limited to, laws and regulations regarding
franchises and water quality, could materially harm our business.

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We may not be able to adequately protect our intellectual property and other proprietary rights that are
material to our business.
Our ability to compete effectively depends in part upon our rights in trademarks, patents and other
intellectual property rights we own or license, particularly the Culligan brand name. Our use of contractual
provisions, confidentiality procedures and agreements, and patent, trademark, copyright, unfair competition, trade
secret and other laws to protect our intellectual property and other proprietary rights may not be adequate.
Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary
rights laws, we may not receive the same protection in foreign countries as we would in the United States. If we are
unable to protect our proprietary technology and brand name, we could suffer a material adverse effect on our
business, financial condition or results of operations.
Litigation may be necessary to enforce our intellectual property rights and protect our proprietary
information, or to defend against claims by third parties that our products infringe upon their intellectual property
rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our
resources. A successful claim of trademark, patent or other intellectual property infringement against us could
prevent us from manufacturing or selling products or providing services, which could have a material adverse effect
on our business, financial condition or results of operations.
Potential or pending intellectual property litigation may harm our business.
Third parties may in the future assert that our business or the technologies used by us infringe on such third
parties intellectual property rights. As a result, we may be subject to intellectual property legal proceedings and
claims in the ordinary course of business. We are not able to predict whether third parties will assert claims of
infringement against us in the future or whether any future claims will prevent us from offering popular products or
operating their business as planned. If we are forced to defend against any third party infringement claims,
regardless of whether such claims are with or without merit or are determined in our favor, we could face expensive
and time-consuming litigation. If we are found to infringe on third parties intellectual property rights, we may be
required to pay monetary damages, which could include treble damages and attorneys fees for any infringement that
is found to be willful. In addition, we could either be enjoined from using or required to pay ongoing royalties with
respect to any technologies found to be infringed. If a third party successfully asserts an infringement claim against
us and we are enjoined or required to pay monetary damages or royalties or we are unable to develop suitable
alternatives or license the infringed or similar technology on reasonable terms on a timely basis, our business, results
of operations and financial condition could be materially harmed.
North American Company-Owned Dealers Refranchising.
In 2011, the Company announced its intention to refranchise its NACODs. The Company projects total net
proceeds in connection with the NACOD refranchising process to be approximately $115 million. Although the
NACOD refranchising process is substantially complete, approximately $15 million in net proceeds is expected to
be received after the consummation of the Restructuring and will be used to repay the New Bridge Loan. If the
Company is unable to finalize the sale of its remaining NACODs, the Companys liquidity will be affected. See
The RestructuringPotential Adjustments to Equity OwnershipAdditional Investment/RO Reduction, which
begins on page 70.

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V.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Offering Memorandum and Disclosure Statement contains statements that constitute forward-looking
statements, many of which can be identified by the use of forward-looking words such as anticipate, may,
might, believe, could, expect, should, plan, intend, estimate and potential, among others. These
statements appear in a number of places in this Offering Memorandum and Disclosure Statement and include, but
are not limited to, statements regarding NewCos and the Companys intent, belief or current expectations with
respect to:
x

NewCos and the Companys direction and future operations;

the implementation of NewCos and the Companys operating strategies;

NewCos and the Companys plans with respect to acquisitions, joint ventures, strategic alliances or
divestitures;

the implementation of NewCos and the Companys financing strategy and capital expenditure plans;

the competitive nature of the industries in which NewCo and the Company operate;

the cost and availability of financing;

the general performance of the global / U.S. economy;

developments in, or changes to, the laws, regulations and governmental policies governing NewCos
and the Companys business, including environmental liabilities;

other factors or trends affecting NewCos and the Companys financial condition or results of
operations; and

other statements contained in this Offering Memorandum and Disclosure Statement regarding matters
that are not historical facts.

Forward-looking statements are only NewCos and the Companys current expectations and are based on
NewCos and the Companys beliefs and assumptions and on information currently available to the Companys
management. Forward-looking statements are subject to risks and uncertainties, and actual results may differ
materially from those expressed or implied in the forward-looking statements as a result of various factors,
including, but not limited to, those identified under the section entitled Risk Factors, starting on page 34 of this
Offering Memorandum and Disclosure Statement.
Forward-looking statements speak only as of the date they are made, and NewCo and the Company do not
undertake any obligation to update them in light of new information or future developments or to release publicly
any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of
unanticipated events.

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VI.

USE OF PROCEEDS

We will not receive any cash proceeds from the First Lien Exchange Offer. We anticipate that the issuance
of NewCo Stock pursuant to the Rights Offering and the New Bridge Loan will result in net proceeds of up to
$104.5 million (subject to adjustment as set forth in The RestructuringPotential Adjustments to Equity
Ownership, which begins on page 68). Such proceeds will be used to fund the cash-out option under the Second
Lien Exchange Offer, Cash payments made in connection with the Deferred Bonus Modifications, the First Lien
Paydown, the payment of fees and expenses incurred in connection with the Restructuring, and for working capital
and other general corporate purposes of the Company. We may also draw up to $10 million of loans under the New
Revolving Facility on the Effective Date to fund the First Lien Paydown, as set forth in the Restructuring Support
Agreement.

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VII.

CAPITALIZATION OF CULLIGAN HOLDING

Because NewCo was not formed until May 8, 2012, the following table sets forth the capitalization of
Culligan Holding as of March 31, 2012 on an historical basis and on a pro forma basis giving effect to the following
transactions contemplated by the Restructuring as if they had occurred on March 31, 2012:
x

Receipt of $105 million Cash from the Rights Offering (reflecting the Rights Offering of up to $104.5
million, rounded to the nearest million);

Payment in Cash of the Deferred Bonus Obligations to current and former employees and a Cash
payment to holders of DSUs in an aggregate amount of $7 million;

Payment in cash of $21 million of estimated transaction fees;

An initial borrowing of $10 million of loans under the $50 million New Revolving Facility;

Payment in Cash of $180 million to existing First Lien Lenders;

Exchange of First Lien Debt for $180 million of principal indebtedness under the Amended First Lien
Facility;

Exchange of First Lien Debt for $175 million of principal indebtedness under the New Second Lien
Facility; and

Exchange of Second Lien Debt for NewCo Stock, determined based upon the value of the Rights
Offering.

This table should be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations of Culligan Holding, Selected Historical Financial Information of Culligan
Holding, Unaudited Pro Forma Consolidated Financial Data of Culligan Holding, The Restructuring, and
Presentation of Financial Information included elsewhere in this Offering Memorandum and Disclosure Statement
and the audited and unaudited consolidated financial statements of Culligan Holding and the related notes thereto
attached hereto as Annex L.

Historical

Pro Forma

(in millions; unaudited)

Cash and cash equivalents.........................................

135

Current installments of long-term debt (a)(b) ...........

535

Long-term
debt,
excluding
current
installments (b)....................................................

$
$

41
22

234

354

Common stock, $31.10 par value; 500 shares

issued and outstanding at March 31, 2012 and
December 31, 2011 ...................................................

Additional paid-in capital......................................

230

195

Retained deficit .....................................................

(533)

(16)

Equity (deficit):

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Accumulated other comprehensive (loss)

income ...............................................................

13

Non-controlling interest ....................................

Total Capitalization.....................................

615

597

(a) Upon consummation of the Restructuring we will enter into the New Revolving Facility. We expect to draw
$10 million of loans upon closing of the Restructuring.
(b) For further detail with respect to the existing debt of Culligan Holding as of March 31, 2012, see note 8 of the
unaudited consolidated financial statements which are attached hereto as Annex L.

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VIII.

THE RESTRUCTURING

The Offerings are part of, and are being conducted pursuant to, the Recapitalization Plan to accomplish the
Restructuring. The Recapitalization Plan consists of the transactions described in this Offering Memorandum and
Disclosure Statement. The purpose of the Restructuring is to address upcoming debt maturities, de-lever our
balance sheet and enhance our ability to compete in the water treatment industry.
A.

The Recapitalization Plan

The Restructuring may be accomplished through either the out-of-court Recapitalization Plan or, in the
alternative, the in-court Pre-Packaged Plan. If the Recapitalization Plan is accomplished, $413 million of the
Companys existing secured debt will be repaid in Cash or exchanged for equity through the First Lien Exchange
Offer and the Second Lien Exchange Offer. In the First Lien Exchange Offer, each First Lien Lender will exchange
its portion of First Lien Debt for its Pro Rata share of the First Lien Paydown, the Amended First Lien Facility and
the New Second Lien Facility. In the Second Lien Exchange Offer, each Second Lien Lender will exchange its
portion of Second Lien Debt for, at its option, either $0.30 for every $1.00 of its outstanding Second Lien Debt
(calculated as set forth in The Second Lien Exchange OfferCalculation of Cash Election with respect to Second
Lien Debt, which begins on page 83), or its Pro Rata share of 47.64% (subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on page 68) of the NewCo Stock. Each
Second Lien Lender will also have the right to purchase, pursuant to the Rights Offering, its Pro Rata share of
49.65% (subject to adjustment as set forth in The RestructuringPotential Adjustments to Equity Ownership,
which begins on page 68) of NewCo Stock and/or subscribe for its own share of the New Bridge Loan. The closing
of the Recapitalization Plan is conditioned upon the consent of 100% of both First Lien Lenders and Second Lien
Lenders. For a more detailed description of the Offerings being made to these lenders, see The First Lien
Exchange Offer and The Second Lien Exchange Offer, which are on pages 76 and 79, respectively.
In addition, each consenting holder of a Current Employee Deferred Bonus Obligation will receive 50% of
the face amount of such holders Current Employee Deferred Bonus Obligations (net of applicable withholding
taxes) in the form of NewCo Stock, and 50% of the face amount of such obligations in the form of Cash (net of
applicable withholding taxes). Each consenting holder of a Former Employee Deferred Bonus Obligation will
receive, at the option of such Former Employee, either (a) 80% of the face amount of the Former Employee
Deferred Bonus Obligation in Cash (net of applicable withholding taxes) or (b) a combination of (i) 50% of the face
amount of such obligation in Cash (net of applicable withholding taxes), and (ii) 50% of the face amount of such
obligation in the form of the Former Employee Note Amount (net of applicable withholding taxes).
Finally, the Existing Equityholder will receive $474,193 in Cash, and, following the consummation of the
Recapitalization Plan, will retain 2.27% (subject to adjustment as set forth in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock. The Restructuring further
contemplates that, following the Effective Date, the Existing Equityholder will transfer such Cash Pro Rata to its
existing holders of DSUs and will transfer such NewCo Stock Pro Rata to its existing equityholders.
B.

The Pre-Packaged Plan

If the Restructuring is accomplished through the Pre-Packaged Plan, the exchanges of First Lien Debt,
Second Lien Debt, Current Employee Deferred Bonus Obligations, Former Employee Deferred Bonus Obligations
and Existing Equity Interests would be accomplished through the Pre-Packaged Plan. Holders of First Lien Debt,
Second Lien Debt, Current Employee Deferred Bonus Obligations, Former Employee Deferred Bonus Obligations
and Existing Equity Interests would receive the same treatment under the Pre-Packaged Plan as contemplated by the
out-of-court Recapitalization Plan, except that holders of Second Lien Debt will not have the option of exchanging
$0.30 in Cash for every $1.00 of their outstanding Second Lien Debt under the Pre-Packaged Plan. See The PrePackaged Plan, which begins on page 91.

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C.

Background to the Restructuring

As of March 31, 2012, our debt obligations included (a) an estimated $535 million in outstanding principal
obligations under the First Lien Facility plus accrued but unpaid interest; (b) the Revolving Facility with a
commitment of $110 million, of which no amounts were outstanding other than $10.2 million in potential
reimbursement obligations related to certain outstanding, undrawn letters of credit; and (c) an estimated $233
million in outstanding principal obligations under the Second Lien Facility, plus accrued but unpaid interest.
On May 24, 2007, we entered into the First Lien Facility, with term loan borrowings of $530 million and
25 million. Obligations under the First Lien Facility are guaranteed by all of our U.S. subsidiaries and certain of
our foreign subsidiaries and are secured by liens on substantially all of our assets other than the assets of certain
unrestricted subsidiaries, including not more than 65% of the total outstanding capital stock of any non-U.S.
subsidiary, all subject to certain customary exceptions. The obligations under the First Lien Facility are pari passu
with the Revolving Facility. As of March 31, 2012, an estimated $535 million in principal amount remained
outstanding under the First Lien Facility, with a stated maturity date of November 24, 2012.
On May 24, 2007, we entered into the Revolving Facility with a commitment amount of $110 million. As
of March 31, 2012, the only obligations outstanding under the Revolving Facility included $10.2 million in Cash
collateralized L/C arrangements. Obligations under the Revolving Facility are guaranteed by all of our U.S.
subsidiaries and certain of our foreign subsidiaries and are secured by liens on substantially all of our assets other
than the assets of certain unrestricted subsidiaries, including not more than 65% of the total outstanding capital stock
of any non-U.S. subsidiary, all subject to certain customary exceptions. The obligations under the Revolving Facility
are pari passu with the First Lien Facility. On April 24, 2012, we entered into an amendment to the Revolving
Facility which among other things (a) reduced the available commitment amount to $10.2 million, (b) provided that
the only permissible amounts outstanding under the Revolving Facility shall be letters of credit outstanding as of the
date of the amendment, together with extensions and replacements thereof, (c) extended the maturity date to October
24, 2012, and (d) required that separate cash collateral be posted in support of the outstanding letters of credit
obligations in the form of 110% of the face amount of such letters of credit.
On May 24, 2007, we entered into the Second Lien Facility, with term loan borrowings of 175 million.
Obligations under the Second Lien Facility are guaranteed by all of our U.S. subsidiaries and certain of our foreign
subsidiaries and are secured by liens on substantially all of our assets other than the assets of certain unrestricted
subsidiaries, including not more than 65% of the total outstanding capital stock of any non-U.S. subsidiary, all
subject to certain customary exceptions. Pursuant to the Existing Intercreditor Agreement, the obligations under the
Second Lien Facility are subordinated to the obligations under the First Lien Facility and the Revolver Facility. As
of March 31, 2012, an estimated $233 million in principal amount remained outstanding on the Second Lien
Facility, with a stated maturity date of May 24, 2013.
In July 2011, recognizing the need to address the upcoming maturities under the Existing Credit Facilities,
we engaged Evercore Partners as our financial advisor to, among other things, investigate sources of additional
liquidity to support our cash needs and to open a dialogue with certain parties within our capital structure regarding
a potential refinancing of the Existing Credit Facilities as well as a comprehensive de-leveraging transaction.
In exploring the full range of options available to us, in September 2011, we engaged Goldman Sachs as
investment banker to commence a sale process (with Goldman Sachs engagement being with respect to the sale of
the entire Company and, later, consideration of a sale of certain of our individual business segments) concurrent
with our ongoing discussions with certain of our existing lenders. As part of that process, Goldman Sachs contacted
75 potential strategic buyers. After an approximately three-month period during which certain potential bidders
conducted due diligence review regarding the company, the final bid deadline (following one extension of the
deadline) occurred in January 2012. Despite the fact that no bids were received as a result of this sale process,
Goldman Sachs engaged in discussions with potential bidders prior to the deadline making it clear that there was no
requirement that the purchase price contemplated in any bid meet any particular price floor.
After concluding the sale process in January 2012, we continued to engage in discussions with
Centerbridge, and we later began discussions with Angelo Gordon. On April 10, 2012, we executed the

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Restructuring Support Agreement with the Initial Lenders pursuant to which the Initial Lenders agreed to support
the Restructuring on the terms described in this Offering Memorandum and Disclosure Statement and in the
Restructuring Support Agreement.
D.

Reasons for the Restructuring

We are pursuing the Restructuring to address upcoming debt maturities, de-lever our balance sheet and
enhance our ability to compete in the water treatment industry. We are taking these measures in the face of the
impending maturities of our secured debt and the receipt of a going concern qualification from our auditors that,
absent a waiver, would trigger defaults under our Existing Credit Facilities. If such defaults and potential
consequent acceleration of our debt obligations occur, we do not expect, and we cannot assure you, that we will
have, or have access to, sufficient liquidity to meet all of our debt repayment obligations. As of March 31, 2012, we
had an estimated $769 million of indebtedness.
We expect that the Restructuring, if successful, will de-lever our balance sheet by reducing our
indebtedness from an estimated $769 million as of March 31, 2012 to an estimated $376 million at the closing of the
Restructuring, consisting of an estimated $1 million in capital lease obligations and other indebtedness,
approximately $180 million in principal amount under the Amended First Lien Facility, $175 million under the New
Second Lien Facility, the New Bridge Loan in an estimated principal amount of $10.5 million (subject to reductions
as described in The RestructuringPotential Adjustments to Equity Ownership, which begins on page 68) and $10
million of loans out of a $50 million commitment under the New Revolving Facility. See Unaudited Pro Forma
Financial Information of Culligan Holding and Capitalization of Culligan Holding, which begin on pages 134
and 61, respectively. Furthermore, assuming we are able to complete the Restructuring, we expect that, for the
foreseeable future, cash generated from operations will be sufficient to allow us to service our debt, fund our
operations and allow us to meet our long-term business strategy, though there can be no assurance that such cash
generated will be sufficient for such purposes.
If we do not complete the Restructuring either through the Recapitalization Plan or the Pre-Packaged Plan,
we anticipate that we will not be able to meet our secured debt obligations, all of which mature in the next twelve
months. In addition, we have received a going concern qualification from our auditors in connection with our
required delivery of audited annual financial statements under the Existing Credit Facilities, which would, absent a
waiver, trigger a default under each of our Existing Credit Facilities. Although the Existing Lenders have agreed in
the Waivers to waive defaults related to the going concern qualification so long as the Restructuring Support
Agreement remains in effect (with an outside date of June 29, 2012), the Waivers may terminate if the milestones set
forth in the Restructuring Support Agreement are not met, including the completion of the Recapitalization Plan or
the Pre-Packaged Plan in the timeframe set out in the Restructuring Support Agreement. If the Waivers terminate or
if new defaults occur under the Existing Credit Facilities, then the lenders under each of the Existing Credit
Facilities may cause the acceleration of each of the amounts owed thereunder.
If all the indebtedness under the Existing Credit Facilities becomes immediately due and payable (as would
be the case in the event of an acceleration of the obligations under the Existing Credit Facilities), we do not expect,
and we cannot assure you, that we will have, or have access to, sufficient liquidity to meet our debt repayment
obligations. Such an acceleration would result in a further material adverse effect on our financial condition,
operations and debt service capabilities. As of March 31, 2012, we had an estimated $135 million of Cash with
which to satisfy these obligations, and we believe the Company has no ability to obtain the necessary additional
funds in the capital markets. If the Company is unable to repay the obligations under the Existing Credit Facilities
upon an acceleration, the agents and lenders under those facilities could exercise their remedies as secured creditors
with respect to the collateral securing such borrowings.
In the event that we experience the series of events outlined above, we will have an immediate need to
pursue other alternatives, including commencing chapter 11 cases on terms other than as contemplated by the PrePackaged Plan. Based upon our efforts to identify alternatives to the Restructuring described above under The
RestructuringBackground to the Restructuring, we do not expect, and there can be no assurance, that any
alternative to such bankruptcy filing would be found. If we commence such a bankruptcy filing, the First Lien

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Lenders, Second Lien Lenders, Current Employees, Former Employees and Existing Equityholder may receive
consideration that is substantially less than what is being offered under the Restructuring.
E.

The Restructuring Support Agreement

On April 10, 2012, after extensive arms-length negotiations, we entered into the Restructuring Support
Agreement, attached hereto as Annex B, with the Initial Lenders, whose interests represent an estimated 81.7% of
the aggregate principal amount of the outstanding indebtedness under the First Lien Facility and an estimated 92%
of the aggregate principal amount of the outstanding indebtedness under the Second Lien Facility. Pursuant to the
Restructuring Support Agreement, the Lenders (including the Initial Lenders) party thereto have agreed to, among
other things (a) participate in the Recapitalization Plan on the terms set forth in the Restructuring Term Sheet,
attached as Exhibit A thereto, by, among other things, consenting to the proposed treatment of the First Lien Debt
and Second Lien Debt and agreeing not to withdraw such consent, and (b) vote all of their First Lien Debt and
Second Lien Debt in favor of the Pre-Packaged Plan, subject to the terms and conditions of the Restructuring
Support Agreement. So long as the Restructuring Support Agreement remains in effect, each of the parties to the
Restructuring Support Agreement has agreed to use commercially reasonable efforts to support and complete the
Recapitalization Plan (and, if necessary, the Pre-Packaged Plan).
Pursuant to the Restructuring Support Agreement, each of the parties thereto has also agreed that so long as
the Restructuring Support Agreement remains in effect, it will not seek, solicit, negotiate, support or engage in any
discussions or enter into any agreements relating to any plan of reorganization, proposal, offer, dissolution, winding
up, liquidation, reorganization, merger, consolidation, business combination, joint venture, partnership, sale of assets
or restructuring of the Company, other than the Restructuring, or take any other action that is inconsistent with, or
that would delay or obstruct the Restructuring.
The Restructuring Support Agreement further provides that the Company will pay certain reasonable and
documented fees and expenses of the Initial Lenders, the First Lien Agent and the Second Lien Agent, including the
costs of certain legal and financial advisors as set forth therein, as well as reimburse Centerbridge for its reasonable
and documented fees and expenses incurred in connection with the Restructuring Support Agreement or the
transactions contemplated therein, or the Restructuring, not to exceed $50,000.
The obligations of all parties under the Restructuring Support Agreement are subject to certain conditions
and terminate upon the occurrence of certain events, including, among others, the failure to comply with certain
timing milestones. The occurrence of such termination events can be waived by Culligan Ltd. and each of the Initial
Lenders, and the conditions can be waived by the Company and/or one or both of the Initial Lenders, as set forth in
the Restructuring Support Agreement.
Notwithstanding anything to the contrary therein, nothing in the Restructuring Support Agreement requires
the Company or any directors or officers of the Company, in such persons capacity as a director or officer of the
Company, to take any action, or to refrain from taking any action, that such person determines in good faith is
inconsistent with its or their fiduciary obligations under applicable law.
On May 10, 2012 the parties to the Restructuring Support Agreement entered into a letter agreement
amending the Restructuring Support Agreement with respect to, among other things, certain foreign antitrust
approvals, timing matters and the size of the Rights Offering.
The foregoing is qualified in its entirety by reference to the Restructuring Support Agreement and May 10,
2012 letter agreement, which are attached hereto as Annex B. To the extent there is any inconsistency between this
summary and the Restructuring Support Agreement, the Restructuring Support Agreement will control.
F.

The Backstop Agreement

We have also entered into the Backstop Agreement, whereby the Backstop Purchasers, for no fee, have
agreed to purchase any unsubscribed shares of NewCo Stock and amount of New Bridge Loan that are offered in the
Rights Offering, and, in Centerbridges sole discretion, to make the Additional Investment. The consummation of

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the Backstop Agreement is subject to certain conditions precedent, including the consummation of the other
transactions contemplated by the Restructuring prior to or simultaneously with or after the closing of the Backstop
Agreement.
G.

Management Incentive Plan

Up to 15% of NewCo Stock will be reserved for issuance as grants of options, stock, restricted stock or
similar equity awards in connection with a Management Incentive Plan. The Management Incentive Plan will be
adopted on or after the Effective Date by the New Board of Directors of NewCo for the benefit of members of
management, employees and directors of NewCo as designated by New Board of Directors of NewCo. The amount,
form, exercise price, allocation and vesting of equity awards under the Management Incentive Plan, and key
limitations thereon shall be determined and approved by Centerbridge. Any issuance of options, stock, restricted
stock or similar equity awards in connection with the Management Incentive Plan will have the effect of diluting all
other equity holdings.
H.

Indemnification Provisions in Organizational Documents

The Memorandum and Articles provide that NewCo shall indemnify its Directors, Secretary, assistant
Secretary, or other officers of NewCo (not including NewCos auditors) and the personal representatives of the same
(each an Indemnified Person) against all actions, proceedings, costs, charges, expenses, losses, damages or
liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Persons own
dishonesty, willful default or fraud, in or about the conduct of the companys business or affairs (including as a
result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretion.
No Indemnified Person shall be responsible: (a) for the acts or omissions of any other Director, officer or agent of
NewCo; (b) for any loss on account of defect of title to any property of NewCo; (c) on account of the insufficiency
of any security in or upon which any money of NewCo shall be invested; (d) for any loss incurred through any bank,
broker or other similar person; (e) for any loss occasioned by any negligence, default, breach of duty, breach of trust,
error of judgment or oversight on such Indemnified Persons part; or (f) for any loss, damage or misfortune
whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or
discretions of such Indemnified Persons office or in relation thereto.
In addition, the Company shall indemnify, defend and hold harmless each controlling person of the
Company as such term is defined in the Securities Act and the Exchange Act (together, the Securities Laws), and
all current and former direct and indirect equityholders, members, partners, subsidiaries, affiliates, funds, managers,
managing members, officers, directors, employees, advisors, principals, attorneys, professionals, accountants,
investment bankers, consultants, agents, and other representatives of any such controlling person, and each of their
respective successors and permitted assigns (each, an Indemnified Securities Party) from and against, and shall
promptly reimburse each Indemnified Securities Party for, any and all losses, damages, liabilities, claims, costs, and
expenses, including, interest, court costs, and reasonable attorneys fees and expenses relating to, arising out of,
resulting from or in connection with any action, suit, or proceeding by a third party arising out of or related to the
Securities Laws based on the offering of securities of the Company on or prior to the Effective Date, other than by
reason of such Indemnified Securities Partys own dishonesty, willful misconduct or fraud.
I.

The Deferred Bonus Modification Agreements

As part of the Recapitalization Plan, NewCo will separately enter into Deferred Bonus Modification
Agreements with each of the consenting holders of the Current Employee Deferred Bonus Obligations and Former
Employee Deferred Bonus Obligations. Pursuant to the Deferred Bonus Modification Agreements, consenting
Current Employees will receive (a) 50% of the face amount of the Current Employee Deferred Bonus Obligations in
the form of NewCo Stock (net of applicable withholding taxes), and (b) 50% of the face amount of such obligations
in the form of Cash (net of applicable withholding taxes). Consenting Former Employees will receive, at each
Former Employees sole option, either (a) 80% of the face amount of the Former Employee Deferred Bonus
Obligation in Cash (net of applicable withholding taxes) or (b) (i) 50% of the face amount of such obligation in Cash
(net of applicable withholding taxes), and (ii) 50% of the face amount of such obligation (net of applicable
withholding taxes) in the form of the Former Employee Note Amount.

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67

J.

Releases by NewCo, Existing Equityholder and CD&R

On the Effective Date, simultaneously with the closing of the Restructuring, each of NewCo, the Existing
Equityholder and CD&R (the Releasing Parties) will execute an agreement whereby each of the Releasing Parties
releases the other Releasing Parties, the Initial Lenders, the First Lien Lenders, the Second Lien Lenders and all
current and former direct and indirect equityholders, members, partners, subsidiaries, affiliates, funds, managers,
managing members, officers, directors, employees, advisors, principals, attorneys, professionals, accountants,
investment bankers, consultants, agents, and other representatives (including their respective equityholders,
members, partners, subsidiaries, affiliates, funds, managers, managing members, officers, directors, employees,
advisors, principals, attorneys, professionals, accountants, investment bankers, consultants, agents, and other
representatives) from any and all Released Claims, except for any such Released Claims for fraud, gross negligence
or willful misconduct. In addition, NewCo will assume the NewCo Assumed Liabilities and the Existing
Equityholder will assign the NewCo Transferred Receivables to NewCo.
K.

Potential Adjustments to Equity Ownership

This Offering Memorandum and Disclosure Statement contemplates a total Rights Offering of $104.5
million (the Commencement Size), of which $94 million consists of rights to acquire NewCo Stock and an
estimated $10.5 million consists of rights to subscribe for the New Bridge Loan. The Commencement Size
represents the amount the Company believes will be necessary to satisfy the Cash Condition on the Effective Date.
The illustrative ownership percentages of NewCo on the Effective Date used in this Offering Memorandum and
Disclosure Statement and set forth below are based on the assumptions set forth below
Illustrative Ownership Percentages Following the Recapitalization Plan (not including Management
Incentive Plan)
x

NewCo Stock issued in the Second Lien Exchange Offer: 47.64%

NewCo Stock issued in the Rights Offering: 49.65%

NewCo Stock retained by the Existing Equityholder: 2.27%

NewCo Stock issued to Current Employees in connection with the Deferred Bonus Modification
Agreement: 0.44%
Assumptions for Illustrative Ownership Percentages

The Restructuring is accomplished through the Recapitalization Plan1

All Second Lien Lenders (except Centerbridge) elect to receive Cash in the Second Lien Exchange Offer

No Additional Investment is made and there is no RO Reduction

Aggregate average withholding for the Current Employees pursuant to the Deferred Bonus Modification
Agreement is 40%.

None of the Former Employees elect, pursuant to the Deferred Bonus Modification Agreement, to receive
the Former Employee Note Amount.

Further information about illustrative ownership in the event the Restructuring is accomplished through the Pre-Packaged
Plan is included in The RestructuringPotential Adjustments to Equity OwnershipsAdjustments for the Pre-Packaged
Plan, which begins on page 68.

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68

A pro forma equity value of $194.7 million, assuming, as of the Effective Date, (A) $21 million of
Minimum Cash at close and (B) a pro forma debt balance of $376.3 million (including $10 million of loans
under the New Revolving Facility, approximately $180 million under the Amended First Lien Facility,
$175 million under the New Second Lien Facility, an estimated $10.5 million under the New Bridge Loan
and $1 million with respect to capital leases and other indebtedness.

To the extent any of the assumptions set forth above do not remain constant, the actual ownership
percentages of NewCo on the Effective Date will be modified based on the principles upon which the illustrative
ownership percentages were calculated. In determining the equity ownership of NewCo on Effective Date, based on
first the net debt balance and then the equity value of NewCo (with any increase in such net debt balance offsetting
such equity value on a dollar for dollar basis) (a) the pro forma ownership of NewCo shall be calculated as if no
Second Lien Lender elected to receive Cash in the Second Lien Exchange Offer (by using the amount of new equity
to be invested in NewCo not including the amount of any cash to be paid in the Second Lien Exchange Offer) and
then (b) if any Second Lien Lender elects to receive Cash in the Second Lien Exchange Offer, the equity percentage
otherwise allocable to such Second Lien Lender if such Second Lien Lender had elected to receive NewCo Stock
shall be instead allocated on a pro rata basis to participants in the Rights Offering (also taking into account that
NewCo Stock received by Current Employees pursuant to the Employee Compensation Grant Agreement is based
on the assumed equity value upon which the Rights Offering is based). Examples are as set forth below (in each
case, holding all other assumptions constant). Please note that these examples are based on rounding and
approximation and that the actual calculations will govern.
Additional Investment
If, immediately prior to the Effective Date (for the avoidance of doubt, whether the Recapitalization Plan or
the Pre-Packaged Plan is consummated), the Company determines that the Cash Condition will not be satisfied, then
in Centerbridges sole discretion, Centerbridge may make an additional investment of any amount in NewCo Stock
at the same assumed equity value as the Rights Offering (the Additional Investment), up to the amount agreed
upon by the Company and Centerbridge such that the Cash Condition is satisfied. If an Additional Investment
occurs, the ownership percentage of NewCo to be held by the other equityholders will be adjusted to the extent of
such additional investment by Centerbridge. We will not know whether and to what extent the Additional
Investment will occur, or if Centerbridge will agree to make the Additional Investment if needed, until on or shortly
before the Effective Date. The size of the New Bridge Loan will not be increased in the event of an Additional
Investment. Please see the table below for examples of the effect of Additional Investment on pro forma ownership
percentages of NewCo immediately after the Effective Date:

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69

For every $1 million of Additional

Investment (based on a pro forma
equity value of $194.7 million):
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

decreases 0.47%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted, provided Additional
Investment and Rights Offering, in the
aggregate, do not exceed $106.1
million (not including Cash paid in the
Second Lien Exchange Offer).

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage is

not adjusted

NewCo Stock issued in connection with Additional Investment

Receives a pro forma ownership

percentage of 0.47%

RO Reduction
1.

If, immediately prior to the Effective Date, the Cash Condition will be satisfied, in Centerbridges sole
discretion the size of the Rights Offering may be reduced (such reduction coming, in Centerbridges
sole discretion, from the equity or New Bridge Loan portion of the Rights Offering), provided that
after giving effect to such reduction the Cash Condition remains satisfied. Please see the table below
for examples of the effect of this reduction on pro forma ownership percentages of NewCo
immediately after the Effective Date.
For every $1 million of RO Reduction:

NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

increases 0.47%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

decreases 0.47%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage is

not adjusted

2.

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Notwithstanding anything else in this Offering Memorandum and Disclosure statement, if any Second
Lien Lender (other than Centerbridge) elects to receive NewCo Stock in the Second Lien Exchange

70

Offer, then the size of the Rights Offering shall automatically be reduced (such reduction coming only
from the equity portion of the Rights Offering) by $0.30 for every $1.00 of Second Lien Debt
(calculated as set forth in The Second Lien Exchange OfferCalculation of Cash Election with
respect to Second Lien Debt, which begins on page 83) so electing. Please see the table below for
examples of the effect of this reduction on pro forma ownership percentages of NewCo immediately
after the Effective Date.
For every $1 million of face value of
Second Lien Debt electing to receive
NewCo Stock in the Second Lien
Exchange Offer:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

increases 0.23%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

decreases 0.23%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted.

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

decreases less than one hundredth of a
percent.

3.

23633137v19

Notwithstanding anything else in this Offering Memorandum and Disclosure statement, if between
May 15, 2012 and the Effective Date, the Company receives net proceeds from its NACOD sales (as
described in Managements Discussion and Analysis of Financial Condition and Results of
Operations of Culligan HoldingDispositions which begins on page 146), then the size of the New
Bridge Loan shall automatically be reduced (with a corresponding amount added to the NewCo Stock
portion of the Rights Offering) on a dollar-for-dollar basis to reflect any such net proceeds. Please see
the table below for examples of the effect of this reduction on pro forma ownership percentages of
NewCo immediately after the Effective Date.

71

For every $1 million of RO Reduction

of New Bridge Loan:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

decreases 0.25%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

increases 0.26%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

decreases less than one hundredth of a
percent

Each of the events in (1), (2) and (3) above is an RO Reduction. If an RO Reduction occurs, the amount of the
subscription purchase price otherwise corresponding to such reduced percentage of NewCo Stock or New Bridge
Loan, as applicable, will be returned (if already submitted) to the applicable Rights Offering participant. In no event
will the Rights Offering be reduced to less than $90 million.

NewCo Stock to be Issued to Current Employees Pursuant to Deferred Bonus Modification Agreement
The figure of 0.44% of NewCo stock to be issued to Current Employees pursuant to the Deferred Bonus
Modification Agreement assumes an aggregate average withholding for the Current Employees pursuant to the
Deferred Bonus Modification Agreement of 40%. We will not know the actual applicable withholding until the
Deferred Bonus Modification Agreements are executed. To the extent that the actual aggregate average withholding
is higher than the 40% assumed, Current Employees will receive less NewCo stock pursuant to the Deferred Bonus
Modification Agreement, and to the extent that the actual aggregate average withholding is lower than the 40%
assumed, Current Employees will receive more NewCo stock pursuant to the Deferred Bonus Modification
Agreement. Please see the table below for examples of the effect of the actual aggregate average withholding on pro
forma ownership percentages of NewCo immediately after the Effective Date.
For every 1% increase in aggregate
average withholding:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage is

not adjusted

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

increases 0.01%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

decreases 0.01%

23633137v19

72

For every 1% decrease in aggregate

average withholding:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage is

not adjusted

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

decreases 0.01%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

increases 0.01%

Additional or Reduced Indebtedness

It is possible that, at the Effective Date, NewCos aggregate debt balance could differ from that set forth in
the assumptions above. Please see the table below for examples of the effect of a different amount of indebtedness
on pro forma ownership percentages of NewCo immediately after the Effective Date:
For every $1 million of indebtedness
in excess of that set forth in the
assumption above:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

decreases 0.22%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

increases 0.22%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

increases less than one hundredth of a
percent

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73

For every $1 million of indebtedness

less of that set forth in the assumption
above:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

increases 0.21%

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

decreases 0.21%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

decreases less than one hundredth of a
percent

Former Employee Note Amount

Please see the table below for examples of the effect of an election by Former Employees, pursuant to the
Deferred Bonus Modification Agreement, to accept the cash/Former Employee Note option on the pro forma
ownership percentages of NewCo immediately after the Effective Date:
If 50% of all Former Employee
Deferred Bonus Obligations choose to
accept the cash/Former Employee
Note option:
NewCo Stock issued pursuant to Second Lien Exchange Offer

Pro forma ownership percentage

decreases 0.05 %

NewCo Stock issued pursuant to Rights Offering

Pro forma ownership percentage

increases 0.05%

NewCo Stock issued to Existing Equityholder

Pro forma ownership percentage is

not adjusted.

NewCo Stock issued to Current Employees who execute Deferred

Bonus Modification Agreement

Pro forma ownership percentage

increases less than one hundredth of a
percent

Adjustments for the Pre-Packaged Plan

As set forth in this Offering Memorandum and Disclosure Statement, if the Restructuring is undertaken
through the Pre-Packaged Plan, holders of Second Lien Debt will receive NewCo Stock in respect of their Second
Lien Debt and will not have the option to elect to receive Cash instead. As a result, the illustrative equity ownership
of NewCo on the Effective Date if the Pre-Packaged Plan is consummated (assuming for illustrative purposes only a
total Rights Offering of $99 million and that all of the other assumptions above remain constant) would be:

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74

x
x
x
x

NewCo Stock issued in exchange for Second Lien Debt: 51.84%

NewCo Stock issued in the Rights Offering: 45.47%
NewCo Stock retained by Existing Equityholder: 2.27%
NewCo Stock issued to Current Employees in respect of Allowed Class 7 Claims: 0.42%

To the extent any of the other assumptions set forth above do not remain constant and are adjusted, the
examples above show the effect of any such adjustments on the illustrative equity ownership of NewCo on the
Effective Date if the Pre-Packaged Plan is consummated based on this initial illustrative equity ownership.

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IX.
A.

THE FIRST LIEN EXCHANGE OFFER

Purpose of the First Lien Exchange Offer

The First Lien Exchange Offer is part of, and is being conducted pursuant to, the Recapitalization Plan to
effect the Restructuring. The Recapitalization Plan consists of the transactions described in this Offering
Memorandum and Disclosure Statement. The purpose of the Restructuring is to address upcoming debt maturities,
de-lever our balance sheet and enhance our ability to compete in the water treatment industry.
B.

Terms of the First Lien Exchange Offer

We are offering to exchange each First Lien Lenders Pro Rata share of the First Lien Debt for a Pro Rata
share of $180 million in Cash, $175 million in debt under the New Second Lien Facility and approximately $180
million in debt under the Amended First Lien Facility. The act of exchanging the First Lien Debt pursuant to the
First Lien Exchange Offer shall constitute an agreement to become bound by, and a beneficiary of, the Amended
First Lien Facility and the New Second Lien Facility.
The Pro Rata share of the First Lien Paydown, debt under the New Second Lien Facility and debt under the
Amended First Lien Facility will be granted to holders of First Lien Debt in full satisfaction of all amounts due in
respect of the First Lien Debt including the principal amount of First Lien Debt and any accrued and unpaid interest
through the consummation of the Restructuring thereon.
C.

Releases

By consenting to the First Lien Exchange Offer, all consenting First Lien Lenders will, to the fullest extent
permitted by applicable law, release from liability the Released Parties from the Released Claims, except for any
claims and causes of action for fraud, gross negligence or willful misconduct. Notwithstanding anything to the
contrary in the foregoing, the release set forth above does not release any post-Effective Date obligations of any
Released Party under the First Lien Exchange Offer, the Amended First Lien Facility, the New Second Lien Facility
or any other transaction contemplated by the Recapitalization Plan.
In consideration for each First Lien Lenders and the Initial Lenders consent to the First Lien Exchange
Offer, the Company will, to the fullest extent permitted by applicable law, release from liability each such First Lien
Lender, the Initial Lenders and the Backstop Purchasers (all in their capacities as such) and each of their respective
current and former direct and indirect equityholders, members, partners, subsidiaries, affiliates, funds, managers,
managing members, officers, directors, employees, advisors, principals, attorneys, professionals, accountants,
investment bankers, consultants, agents, and other representatives (including their respective equityholders,
members, partners, subsidiaries, affiliates, funds, managers, managing members, officers, directors, employees,
advisors, principals, attorneys, professionals, accountants, investment bankers, consultants, agents, and other
representatives) from the Released Claims, except for any claims and causes of action for fraud, gross negligence or
willful misconduct. Notwithstanding anything to the contrary in the foregoing, the release set forth above does not
release any post-Effective Date obligations of any First Lien Lender, Initial Lender or Backstop Purchaser under the
First Lien Exchange Offer, the Amended First Lien Facility, the New Second Lien Facility or any other transaction
contemplated by the Recapitalization Plan.
D.

First Lien Exchange Offer Expiration Date

The Expiration Date for the First Lien Exchange Offer is 5:00 p.m. Eastern Daylight Time on May 30,
2012, unless we extend the First Lien Exchange Offer pursuant to the Restructuring Support Agreement. Subject to
the terms of the Restructuring Support Agreement and applicable law, we may extend this Expiration Date for any
reason, including in order to permit the satisfaction or waiver of any or all conditions to the First Lien Exchange
Offer. The last date on which consents will be accepted, whether on May 30, 2012 or any later date to which the
First Lien Exchange Offer may be extended, is referred to as the Expiration Date.

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76

E.

Extensions; Amendments

To the extent permitted under the Restructuring Support Agreement, we expressly reserve the right, for any
reason, to:
x

extend the time period during which the First Lien Exchange Offer is open, by giving notice of an
extension to the holders of the First Lien Debt, during which extension all First Lien Debt will remain
subject to the First Lien Exchange Offer;

waive (to the extent waivable by us), or seek a waiver from others, or amend any of the terms or
conditions of the First Lien Exchange Offer; and

terminate the First Lien Exchange Offer for the reasons described below in Conditions to the
Completion of the First Lien Exchange Offer.

If we consider an amendment to the First Lien Exchange Offer to be material, or if we waive a material condition of
the First Lien Exchange Offer, we will promptly disclose the amendment or waiver in a supplement to this Offering
Memorandum and Disclosure Statement. We will promptly give notice to holders of First Lien Debt and the First
Lien Agent of any extension, amendment or termination of the First Lien Exchange Offer.
F.

Procedures for Consenting to the First Lien Exchange Offer

First Lien Lenders will not be entitled to receive their Pro Rata share of the First Lien Paydown, debt
under the New Second Lien Facility and debt under the Amended First Lien Facility unless they submit a signed
Consent to the First Lien Exchange Offer before the Expiration Date.
What to Submit and How. If you, as a holder of First Lien Debt, wish to consent to the First Lien
Exchange Offer, you must transmit a properly completed and duly executed Consent in the form attached hereto as
Annex E, including all documents required by the Consent, to the Solicitation, Voting and Exchange Agent before
5:00 p.m. Eastern Daylight Time on the Expiration Date.
The method of delivery of the Consent is at your election and risk. If delivery is by mail, we recommend
that you use registered mail, properly insured, with return receipt requested. In all cases, sufficient time should be
allowed to assure timely delivery to the Solicitation, Voting and Exchange Agent. No Consent, notes or any other
required documentation should be sent to the Company.
G.

Delivery of the First Lien Paydown, New Second Lien Facility and Amended First Lien Facility

The First Lien Paydown, the debt under the New Second Lien Facility and the debt under the Amended
First Lien Facility will be delivered to the First Lien Agent on the Effective Date. Upon receipt by the First Lien
Agent of the First Lien Paydown, the debt under the New Second Lien Facility and the debt under the Amended
First Lien Facility, the Agent will distribute such Cash and debt Pro Rata to the First Lien Lenders in accordance
with the terms of the First Lien Credit Agreement and will cause the Register (as such term is defined in the First
Lien Credit Agreement) to reflect such distributions.
H.

No Withdrawal Rights

You may not validly withdraw your consent to the First Lien Exchange Offer after delivery of the Consent
to the Solicitation, Voting and Exchange Agent.
I.

Conditions to Completion of the First Lien Exchange Offer

Our obligation to consummate the First Lien Exchange Offer is conditioned upon (a) 100% of First Lien
Lenders consenting to the First Lien Exchange Offer, (b) 100% of the Second Lien Lenders consenting to the

23633137v19

77

Second Lien Exchange Offer, (c) satisfaction or waiver of the conditions precedent set forth herein and in the
Restructuring Support Agreement and (d) consummation of the transactions contemplated by the Recapitalization
Plan on or substantially contemporaneous with the Effective Date.
J.

Calculation of Non-US Dollar Claim Amount

Any Dollar Equivalent (as defined in the First Lien Credit Agreement) determination made for
distribution purposes under the First Lien Exchange Offer shall be calculated on the basis of the Spot Rate (as
defined in the First Lien Credit Agreement) determined as of the close of business on the Business Day immediately
preceding the Effective Date.

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X.
A.

THE SECOND LIEN EXCHANGE OFFER

Purpose of the Second Lien Exchange Offer

The Second Lien Exchange Offer is part of, and is being conducted pursuant to, the Recapitalization Plan to
effect the Restructuring. The Recapitalization Plan consists of the transactions described in this Offering
Memorandum and Disclosure Statement. The purpose of the Restructuring is to address upcoming debt maturities,
de-lever our balance sheet and enhance our ability to compete in the water treatment industry.
B.

Terms of the Second Lien Exchange Offer

We are offering to exchange any and all outstanding Second Lien Debt for (a) at each Second Lien
Lenders option, either a Pro Rata share of 47.64% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock or a Cash payment of
$0.30 for every $1.00 of Second Lien Debt (calculated as set forth in The Second Lien Exchange Offer
Calculation of Cash Election with respect to Second Lien Debt, which begins on page 83), and (b) the rights to
purchase a Pro Rata portion of 49.65% (subject to adjustment as set forth in The RestructuringPotential
Adjustments to Equity Ownership, which begins on page 68) of NewCo Stock and subscribe to a Pro Rata portion
of an estimated $10.5 million of the New Bridge Loan (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership) pursuant to the Rights Offering.
The Pro Rata portion of the NewCo Stock to be issued in the Second Lien Exchange Offer and the right to
participate on a Pro Rata basis in the Rights Offering will be granted to holders of Second Lien Debt in full
satisfaction of all amounts due in respect of the Second Lien Debt including the principal amount of Second Lien
Debt and any accrued and unpaid interest through the consummation of the Restructuring thereon.
The Second Lien Exchange Offer is only being made to persons who are accredited investors within the
meaning of Rule 501 of Regulation D under the Securities Act. Pursuant to the consent form with respect to the
Second Lien Exchange Offer, each Second Lien Lender participating in the Second Lien Exchange Offer will
represent that it is an accredited investor pursuant to Rule 501 of Regulation D.
The Rights Offering is only being made to persons who are accredited investors within the meaning of
Rule 501 of Regulation D under the Securities Act. Pursuant to the Subscription Form, each Second Lien Lender
participating in the Rights Offering will represent that it is an accredited investor pursuant to Rule 501 of
Regulation D.
C.

Releases

By consenting to the Second Lien Exchange Offer, all consenting holders of Second Lien Debt will, to the
fullest extent permitted by applicable law, release from liability the Released Parties from the Released Claims,
except for any claims and causes of action for fraud, gross negligence or willful misconduct. Notwithstanding
anything to the contrary in the foregoing, the release set forth above does not release any post-Effective Date
obligations of any Released Party under the Second Lien Exchange Offer, the Rights Offering, the Backstop
Agreement or any other transaction contemplated by the Recapitalization Plan.
In consideration for each Second Lien Lenders and the Initial Lenders (as applicable) consent to the
Second Lien Exchange Offer, the Company will, to the fullest extent permitted by applicable law, release from
liability each such Second Lien Lender, the Initial Lenders and the Backstop Purchasers (all in their capacities as
such) and all of their respective current and former direct and indirect equityholders, members, partners,
subsidiaries, affiliates, funds, managers, managing members, officers, directors, employees, advisors, principals,
attorneys, professionals, accountants, investment bankers, consultants, agents, and other representatives (including
their respective equityholders, members, partners, subsidiaries, affiliates, funds, managers, managing members,
officers, directors, employees, advisors, principals, attorneys, professionals, accountants, investment bankers,
consultants, agents, and other representatives) from the Released Claims, except for any claims and causes of action
for fraud, gross negligence or willful misconduct. Notwithstanding anything to the contrary in the foregoing, the

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release set forth above does not release any post-Effective Date obligations of any Second Lien Lender, Initial
Lender or Backstop Purchaser under the Second Lien Exchange Offer, the Rights Offering, the Backstop Agreement
or any other transaction contemplated by the Recapitalization Plan.
.
D.

Certain Matters Relating to Non-U.S. Jurisdictions

This Offering Memorandum and Disclosure Statement will not, subject to limited exceptions, be distributed
outside the United States and is not an offer to sell or exchange and it is not a solicitation of an offer to buy
securities in any jurisdiction in which such offer, sale or exchange is not permitted. Countries outside the United
States generally have their own legal requirements that govern securities offerings made into those countries and
often impose stringent requirements about the form and content of offers made to the general public. We have not
taken any action in any jurisdiction to facilitate a public offer of securities outside the United States or to facilitate
the distribution of this Offering Memorandum and Disclosure Statement outside of the United States. This Offering
Memorandum and Disclosure Statement does not constitute an invitation to participate in the Second Lien Exchange
Offer in any jurisdiction in which it is unlawful to make such invitation under applicable securities laws. The
distribution of this Offering Memorandum and Disclosure Statement in certain jurisdictions may be restricted by
law. Persons into whose possession this Offering Memorandum and Disclosure Statement comes are required by the
Company to inform themselves about, and to observe, any such restrictions. No action has been or will be taken in
any jurisdiction by the Company in relation to the Second Lien Exchange Offer described herein that would permit a
public offering of securities. Non-U.S. holders should consult their advisors in considering whether they may
participate in the Second Lien Exchange Offer in accordance with the laws of their home countries and, if they do
participate, whether there are any restrictions or limitations on transactions that may apply in their home countries.
We cannot provide any assurance about whether such limitations may exist.
E.

Pro Forma Capitalization

The total amount of NewCo Stock being granted to Second Lien Lenders in the Second Lien Exchange
Offer depends on (a) the number of Second Lien Holders that choose to receive Cash rather than NewCo Stock in
the Second Lien Exchange Offer, (b) the amount of NewCo Stock that is offered for purchase in the Rights Offering
and (c) the other assumptions and calculations set forth in The RestructuringPotential Adjustments to Equity
Ownership. The amount of NewCo Stock offered in the Rights Offering depends, in turn, on assumptions and
calculations set forth in The RestructuringPotential Adjustments to Equity Ownership. The estimates in this
Offering Memorandum and Disclosure Statement, of 47.64% (subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership) of NewCo Stock being granted to Second Lien
Lenders in the Second Lien Exchange Offer and 49.65% (subject to adjustment as set forth in The Restructuring
Potential Adjustments to Equity Ownership) of NewCo Stock being offered for purchase in the Rights Offering, are
based upon the assumption that all Second Lien Lenders (other than Centerbridge) opt to receive Cash rather than
NewCo Stock in the Second Lien Exchange Offer and that the Cash raised in the Rights Offering is $104.5 million.
These estimates are subject to change as described in The RestructuringPotential Adjustments to Equity
Ownership. See The RestructuringPotential Adjustments to Equity Ownership which begins on page 68.
F.

Second Lien Exchange Offer Expiration Date

The Expiration Date for the Second Lien Exchange Offer is 5:00 p.m. Eastern Daylight Time on May 30,
2012, unless, pursuant to the Restructuring Support Agreement, we extend the Second Lien Exchange Offer.
Subject to the terms of the Restructuring Support Agreement and applicable law, we may extend this Expiration
Date for any reason, including in order to permit the satisfaction or waiver of any or all conditions to the Second
Lien Exchange Offer. The last date on which consents will be accepted, whether on May 30, 2012 or any later date
to which the Second Lien Exchange Offer may be extended, is referred to as the Expiration Date.
G.

Extensions; Amendments

To the extent permitted under the Restructuring Support Agreement, we expressly reserve the right, for any
reason, to:

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extend the time period during which the Second Lien Exchange Offer is open, by giving notice of
an extension to the holders of the Second Lien Debt, during which extension all Second Lien Debt
will remain subject to the Second Lien Exchange Offer;

waive (to the extent waivable by us), or seek a waiver from others, or amend any of the terms or
conditions of the Second Lien Exchange Offer; and

terminate the Second Lien Exchange Offer for the reasons described below in Conditions to
the Completion of the Second Lien Exchange Offer.

If we consider an amendment to the Second Lien Exchange Offer to be material, or if we waive a material condition
of the Second Lien Exchange Offer, we will promptly disclose the amendment or waiver in a supplement to this
Offering Memorandum and Disclosure Statement. We will promptly give notice to holders of Second Lien Debt of
any extension, amendment, non-acceptance or termination of the Second Lien Exchange Offer.
H.

Procedures for Consenting to the Second Lien Exchange Offer

Second Lien Lenders will not be entitled to receive NewCo Stock and/or Cash unless they submit a signed
Consent to the Second Lien Exchange Offer before the Expiration Date.
What to Submit and How
x

If you, as a holder of Second Lien Debt, wish to consent to the Second Lien Exchange Offer, you must
transmit a properly completed and duly executed Consent in the form attached hereto as Annex E
which clearly indicates your election to receive either Cash or NewCo Stock pursuant to the Second
Lien Exchange Offer, including all other documents required by the Consent, to the Solicitation,
Voting and Exchange Agent before 5:00 p.m. Eastern Daylight Time on the Expiration Date; and

If you, as a holder of Second Lien Debt, wish to participate in the Rights Offering, you must transmit
a properly completed and duly executed Subscription Form in the form attached hereto as Annex N to
the Solicitation, Voting and Exchange Agent before 5:00 p.m. Eastern Daylight Time on the Expiration
Date.

If you transmit a Consent but no election is made, you will receive NewCo Stock pursuant to the Second
Lien Exchange Offer. If you do not submit a properly completed and duly executed Subscription Form, you will not
participate in the Rights Offering.
The method of delivery of the Consent and/or the Subscription Form is at your election and risk. If
delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In
all cases, sufficient time should be allowed to assure timely delivery to the Solicitation, Voting and Exchange Agent.
No Consent, Subscription Form, note or any other required documentation should be sent to the Company.
I.

Delivery of NewCo Stock and Cash

We will cause the distribution of NewCo Stock in book entry form and the delivery of Cash to the Second
Lien Agent as promptly as practicable on or after the Effective Date. The Cash or Pro Rata portion of the NewCo
Stock to be issued in the Second Lien Exchange Offer and the right to participate in the Rights Offering will be in
full satisfaction of all amounts due in respect of the Second Lien Debt including the principal amount of the Second
Lien Debt and any accrued and unpaid interest through the date of the consummation of the Second Lien Exchange
Offer.
No fractional shares of NewCo Stock will be distributed in the Second Lien Exchange Offer and no Cash
will be distributed in lieu of such fractional amounts. When any distribution of NewCo Stock pursuant to the
Second Lien Exchange Offer would otherwise result in the issuance of a number of shares of NewCo Stock that is

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not a whole number, the actual distribution of shares of NewCo Stock will be rounded as follows: (a) fractions of
one-half () or greater shall be rounded to the next higher whole number; and (b) fractions of less than one-half ()
shall be rounded to the next lower whole number with no further payment therefor.
J.

No Withdrawal Rights

You may not validly withdraw your consent to the Second Lien Exchange Offer or your election thereunder
after delivery of the Consent to the Solicitation, Voting and Exchange Agent.
K.

Conditions to Completion of the Second Lien Exchange Offer

Our obligation to consummate the Second Lien Exchange Offer is conditioned upon (a) 100% of First Lien
Lenders consenting to the First Lien Exchange Offer, (b) 100% of the Second Lien Lenders consenting to the
Second Lien Exchange Offer, (c) satisfaction or waiver of the conditions precedent set forth herein or in the
Restructuring Support Agreement and (d) consummation of the transactions contemplated by the Recapitalization
Plan on or substantially contemporaneous with the Effective Date.
L.

Restrictions on Resale of the NewCo Stock

The NewCo Stock is being offered and sold pursuant to an exemption from registration under U.S. and
applicable state securities laws. The NewCo Stock has not been registered under the Securities Act, any state
securities laws or any other applicable foreign securities laws and we do not intend to register the NewCo Stock
under the Securities Act or any such other laws. Therefore, the holders of the NewCo Stock will hold restricted
stock and may transfer or resell their NewCo Stock only in a transaction exempt from the registration requirements
of the U.S. and applicable state or other foreign securities laws, and all holders of the NewCo Stock may be required
to bear the risk of their investment for an indefinite period of time. This risk may be exacerbated by the absence of
registration rights for the holders of the NewCo Stock. Additionally, the Memorandum and Articles contain certain
restrictions on the transfer of the NewCo Stock. See Description of NewCo StockTransfer Restrictions, which
begins on page 183, for a description of the restrictions on resale of the NewCo Stock in connection with transfer
restrictions imposed by the Memorandum and Articles.
M.

No Appraisal Rights

There are no appraisal or other similar statutory rights available to the Second Lien Lenders in connection
with the Second Lien Exchange Offer.
N.

U.S. Federal Income Tax Treatment of NewCo

Although NewCo is organized as a corporate entity under Cayman Islands law, we intend to treat NewCo
as a partnership for U.S. federal income tax purposes. As a partnership, NewCo generally will not be subject to U.S.
federal income tax, and a holder of NewCo Stock generally will be required to take into account its distributive
share, whether or not distributed, of the items of income, gain, loss, deduction and credit of NewCo in determining
its U.S. federal income tax liability, if any. See Certain U.S. Federal Income Tax Considerations Relating to
Certain Holders of the First Lien Debt or the Second Lien Debt and the Debtors, which begins on page 193, for a
discussion of certain U.S. federal income tax considerations relating to an investment in NewCo Stock.
O.

New Bridge Loan Issued with Original Issue Discount

The New Bridge Loan will be issued with original issue discount for U.S. federal income tax purposes.
Certain holders of the New Bridge Loan may be required to include items (for example, certain in kind interest
payments) in gross income as ordinary interest income for U.S. federal income tax purposes prior to the receipt of
corresponding amounts of cash. See Certain U.S. Federal Income Tax Considerations Relating to Certain Holders
of the First Lien Debt or the Second Lien Debt and the Debtors, which begins on page 193, for a discussion of
certain U.S. federal income tax considerations relating to an investment in the New Bridge Loan.

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P.

Calculation of Cash Election with respect to Second Lien Debt

For purposes of calculating the Cash payment to electing holders of Second Lien Debt, an exchange rate of
$1.2936 to 1 will be used, representing the exchange rate as of May 10, 2012.

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XI.
A.

THE CURRENT EMPLOYEE DEFERRED BONUS MODIFICATION

General Terms of the Current Employee Deferred Bonus Modification

Current Employees currently hold vested deferred bonuses under the Special Bonus Plan. Pursuant to the
terms of the Special Bonus Plan, any vested deferred bonuses are to be paid in full and in cash within thirty (30)
days following a change in control. The consummation of the Restructuring will constitute a change in control
under the Special Bonus Plan and will trigger payment of the Current Employee Deferred Bonus Obligations
As part of the Restructuring, we are separately requesting that each Current Employee consent, pursuant to
the Deferred Bonus Modification Agreement, to the full and final satisfaction, settlement, release and discharge of
each Current Employee Deferred Bonus Obligations through the delivery by the Company of (a) 50% of the face
amount of such obligation (net of applicable withholding taxes) in the form of Cash and (b) 50% of the face amount
of such obligation (net of applicable withholding taxes) in the form of NewCo Stock.
If Current Employees do not separately consent to the Current Employee Deferred Bonus Modification by
signing the Deferred Bonus Modification Agreement, we may not compel the Current Employees to participate in
the Restructuring. However, we may, for reasons related or unrelated to the consent of the Current Employees,
choose to restructure under the Pre-Packaged Plan. See The Current Employee Deferred Bonus Modification,
which begins on page 84. As holders of impaired claims, the Current Employees are also being asked to vote in
favor of the Pre-Packaged Plan, and any claims of Current Employees will be calculated as if they had not executed
the Deferred Bonus Modification Agreement. If we pursue the Restructuring through the Pre-Packaged Plan, and
the Pre-Packaged Plan is confirmed, your Current Employee Deferred Bonus Obligation claim will be treated on the
same terms as the proposed Current Employee Deferred Bonus Modification regardless of whether you voted in
favor of the Pre-Packaged Plan. See Pre-Packaged Plan, which begins on page 91.
B.

Expiration Date of the Current Employee Deferred Bonus Modification

As set forth in the Deferred Bonus Modification Agreement, the expiration date for the Current Employee
Deferred Bonus Modification is 5:00 p.m. Eastern Daylight Time on May 30, 2012, unless extended or earlier
terminated (such date, or any later date pursuant to an extension, the Expiration Date). We may extend the
Expiration Date for any reason, including in order to permit the satisfaction or waiver of any or all conditions to the
Current Employee Deferred Bonus Modification, subject to applicable laws.
C.

Extension; Amendments

To the extent permitted under the Restructuring Support Agreement, we expressly reserve the right, for any
reason, to:
x

extend the time period during which the Current Employees may sign the Deferred Bonus
Modification Agreement, by giving notice of an extension to the Current Employees;

waive (to the extent waivable by us), or seek a waiver from others, or amend any of the terms or
conditions of the Deferred Bonus Modification Agreement; and

terminate the proposed Current Employee Deferred Bonus Modification.

If we consider an amendment to the Deferred Bonus Modification Agreement to be material, or if we waive

a material condition of the Deferred Bonus Modification Agreement, we will promptly disclose the amendment or
waiver, and we will extend the time period for execution of the Deferred Bonus Modification Agreement to the
extent required by applicable law. We will promptly give notice to holders of Current Employee Deferred Bonus
Obligations of any extension, amendment, non-acceptance or termination of the Current Employee Deferred Bonus
Modification or Deferred Bonus Modification Agreement.

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D.

Procedures for Consenting to the Current Employee Deferred Bonus Modification

Current Employees will not be entitled to receive Cash and NewCo Stock in connection with the Current
Employee Deferred Bonus Modification unless they submit a signed Deferred Bonus Modification Agreement
before the Expiration Date.
What to Submit and How
If you, as a holder of Current Employee Deferred Bonus Obligations, wish to consent to the Current
Employee Deferred Bonus Modification, you must transmit a properly completed and duly executed Deferred Bonus
Modification Agreement, including all other documents required thereunder, to the Solicitation, Voting and
Exchange Agent before 5:00 p.m. Eastern Daylight Time on the Expiration Date.
The method of delivery of the Deferred Bonus Modification Agreement is at your election and risk. If
delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In
all cases, sufficient time should be allowed to assure timely delivery to the Solicitation Voting and Exchange Agent.
No Deferred Bonus Modification Agreement or any other required documentation should be sent to the Company.
Withdrawal Rights
You may not validly withdraw your consent to the separate Current Employee Deferred Bonus
Modification after delivery of the Deferred Bonus Modification Agreement to the Solicitation, Voting and Exchange
Agent.
E.

Releases

All Current Employees consenting to the Current Employee Deferred Bonus Modification by executing the
Deferred Bonus Modification Agreement will release from liability the Released Parties from any claims and causes
of action in connection with or arising from the Current Employee Deferred Bonus Obligations or the Special Bonus
Plan.
F.

Delivery of Cash and NewCo Stock

Once all of the conditions to the Recapitalization Plan are satisfied or waived, we will cause the delivery of
Cash and the delivery of NewCo Stock in book entry form to the consenting Current Employee within ten (10) days
of the Effective Date. The Cash and NewCo Stock to be separately delivered to holders of the Current Employee
Deferred Bonus Obligations in connection with the Current Employee Deferred Bonus Modification will be in full
satisfaction of such holders Current Employee Deferred Bonus Obligation.
The number of whole or fractional shares of NewCo Stock to be distributed to each Current Employee in
satisfaction of his or her Current Employee Deferred Bonus Obligation claim will be determined based upon the
assumed equity value under the Rights Offering.
G.

Certain Terms regarding NewCo Stock Delivered in Connection with the Current Employee
Deferred Bonus Modification

The shares of NewCo Stock to be separately delivered in the Current Employee Deferred Bonus
Modification will be issued pursuant to, and subject to the terms and considerations set forth in, the Employee
Compensation Grant Agreement and the Memorandum and Articles. The Employee Compensation Grant
Agreement and Memorandum and Articles will set forth the terms and considerations that govern the Current
Employees shares of NewCo Stock. They establish rights that Current Employees have, and also impose
obligations on Current Employees. Current Employees must read the Employee Compensation Grant Agreement
and Memorandum and Articles carefully. See Description of NewCo Stock, which starts on page 181. Certain
aspects of the Employee Compensation Grant Agreement are also described below under Resale of the NewCo
Stock and Repurchase of NewCo Stock Upon Termination of Employment.

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U.S. Federal Income Tax Treatment of NewCo

Although NewCo is organized as a corporate entity under Cayman Islands law, we intend to treat NewCo
as a partnership for U.S. federal income tax purposes. As a partnership, NewCo generally will not be subject to U.S.
federal income tax, and a holder of NewCo Stock generally will be required to take into account its distributive
share, whether or not distributed, of the items of income, gain, loss, deduction and credit of NewCo in determining
its U.S. federal income tax liability, if any. See Certain U.S. Federal Income Tax Considerations Relating to
Current Employees and Former Employees, which begins on page 201, for a discussion of certain U.S. federal
income tax considerations relating to an investment in NewCo Stock.
Resale of the NewCo Stock
The NewCo Stock is being offered and sold pursuant to an exemption from registration under U.S. and
applicable state securities laws. The NewCo Stock has not been registered under the Securities Act, any state
securities laws or any other applicable foreign securities laws and we do not intend to register the NewCo Stock
under the Securities Act or any such other laws. Therefore, the holders of the NewCo Stock will hold restricted
stock and may transfer or resell their NewCo Stock only in a transaction exempt from the registration requirements
of the U.S. and applicable state or other foreign securities laws. In addition, the Memorandum and Articles contain
certain restrictions on transfer of the NewCo Stock. All holders of the NewCo Stock may be required to bear the
risk of their investment for an indefinite period of time. This risk may be exacerbated by the absence of registration
rights for the holders of the NewCo Stock.
The shares of NewCo Stock that will be delivered to the Current Employees in connection with the Current
Employee Deferred Bonus Modification are subject to additional substantial restrictions on transfer. The Current
Employee may not sell, transfer, assign, gift, pledge, grant a security interest in, distribute, encumber, hypothecate
or otherwise dispose of the shares of NewCo Stock, and any attempted sale, transfer or other distribution will be null
and void. These restrictions will lapse if the NewCo Stock becomes publicly traded on an established securities
exchange, subject to any applicable lock-up restrictions in connection with the shares becoming publicly traded and
any continuing transfer restrictions imposed by the Memorandum and Articles; however, the Company has no
current plans to complete a public offering and may never do so.
Repurchase of NewCo Stock Upon Termination of Employment
If a Current Employees employment with NewCo or its subsidiaries terminates for any reason before there
is a public offering of NewCo Stock, NewCo has the right to buy back some or all of such terminated employees
shares of NewCo Stock at fair market value. There are no circumstances under which a Current Employee can
require NewCo to repurchase his or her shares of NewCo Stock. The price NewCo will pay such terminated
employee for his or her shares will be the fair market value of NewCo Stock, as determined by the New Board of
Directors of NewCo reasonably and in good faith on the date of the repurchase. NewCo is not required to buy a
Current Employees shares of NewCo Stock in any circumstance, however, and may choose not to do so. NewCos
repurchase right upon a termination of employment under the Employee Compensation Grant Agreement will lapse
upon a public offering of NewCo Stock.
H.

Certain Matters Relating to Non-U.S. Jurisdictions

The Offering Memorandum and Disclosure Statement and this supplement thereto will not, subject to
limited exceptions, be distributed outside the United States and is not an offer to sell or exchange and it is not a
solicitation of an offer to buy securities in any jurisdiction in which such offer, sale or exchange is not permitted.
Countries outside the United States generally have their own legal requirements that govern securities offerings
made into those countries and often impose stringent requirements about the form and content of offers made to the
general public. We have not taken any action in any jurisdiction to facilitate a public offer of securities outside the
United States or to facilitate the distribution of the Offering Memorandum and Disclosure Statement or this
supplement thereto outside of the United States. The Offering Memorandum and Disclosure Statement and this
supplement thereto does not constitute an invitation to participate in the Current Employee Deferred Bonus
Modification in any jurisdiction in which it is unlawful to make such invitation under applicable securities laws.

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The distribution of the Offering Memorandum and Disclosure Statement and this supplement thereto in certain
jurisdictions may be restricted by law. Persons into whose possession the Offering Memorandum and Disclosure
Statement and this supplement thereto comes are required by the Debtors to inform themselves about, and to
observe, any such restrictions. No action has been or will be taken in any jurisdiction by the Debtors in relation to
the Current Employee Deferred Bonus Modification described herein that would permit a public offering of
securities. Non-U.S. holders should consult their advisors in considering whether they may participate in the
Current Employee Deferred Bonus Modification in accordance with the laws of their home countries and, if they do
participate, whether there are any restrictions or limitations on transactions that may apply in their home countries.
We cannot provide any assurance about whether such limitations may exist.

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XII.
A.

THE FORMER EMPLOYEE DEFERRED BONUS MODIFICATION

General Terms of the Former Employee Deferred Bonus Modification

Former Employees currently hold vested deferred bonuses under the Special Bonus Plan. Pursuant to the
terms of the Special Bonus Plan, any vested deferred bonuses are to be paid in full and in cash within thirty (30)
days following a change in control. The consummation of the Restructuring will constitute a change in control
under the Special Bonus Plan and will trigger payment of the Former Employee Deferred Bonus Obligations
As part of the Restructuring, we are separately requesting that each Former Employee consent, pursuant to
the Deferred Bonus Modification Agreement, to the full and final satisfaction, settlement, release and discharge of
each Former Employee Deferred Bonus Obligation through the delivery to such Former Employee of, at his or her
option, either (a) 80% of the face amount of such obligation (net of applicable withholding taxes) in Cash or (b) a
combination of (i) 50% of the face amount of such obligation (net of applicable withholding taxes) in Cash, and
(ii) 50% of the face amount of such obligation (net of applicable withholding taxes) in the form of the Former
Employee Note Amount. If the Deferred Bonus Modification Agreement is executed but no election is made, choice
(a) will apply.
If Former Employees do not consent to the Former Employee Modification, we may not compel the Former
Employees to participate in the Restructuring. However, we may, for reasons related or unrelated to the consent of
the Former Employees, choose to restructure under the Pre-Packaged Plan. See The Pre-Packaged Plan, which
begins on page 91 in the Offering Memorandum and Disclosure Statement. As holders of impaired claims, Former
Employees are also being asked to vote in favor of the Pre-Packaged Plan, and any claims of Former Employees will
be calculated as if they had not executed the Deferred Bonus Modification Agreement. If we pursue the
Restructuring through the Pre-Packaged Plan, and the Pre-Packaged Plan is confirmed, each Former Employees
Former Employee Deferred Bonus Obligation claim will be treated on the same terms as the proposed Former
Employee Deferred Bonus Modification regardless of whether such Former Employee voted in favor of the PrePackaged Plan.
B.

Expiration Date

As set forth in the Deferred Bonus Modification Agreement, the expiration date for the Former Employee
Deferred Bonus Modification is 5:00 p.m. Eastern Daylight Time on May 30, 2012, unless extended or earlier
terminated. We may extend the Expiration Date for any reason, including in order to permit the satisfaction or
waiver of any or all conditions to the Current Employee Deferred Bonus Modification, subject to applicable laws.
C.

Extension; Amendments

To the extent permitted under the Restructuring Support Agreement, we expressly reserve the right, for any
reason, to:
x

extend the time period during which the Former Employees may sign the Employee Deferred
Bonus Modification, by giving notice of an extension to Former Employees;

waive (to the extent waivable by us), or seek a waiver from others, or amend any of the terms or
conditions of the Employee Deferred Bonus Modification Agreement; and

terminate the proposed Former Employee Deferred Bonus Modification.

If we consider an amendment to the Deferred Bonus Modification Agreement to be material, or if we waive

a material condition of the Deferred Bonus Modification Agreement, we will promptly disclose the amendment or
waiver, and we will extend the time period for execution of the Deferred Bonus Modification Agreement to the
extent required by applicable law. We will promptly give notice to Former Employees of any extension,

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amendment, non-acceptance or termination of the Former Employee Deferred Bonus Modification or Deferred
Bonus Modification Agreement.
D.

Procedures for Consenting to the Former Employee Deferred Bonus Modification

A Former Employee will not be entitled to receive Cash and/or the Former Employee Note Amount in
connection with the Former Employee Deferred Bonus Modification unless he or she submits a signed Deferred
Bonus Modification Agreement indicating his or her consent and election before the Expiration Date.
What to Submit and How
If you, as a holder of a Former Employee Deferred Bonus Obligation, wish to consent to the Former
Employee Deferred Bonus Modification, you must transmit a properly completed and duly executed Deferred Bonus
Modification Agreement, including all other documents required thereunder, to the Solicitation, Voting and
Exchange Agent before 5:00 p.m. Eastern Daylight Time on the Expiration Date.
The method of delivery of the Deferred Bonus Modification Agreement is at your election and risk. If
delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In
all cases, sufficient time should be allowed to assure timely delivery to the Solicitation Voting and Exchange Agent.
No Deferred Bonus Modification Agreement or any other required documentation should be sent to the Company.
Withdrawal Rights
You may not validly withdraw your consent to the Former Employee Deferred Bonus Modification or your
election thereunder after delivery of the Deferred Bonus Modification Agreement to the Solicitation, Voting and
Exchange Agent.
E.

Releases

All Former Employees consenting to the separate Former Employee Deferred Bonus Modification by
executing the Deferred Bonus Modification Agreement and submitting their election thereunder will release from
liability the Released Parties from any claims and causes of action in connection with or arising from the Former
Employee Deferred Bonus Obligations, the Special Bonus Plan or any applicable Equity Separation Agreement.
F.

Delivery of Cash and/or the Former Employee Note

Once all of the conditions to the Recapitalization Plan are satisfied or waived, we will separately cause the
delivery of cash and/or a copy of the Former Employee Note indicating such consenting Former Employees Former
Employee Note Amount within ten (10) days of the Effective Date. The original Former Employee Note will be
retained by Culligan International. The Cash and Former Employee Note will be in full satisfaction of each holders
Former Employee Deferred Bonus Obligation.
G.

Certain Terms of the Former Employee Note for Consenting Employees

The specific terms of the Former Employee Note will be set forth in the Former Employee Note itself. The
Former Employee Note sets forth rights that such consenting Former Employees have with respect to their interest in
the Former Employee Note, and it also imposes obligations on Former Employees. Former Employees must read
the terms of the Former Employee Note carefully.
Issuer of the Former Employee Note
The Former Employee Note will be issued by Culligan International, the U.S. operating company.

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Interest Terms; Maturity Date

The Former Employee Note will have an interest rate of 5% per annum and a stated maturity date of seven
years from the Effective Date. The interest will be paid to holders of the Former Employee Note on a quarterly
basis until the stated maturity date. At the stated maturity date, holders of the Former Employee Note will be paid
their participating share of the principal amount of the Former Employee Note.
Subordination
The Former Employee Note will be subordinated to all other obligations under the Post-Restructuring Debt
Facilities and will not be secured by any of Culligan Internationals collateral. As a result, existing and future
secured indebtedness will rank senior to the Former Employee Note as to rights upon any foreclosure, dissolution,
winding-up, liquidation or reorganization, or other bankruptcy proceeding relating to Culligan International. In
addition, if there is a default of existing or future secured indebtedness, Former Employees will no longer receive
interest payments on the Former Employee Note.
Redemption of Former Employee Note
In the event that there is a change in control (as defined in the Former Employee Note) prior to the stated
maturity date of the Former Employee Note, the holders of the Former Employee Note will be paid their
participating share of the principal amount of the Former Employee Note and any accrued and unpaid interest within
thirty days following such change in control event.
Transferability
There is no existing market for the Former Employee Note, and no assurances can be provided regarding
the future development of a market for any interest in the Former Employee Note.
H.

Certain Matters Relating to Non-U.S. Jurisdictions

The Offering Memorandum and Disclosure Statement and this supplement thereto will not, subject to
limited exceptions, be distributed outside the United States and is not an offer to sell or exchange and it is not a
solicitation of an offer to buy securities in any jurisdiction in which such offer, sale or exchange is not permitted.
Countries outside the United States generally have their own legal requirements that govern securities offerings
made into those countries and often impose stringent requirements about the form and content of offers made to the
general public. We have not taken any action in any jurisdiction to facilitate a public offer of securities outside the
United States or to facilitate the distribution of the Offering Memorandum and Disclosure Statement or this
supplement thereto outside of the United States. The Offering Memorandum and Disclosure Statement and this
supplement thereto does not constitute an invitation to participate in the Former Employee Deferred Bonus
Modification in any jurisdiction in which it is unlawful to make such invitation under applicable securities laws.
The distribution of the Offering Memorandum and Disclosure Statement and this supplement thereto in certain
jurisdictions may be restricted by law. Persons into whose possession the Offering Memorandum and Disclosure
Statement and this supplement thereto comes are required by the Debtors to inform themselves about, and to
observe, any such restrictions. No action has been or will be taken in any jurisdiction by the Debtors in relation to
the Former Employee Deferred Bonus Modification described herein that would permit a public offering of
securities. Non-U.S. holders should consult their advisors in considering whether they may participate in the Former
Employee Deferred Bonus Modification in accordance with the laws of their home countries and, if they do
participate, whether there are any restrictions or limitations on transactions that may apply in their home countries.
We cannot provide any assurance about whether such limitations may exist.

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XIII.

THE PRE-PACKAGED PLAN2

WE HAVE NOT COMMENCED CHAPTER 11 CASES UNDER THE BANKRUPTCY CODE

AND HAVE NOT FILED THE PRE-PACKAGED PLAN AT THIS TIME.
THIS OFFERING
MEMORANDUM AND DISCLOSURE STATEMENT SOLICITS ADVANCE ACCEPTANCE OF THE
PRE-PACKAGED PLAN IN THE EVENT THAT THE COMPANY COMMENCES CHAPTER 11 CASES
AND THE PRE-PACKAGED PLAN IS FILED WITH THE BANKRUPTCY COURT. THIS OFFERING
MEMORANDUM AND DISCLOSURE STATEMENT CONTAINS INFORMATION RELEVANT TO A
DECISION TO ACCEPT OR REJECT THE PRE-PACKAGED PLAN.
The following is a summary of the material terms and provisions of the Pre-Packaged Plan. While we
believe this summary covers the material terms and provisions of the Pre-Packaged Plan, it may not contain all of
the information that is important to you. The Pre-Packaged Plan is attached as Annex A hereto, which we
incorporate by reference into this document. To the extent there is any inconsistency between this Offering
Memorandum and Disclosure Statement and the Pre-Packaged Plan regarding the terms of the Pre-Packaged Plan,
the terms of the Pre-Packaged Plan will control.
The Pre-Packaged Plan and this Offering Memorandum and Disclosure Statement should be read
and studied in their entirety before voting on the Pre-Packaged Plan. See Risk FactorsRisks Relating to
the Pre-Packaged Plan, which begins on page 43 for a discussion of risks associated with the Pre-Packaged
Plan and the transactions contemplated thereunder. You are urged to consult your counsel about the PrePackaged Plan and its effect on your legal rights before voting.
To allow us to effect a chapter 11 reorganization in the quickest and most cost efficient manner, we are
soliciting acceptances of the Pre-Packaged Plan from holders of impaired claims and interests entitled to vote. We
expect that the lenders under the Existing Credit Facilities, the holders of Deferred Bonus Obligations and holders of
Interests in Culligan will receive the same treatment with respect to their claims and interests under the PrePackaged Plan as they would in the Recapitalization Plan, except that Second Lien Lenders will not have the option
of receiving $.30 for every $1.00 of their outstanding of Second Lien Debt.
We are soliciting acceptances of the Pre-Packaged Plan from the First Lien Lenders, the Second Lien
Lenders, the holders of Deferred Bonus Obligations and the Existing Equityholder pursuant to this Offering
Memorandum and Disclosure Statement. We may seek confirmation of the Pre-Packaged Plan in chapter 11 cases
for each of the Debtors (a list of whom appears in the Glossary) in the event that the conditions to the
Recapitalization Plan are not satisfied, including, for example, if 100% of the First Lien Lenders and Second Lien
Lenders do not consent to the Recapitalization Plan and such condition is not waived, but we receive acceptances
from a sufficient number of holders and amounts of impaired to allow the Pre-Packaged Plan to be confirmed under
the Bankruptcy Code.
IF THE PRE-PACKAGED PLAN IS CONFIRMED BY THE BANKRUPTCY COURT, IT WILL
BIND ALL HOLDERS OF OUR CLAIMS AND INTERESTS, INCLUDING ALL HOLDERS OF FIRST
LIEN LENDER CLAIMS, SECOND LIEN LENDER CLAIMS, CURRENT EMPLOYEE DEFERRED
BONUS CLAIMS AND FORMER EMPLOYEE DEFERRED BONUS CLAIMS REGARDLESS OF
WHETHER THEY VOTED TO ACCEPT OR REJECT THE PRE-PACKAGED PLAN, OR DID NOT
VOTE AT ALL. WE EXPECT THAT THE HOLDERS OF CLAIMS AND INTERESTS WILL RECEIVE
THE SAME TREATMENT AS THEY WOULD RECEIVE IN THE RECAPITALIZATION PLAN,
EXCEPT THAT SECOND LIEN LENDERS WILL NOT HAVE THE OPTION OF RECEIVING $.30 FOR
EVERY $1.00 OF THEIR OUTSTANDING OF SECOND LIEN DEBT.

Capitalized terms used in this section but not otherwise defined herein shall have the meanings ascribed to such terms in the
Pre-Packaged Plan.

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A.

Anticipated Events in a Chapter 11 Case

Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Pursuant to chapter
11, a debtor may remain in possession of its assets, continue to manage its business and attempt to reorganize its
business for the benefit of the debtor, its creditors and other parties in interest. The commencement of a chapter 11
case creates an estate comprising all the legal and equitable interests of a debtor in its property as of the date the
petition is filed. Sections 1107 and 1108 of the Bankruptcy Code provide that a debtor may continue to operate its
business and remain in possession of its property as a debtor in possession, unless the Bankruptcy Court orders the
appointment of a trustee. The commencement of a chapter 11 case also triggers the automatic stay provisions of the
Bankruptcy Code. Section 362 of the Bankruptcy Code provides, among other things, for an automatic stay of all
attempts to collect prepetition claims from the debtor or otherwise interfere with its property or business. Except as
otherwise ordered by the Bankruptcy Court, the automatic stay generally remains in full force and effect until
confirmation of a plan of reorganization.
Pursuant to Section 1102 of the Bankruptcy Code, upon the commencement of a chapter 11 case, the U.S.
Trustee is required to appoint a committee of creditors holding unsecured claims and may appoint additional
committees of creditors or of equity security holders as the U.S. Trustee deems appropriate. However, it is not
uncommon for the U.S. Trustee to not appoint a creditors committee in cases where solicitation of a Pre-Packaged
Plan has been conducted before the Commencement Date.
Pursuant to Section 1103 of the Bankruptcy Code, a committee appointed under Section 1102 of the
Bankruptcy Code may:
x

consult with the trustee or debtor in possession concerning the administration of the chapter 11
case;

investigate the acts, conduct, assets, liabilities and financial condition of the debtor, the operation
of the debtors business and the desirability of the continuance of such business and any other
matter relevant to the case or to the formulation of a plan;

participate in the formulation of a plan, advise those represented by such committee of such
committees determinations as to any plan formulated and collect and file with the court
acceptances or rejections of a plan;

request the appointment of a trustee or examiner under Section 1104 of the Bankruptcy Code; and

perform such other services as are in the interest of those represented by the committee.

Furthermore, pursuant to Section 1109(b) of the Bankruptcy Code, upon the commencement of the chapter
11 case, any party in interest, including the debtor, a creditors committee, an equity security holders committee, a
creditor, an equity security holder or any indenture trustee may raise and may appear and be heard on any issue in
the chapter 11 case.
The formulation and confirmation of a plan of reorganization is the principal objective of a chapter 11 case.
The plan sets forth the means for satisfying the claims against and interests in the debtor. The Pre-Packaged Plan we
propose will address upcoming debt maturities, de-lever our balance sheet and enhance our ability to compete in the
water treatment industry. Specifically, upon the completion of the Restructuring, we expect our indebtedness to be
reduced from an estimated $769 million as of March 31, 2012 to an estimated $376 million at the closing of the
Restructuring, consisting of an estimated $1 million in capital lease obligations and other indebtedness,
approximately $180 million in principal amount under the Amended First Lien Facility, $175 million under the New
Second Lien Facility, the New Bridge Loan in an estimated principal amount of $10.5 million and $10 million of
loans out of a commitment of $50 million under the New Revolving Facility. See Capitalization of Culligan
Holding and Unaudited Pro Forma Consolidated Financial Information of Culligan Holding, which begin on
pages 61 and 134, respectively.

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B.

New Money Investment the Rights Offering

The Pre-Packaged Plan provides for a substantial new money investment in the Reorganized Debtors in the
form of a Rights Offering pursuant to which each Second Lien Lender will receive rights to purchase its Pro Rata
portion of 49.65% (subject to adjustment as set forth in The RestructuringPotential Adjustments to Equity
Ownership, which begins on page 68, including the possibility of the Additional Investment described in that
section) of the NewCo Stock and to subscribe to its Pro Rata portion of the New Bridge Loan that will have an
estimated principal amount of up to $10.5 million. The Backstop Parties, for no fee, have agreed, pursuant to the
Backstop Agreement and subject to the conditions thereof, to purchase all shares of NewCo Stock and subscribe for
all amounts of the New Bridge Loan that are offered but unsubscribed in the Rights Offering.
The Rights Offering is only being made to persons who are accredited investors within the meaning of
Rule 501 of Regulation D under the Securities Act. Pursuant to the Subscription Form, each Second Lien Lender
participating in the Rights Offering will represent that it is an accredited investor pursuant to Rule 501 of
Regulation D.
C.

Solicitations of Acceptances of the Pre-Packaged Plan

Usually, a plan of reorganization is filed with the Bankruptcy Court after a chapter 11 case has been
commenced, and votes to accept or reject the plan are solicited after the plan is filed and a disclosure statement is
approved. It is possible, however, for a debtor to solicit votes before filing for chapter 11 in accordance with
Section 1126(b) of the Bankruptcy Code and Rule 3018(b) of the Bankruptcy Rules. In accordance with those
provisions, we are soliciting acceptances of the Pre-Packaged Plan from holders of impaired claims or interests in
connection with chapter 11 cases that the Debtors may file in the future.
Bankruptcy Rule 3018(b) requires that:
x

the plan of reorganization be transmitted to substantially all creditors and interest holders entitled
to vote on the plan;

the time prescribed for voting to reject or accept such plan not be unreasonably short; and

the solicitation of votes be in compliance with any applicable nonbankruptcy law, rule or
regulation governing the adequacy of disclosure in such solicitation or, if no such law, rule or
regulation exists, votes be solicited only after the disclosure of adequate information.

Section 1125(a)(1) of the Bankruptcy Code describes adequate information as information of a kind and
in sufficient detail as would enable a hypothetical reasonable investor typical of holders of claims and interests to
make an informed judgment about the plan. With regard to a solicitation of votes before the commencement of a
reorganization case, Bankruptcy Rule 3018(b) specifically provides that acceptances or rejections of the plan by
holders of claims or interests before the commencement of a reorganization case will not be deemed acceptances or
rejections of the plan if the bankruptcy court determines, after notice and a hearing, that the plan was not transmitted
to substantially all creditors and equity security holders entitled to vote on the plan, that an unreasonably short time
was prescribed for such creditors and equity security holders to vote on the plan, or that the solicitation was not
otherwise in compliance with Section 1126(b) of the Bankruptcy Code. If, however, the aforementioned conditions
of the Bankruptcy Code and Bankruptcy Rules are met, all acceptances and rejections received before the
commencement of the reorganization case and within the prescribed solicitation period will be deemed to be
acceptances and rejections of the plan for purposes of confirmation under the Bankruptcy Code.
Bankruptcy Rule 3016(b) provides that either a disclosure statement under Section 1125 of the Bankruptcy
Code or evidence showing compliance with Section 1126(b) of the Bankruptcy Code must be filed with the PrePackaged Plan or within the time fixed by the court. This Offering Memorandum and Disclosure Statement is
presented to holders of our impaired claims and interests to satisfy the requirements of Section 1126(b) of the

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Bankruptcy Code and Bankruptcy Rule 3016(b) and 3018(b). We believe that this Offering Memorandum and
Disclosure Statement and the solicitation process we undertake will meet these requirements.
The Pre-Packaged Plan solicitation is being conducted at this time to obtain the acceptance of each
impaired class of claims and interests entitled to vote. If the Debtors file chapter 11 cases, we will promptly seek to
obtain an order of the Bankruptcy Court finding that this solicitation complied with Section 1126(b) of the
Bankruptcy Code and Bankruptcy Rule 3018(b) and that the acceptance of each class of impaired claims can be used
for confirmation of the Pre-Packaged Plan under chapter 11 of the Bankruptcy Code. We reserve the right to use
any acceptances to seek confirmation of any permitted amendment or modification of the Pre-Packaged Plan that
does not constitute a material change adverse to the class of impaired claims in question.
As more fully described below, we are soliciting acceptances of the Pre-Packaged Plan from holders of
Claims in Classes 2, 3, 7, 8 and 10a.

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Summary of Classification and Treatment of Claims and Equity Interest Under the Pre-Packaged Plan3
Class
Class 1

Class 2

Class 3

Claims and Interests

Treatment
Revolving Lender On the Effective Date, the Class 1
Claims
Claims, to the extent any such
claims are outstanding, shall be
refinanced by the New Revolving
Facility. All letters of credit issued
under
the
Revolving
Credit
Agreement outstanding as of the
Effective Date shall be treated in
accordance with section 11(b) or
11(c) of the Letter of Credit Security
Agreement, as applicable, and the
Letter of Credit Cash Collateral
shall be released to the Reorganized
Debtors on the Effective Date;
provided, however, that, all such
released Cash not used to fund
distributions under the Pre-Packaged
Plan shall remain subject to the
Liens of the Post-Restructuring Debt
Facilities, which Liens shall be
subject to the priority and other
provisions set forth in the New
Intercreditor Agreement.

Estimated Allowed
Amount4
$10.2 million in
Letter of Credit
obligations

Projected
Recovery
100%

Entitled to Vote

$535 million plus

accrued and unpaid
interest up to and
including the
Effective Date

100%

Entitled to Vote

$233 million plus

accrued and unpaid
interest through the
Commencement
Date

43%

Status
Not Impaired

Voting Rights
Not Entitled to
Vote (Deemed
to Accept)

On the Effective Date, each holder

of a Class 2 Claim will receive its
Pro Rata share of (a) the First Lien
Paydown Amount, (b) the Amended
First Lien Facility, and (c) the New
Second Lien Facility.

Impaired

Second Lien Lender On the Effective Date, each holder

Claims
of a Class 3 Claim will receive its
Pro Rata share of (a) an estimated
47.64% of NewCo Stock, subject to
adjustments as set forth in The
RestructuringPotential
Adjustments to Equity Ownership,
which begins on page 68, and
dilution for the Management
Incentive Plan and (b) the
Subscription Rights.

Impaired

First Lien Lender

Claims

This table is only a summary of the classification and treatment of claims and interests under the Pre-Packaged Plan.
Reference should be made to the Pre-Packaged Plan attached to this Offering Memorandum and Disclosure Statement as
Annex A for a complete description of the classification and treatment of claims and interests.

The estimated claim amount identified herein is based on the Companys books and records.

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Class
Class 4

Claims and Interests

Treatment
Other Secured
On the Effective Date, each holder
Claims
of an Allowed Class 4 Claim will
receive, at the option of the Debtors,
with the consent of Centerbridge, or
the Reorganized Debtors, as
applicable either (a) payment in full
in Cash, (b) reinstatement pursuant
to section 1124 of the Bankruptcy
Code, (c) the return of the collateral
securing its Other Secured Claim, or
(d) such other less favorable
treatment as may be agreed to by
such holder and the Debtors, with
the consent of Centerbridge, or the
Reorganized Debtors, as the case
may be.

Status
Not Impaired

Voting Rights
Not Entitled to
Vote (Deemed
to Accept)

Estimated Allowed
Amount4
$1.9 million

Projected
Recovery
100%

Class 5

Priority Claims

Each holder of an Allowed Class 5

Claim will receive (a) Cash in the
full amount of such Allowed Claim
on or as soon as reasonably
practicable after the later of (i) the
Distribution Date, (ii) the date on
which such Claim becomes an
Allowed Claim or (iii) the date on
which such Claim becomes payable
by its terms in the ordinary course of
business, or (b) such other less
favorable treatment as may be
agreed to by such holder and the
Debtors, with the consent of
Centerbridge, or the Reorganized
Debtors.

Not Impaired

Not Entitled to
Vote (Deemed
to Accept)

$10.9 million

100%

Class 6

General Unsecured
Claims

Each holder of an Allowed Class 6

Claim will receive (a) Cash in the
full amount of such Allowed Claim
on or as soon as reasonably
practicable after the later of (i) the
Distribution Date, (ii) the date on
which such Claim becomes an
Allowed Claim or (iii) the date on
which such Claim becomes payable
by its terms in the ordinary course of
business, (b) treatment consistent
with section 1124(1) of the
Bankruptcy Code, or (c) such other
less favorable treatment as may be
agreed to by such holder and the
Debtors, with the consent of
Centerbridge, or the Reorganized
Debtors, as the case may be.

Not Impaired

Not Entitled to
Vote (Deemed
to Accept)

$17.1 million

100%

Class 7

Current Employee
Deferred Bonus
Claims

Each holder of an Allowed Class 7

Claim will receive (a) the Current
Employee Cash Amount, and (b)
pursuant to the Current Employee
Grant Agreement, the Current
Employee NewCo Stock Amount.

Impaired

Entitled to Vote

$2.8 million

100%

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Class
Class 8

Claims and Interests

Treatment
Former Employee
Each holder of an
Deferred Bonus
Allowed Class 8 Claim will receive,
at its sole option, either (a) such
Claims
holders Former Employee Cash
Amount, or (b) such holders
Former Employee Adjusted Cash
Amount, plus such holders Former
Employee Note Amount. Any
holder of an Allowed Class 8 Claim
that fails to make an election with
respect to its treatment as set forth
herein shall receive such holders
Former Employee Cash Amount.

Status
Impaired

Voting Rights
Entitled to Vote

Estimated Allowed
Amount4
$5.5 million

Projected
Recovery
80%-83%

Class 9

Intercompany
Claims

On or prior to or as soon as
practicable after the Effective Date,
each Class 9 Claim will be adjusted,
continued or discharged to the
extent determined appropriate by the
Reorganized Debtors, with the
consent of each of the Initial
Lenders, which consent shall not be
unreasonably withheld.

Not Impaired

Not Entitled to
Vote (Deemed
to Accept)

Varies by Debtor

N/A

Class 10a

Existing Equity
Interests

On the Effective Date, each holder

of a Class 10a Existing Equity
Interest will (i) retain its Pro Rata
share of 2.27% of NewCo Stock,
subject to dilution for the
Management Incentive Plan and
adjustment as set forth in The
RestructuringPotential
Adjustments to Equity Ownership,
which begins on page 68, and
(ii) receive its Pro Rata share of
$474,193.

Impaired

Entitled to Vote

N/A

N/A

Class 10b

Subsidiary Debtor
Equity Interests

On the Effective Date, the Class 10b

Subsidiary Debtor Equity Interests
will remain outstanding.

Not Impaired

Not Entitled to
Vote (Deemed
to Accept)

N/A

N/A

D.

Holders of Claims or Interests Entitled to Vote; Voting Record Date

Chapter 11 of the Bankruptcy Code does not require that each holder of a claim against or interest in a
debtor vote in favor of a plan of reorganization in order for the Bankruptcy Court to confirm the plan. At a
minimum, however, at least one class of impaired claims under the plan, without including any acceptance of the
plan by any insider of the debtor, must accept the plan. Section 1126(c) of the Bankruptcy Code defines acceptance
of a plan by a class of impaired claims as acceptance by holders of at least two-thirds in dollar amount and more
than one-half in number of non-insider allowed claims in that class, counting only those claims that actually voted to
accept or to reject the plan. Thus, a class of claims will have voted to accept the plan only if two-thirds in amount
and a majority in number actually voting cast their ballots in favor of acceptance. For a class of impaired interests to
accept a plan, section 1126(d) of the Bankruptcy Code requires acceptance by interest holders that hold at least twothirds in amount of the allowed interests of such class, counting only those interests that actually voted to accept or
reject the plan. Thus, a class of interests will have voted to accept the plan only if two-thirds in amount actually
voting cast their ballots in favor of acceptance.
Classes of claims or interests that are not impaired under a plan of reorganization are conclusively
presumed to have accepted the plan of reorganization and are not entitled to vote. Additionally, classes of claims or

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interests that do not receive or retain any property under a plan on account of such claims or interests are deemed to
have rejected the plan and do not vote. Acceptances of the Pre-Packaged Plan are being solicited only from those
entities that hold Claims or Interests in a class that is impaired under the Pre-Packaged Plan and who are not deemed
by the Bankruptcy Code to have rejected or accepted the Pre-Packaged Plan.
The following class of Claims and Interests are impaired under the Pre-Packaged Plan, and all holders of
Claims in such class as of the Voting Record Date are entitled to vote to accept or reject the Pre-Packaged Plan:
Class 2First Lien Lender Claims, Class 3Second Lien Lender Claims, Class 7Current Employee Deferred
Bonus Claims, Class 8Former Employee Deferred Bonus Claims and Class 10aExisting Equity Interests (the
Voting Classes).
CLASS 1REVOLVING LENDER CLAIMS, CLASS 4OTHER SECURED CLAIMS, CLASS
5PRIORITY CLAIMS, CLASS 6GENERAL UNSECURED CLAIMS AND CLASS 10B
SUBSIDIARY DEBTOR EQUITY INTERESTS ARE UNIMPAIRED UNDER THE PRE-PACKAGED
PLAN IN ACCORDANCE WITH SECTION 1124 OF THE BANKRUPTCY CODE AND, ACCORDINGLY
UNDER SECTION 1126(F) OF THE CODE, HOLDERS OF CLAIMS OR INTERESTS IN SUCH
CLASSES ARE DEEMED TO HAVE ACCEPTED THE PRE-PACKAGED PLAN AND ARE NOT
ENTITLED TO VOTE ON THE PRE-PACKAGED PLAN. CLASS 9INTERCOMPANY INTERESTS
ARE IMPAIRED UNDER THE PRE-PACKAGED PLAN; HOWEVER, HOLDERS OF INTERCOMPANY
CLAIMS, BY VIRTUE OF THEIR STATUS AS A DEBTOR, ARE DEEMED TO HAVE ACCEPTED THE
PLAN.
To be entitled to vote to accept or reject the Pre-Packaged Plan, Holders of an Allowed Claim in Classes 2,
3, 7, 8 or 10a must have been the beneficial owner of such Claim or Interest at the close of business on the Voting
Record Date, regardless of whether such Claim is held of record on the Voting Record Date in such Holders name
or in the name of such Holders broker, dealer, commercial bank, trust company or other nominee. If a Claim or
Interest is held in the name of a Holders broker, dealer, commercial bank, trust company or other nominee, the
beneficial owner will vote on the Pre-Packaged Plan by completing the information requested on the Ballot, voting
and signing the Ballot and then providing the Ballot to the record holder holding the claim for the beneficial owners
benefit if the Ballot has not already been signed by the beneficial owners nominee or agent. If the Ballot has
already been signed by the beneficial owners agent or nominee, the beneficial owner can vote on the Pre-Packaged
Plan by completing the information requested on the Ballot, indicating their vote on the Ballot and returning their
Ballot in the enclosed, pre-addressed postage paid envelope so it is actually received by the Voting and Exchange
Agent before the Voting Deadline.
The principal provisions of the Pre-Packaged Plan are summarized below. This summary is qualified in its
entirety by reference to the Pre-Packaged Plan, which is attached hereto as Annex A. To the extent there is any
inconsistency between this summary and the Pre-Packaged Plan, the Pre-Packaged Plan will control.
WE URGE ALL CLAIM HOLDERS, INTEREST HOLDERS AND OTHER PARTIES IN INTEREST TO
CAREFULLY READ AND STUDY THE PRE-PACKAGED PLAN.
E.

Classification and Allowance of Claims and Interests

Section 1123 of the Bankruptcy Code provides that a plan of reorganization must classify claims against,
and interests in, a debtor. Under section 1122 of the Bankruptcy Code, a plan of reorganization may classify claims
and interests only into classes containing claims and interests which are substantially similar to the other claims or
interests in the same class. The Pre-Packaged Plan designates nine classes of claims and one class of interests. We
believe that we have classified all claims and interests in compliance with the provisions of Section 1122 of the
Bankruptcy Code. However, should we commence chapter 11 cases, a holder of a Claim or Interest could challenge
our classification of Claims and Interests, and the Bankruptcy Court could determine that a different classification is
required for the Pre-Packaged Plan to be confirmed. In such event, we intend to seek to modify the Pre-Packaged
Plan to provide for whatever classification might be required by the Bankruptcy Court and to use the acceptances
received, to the extent permitted by the Bankruptcy Court, to demonstrate the acceptance of the class or classes
which are affected. Any such reclassification could affect a classs acceptance of the Pre-Packaged Plan by

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changing the composition of such class and the required vote for acceptance of the Pre-Packaged Plan and could
potentially require a resolicitation of votes on the Pre-Packaged Plan.
The Pre-Packaged Plan provides for the classification and treatment of Claims and Interests allowed under
Section 502 of the Bankruptcy Code. Only the holder of an Allowed Claim or an Allowed Interest is entitled to
receive a distribution under the Pre-Packaged Plan.
An Allowed Claim or Allowed Interest is a Claim or Interest:
x

Listed in the Debtors books and records as due and owing and as to which no objection to
allowance has been interposed (either in the Bankruptcy Court or in the ordinary course of
business) on or before the applicable period of limitation fixed by the Pre-Packaged Plan,
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court, or as to which any objection has
been determined by a Final Order, either before or after the Effective Date, to the extent such
objection is determined in favor of the respective holder;

as to which any objection has been settled, waived, withdrawn or denied by Final Order;

as to which the liability of the Company and the amount thereof are determined by a Final Order
of a court of competent jurisdiction other than the Bankruptcy Court, either before or after the
Effective Date;

if there any Schedules, any Claim or Interest listed by a Debtor in the Schedules, as such
Schedules may be amended by the Debtors from time to time in accordance with Bankruptcy Rule
1009, as liquidated in amount and not disputed or contingent and for which no contrary proof of
Claim has been filed; or

expressly deemed allowed by the Pre-Packaged Plan.

An Allowed Claim or Interest does not include:

x

any interest on the amount of a Claim or Interest accruing from and after the Commencement
Date;

any punitive or exemplary damages;

any fine, penalty or forfeiture; or

any Claim listed in the Companys Schedules, if any, as disputed, contingent, or unliquidated, and
for which no proof of Claim has been timely filed.

If the Pre-Packaged Plan is confirmed by the Bankruptcy Court, each holder of an Allowed Claim or
Allowed Interest in a particular class will receive the same treatment as the other holders in the same class of Claims
or Interests, whether or not such holder voted to accept the Pre-Packaged Plan (unless such creditor or equityholder
agrees to accept less favorable treatment). Moreover, upon confirmation, the Pre-Packaged Plan will be binding on
all of our creditors and equityholders regardless of whether such creditors or equityholders voted to accept the PrePackaged Plan. Such treatment will be in full satisfaction, release and discharge of and in exchange for such
holders Claims against, or Interests in, the Debtors, except as otherwise provided in the Pre-Packaged Plan.
F.

Treatment of Unclassified Claims

The Bankruptcy Code does not require classification of certain priority claims against a debtor. In this
case, these unclassified claims include administrative claims and priority tax claims as set forth below.

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Administrative Claims
Pursuant to the Pre-Packaged Plan, each holder of an Allowed Administrative Claim (other than a
Professional Fee Claim or a Section 507(b) Claim) will receive, in full satisfaction and discharge of such Claim,
Cash equal to the unpaid portion of such Administrative Claim on the latest of (a) the Distribution Date, (b) if the
Administrative Claim is not Allowed as of the Effective Date, as soon as practicable after the date on which such
Administrative Claim becomes an Allowed Claim and (c) the date upon which the Administrative Claim becomes
due and payable by its terms, or as soon thereafter as practicable. However, such holder may be treated on such less
favorable terms as may be agreed to by such holder and the Debtors, with the consent of Centerbridge, or the
Reorganized Debtors.
Except as otherwise provided in the Pre-Packaged Plan, unless previously filed or paid, requests for
payment of Administrative Claims (other than Professional Fee Claims and Section 507(b) Claims) must be filed
and served on the Reorganized Debtors and their counsel no later than 30 days after the Effective Date in accordance
with the procedures specified in the Confirmation Order and the notice of entry of the Confirmation Order. Holders
of Administrative Claims that are required to file and serve a request for payment of such Administrative Claims
under this Section 2.1(b) and that do not file and serve such a request by such date will be forever barred from
asserting such Administrative Claims against the Debtors, their estates, the Reorganized Debtors or their respective
property, and such Administrative Claims will be deemed barred as of the Effective Date. Objections to such
requests must be filed and served on the Reorganized Debtors and their counsel and the requesting party by the later
of (a) 90 days after the Effective Date and (b) 60 days after the filing of the applicable request for payment of
Administrative Claims. The Reorganized Debtors may request (and the Bankruptcy Court may grant) an extension
of such deadline by filing a motion with the Bankruptcy Court, based on a reasonable exercise of their business
judgment. The Pre-Packaged Plan contemplates that a motion seeking to extend the deadline to object to any
Administrative Claim will not be deemed an amendment to the Pre-Packaged Plan. Notwithstanding the foregoing,
(a) Allowed Administrative Claims that arise in the ordinary course of the Debtors business will be paid in full in
the ordinary course of business in accordance with the terms and subject to the conditions of any agreements
governing, instruments evidencing or other documents relating to, such transactions and (b) no request for payment
of an Administrative Claim need be filed with respect to an Administrative Claim previously Allowed by Final
Order, including all Administrative Claims expressly Allowed under the Pre-Packaged Plan.
Priority Tax Claims
A Priority Tax Claim is a claim for any Tax to the extent that it is entitled to priority in payment under
sections 502(i) and 507(a)(8) of the Bankruptcy Code.
Each holder of an Allowed Priority Tax Claim will, at the sole option of the Debtors or the Reorganized
Debtors, as the case may be, receive, on account of such Claim (a) Cash equal to the unpaid portion of such Priority
Tax Claim, plus interest at the rate determined under applicable nonbankruptcy law and to the extent provided for by
section 511 of the Bankruptcy Code, on the later of (i) the Effective Date and (ii) the date on which such Priority
Tax Claim becomes an Allowed Claim, (b) deferred Cash payments, plus interest at the rate determined under
applicable nonbankruptcy law and to the extent provided for by section 511 of the Bankruptcy Code, over a period
ending not later than five (5) years after the Commencement Date as permitted under section 1129(a)(9)(C) of the
Bankruptcy Code, or (c) such other less favorable treatment as may have been or may be agreed to by such holder
and the Debtors, with the consent of Centerbridge, or the Reorganized Debtors, as the case may be.
Professional Fee Claims
Professionals requesting compensation or reimbursement of Professional Fee Claims for services rendered
before the Effective Date must file and serve on the Reorganized Debtors (and any other Entities who are designated
by the Bankruptcy Rules, the Confirmation Order or other order of the Bankruptcy Court) an application for final
allowance of such Professional Fee Claim no later than forty-five (45) days after the Effective Date. Objections to
any Professional Fee Claims must be filed and served on the Reorganized Debtors and the requesting party no later
than seventy-five (75) days after the Effective Date. Upon the Effective Date, any requirement that Professionals
comply with sections 327 through 331 and 1103 of the Bankruptcy Code in seeking retention or compensation for

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services rendered after such date shall terminate, and the Reorganized Debtors may employ and pay any
Professional for services rendered or expenses incurred after the Effective Date in the ordinary course of business
without any further notice to any party or action, order or approval of the Bankruptcy Court.
Section 507(b) Claims
On the Effective Date, as a consequence of the implementation of the Amended First Lien Facility, the
New Revolving Facility, the New Second Lien Credit Agreement, the payment of the Paydown Amount, the
Reorganized Debtors entry into the New Facilities Loan Documents and the issuance of the NewCo Stock, all
Section 507(b) Claims shall be settled, released by the holders of such Claims, and discharged.
G.

Treatment of Classified Claims

The following describes the Pre-Packaged Plans classification of the Claims and Interests that are required
to be classified under the Bankruptcy Code and the treatment each holder of an Allowed Claim or Allowed Interest
will receive for such Claims or Interests:
Class 1Revolving Lender Claims
Class 1 consists of all Claims of the Revolving Lenders and the Revolving Agent against any Debtor
arising under, relating to, or in connection with the Revolving Credit Agreement and any guarantee, security
agreement or other agreement executed in connection therewith, including, without limitation, issued and undrawn
letters of credit, all accrued and unpaid interest and any fees and expenses (including fees and expenses of attorneys
and advisors) owing thereunder through the Effective Date.
The Revolving Lender Claims will be deemed Allowed Claims in Class 1 in the aggregate amount of $10.2
million in outstanding and undrawn letters of credit issued under the Revolving Credit Agreement plus accrued and
unpaid interest and fees as of the Effective Date.
Pursuant to the Pre-Packaged Plan, on the Effective Date, the Class 1 Claims, to the extent any such claims
are outstanding, will be refinanced by the New Revolving Facility. All letters of credit issued and outstanding under
the Revolving Credit Agreement as of the Effective Date will be treated in accordance with section 11(b) or 11(c) of
the Letter of Credit Security Agreement, as applicable, and the Letter of Credit Cash Collateral will be released to
the Reorganized Debtors on the Effective Date; provided, however, that, all such released Cash not used to fund
distributions under the Pre-Packaged Plan will remain subject to the Liens of the Post-Restructuring Debt Facilities,
which Liens will be subject to the priority and other provisions set forth in the New Intercreditor Agreement.
Class 1 is unimpaired and is conclusively presumed pursuant to section 1126(f) of the Bankruptcy Code to
have accepted the Pre-Packaged Plan. Therefore, holders of Class 1 Revolving Lender Claims are not entitled to
vote to accept or reject the Pre-Packaged Plan.
Class 2First Lien Lender Claims
Class 2 consists of all Claims of the First Lien Lenders and the First Lien Agent arising under, relating to,
or in connection with the First Lien Credit Agreement and any guarantee, security agreement or other agreement
executed in connection therewith, including, without limitation, all accrued and unpaid interest and any fees and
expenses (including fees and expenses of attorneys and advisors) owing thereunder through the Effective Date.
The First Lien Lender Claims will be deemed Allowed Claims in Class 2 in the aggregate amount of $503.5
millionand 23.75 million plus accrued and unpaid interest as of the Effective Date.
Pursuant to the Pre-Packaged Plan, on the Effective Date, each holder of a Class 2 Claim will receive its
Pro Rata share of (a) the First Lien Paydown Amount, (b) the Amended First Lien Facility, and (c) the New Second
Lien Facility.

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Class 2 is impaired. Therefore, holders of Class 2 First Lien Lender Claims are entitled to vote to accept or
reject the Pre-Packaged Plan.
Class 3Second Lien Lender Claims
Class 3 consists of all Claims of the Second Lien Lenders and the Second Lien Agent against any Debtor
arising under the Second Lien Credit Agreement and any guarantee, security agreement or other agreement executed
in connection therewith, including, without limitation, all accrued and unpaid interest and any fees and expenses
(including fees and expenses of attorneys and advisors) owing thereunder through the Effective Date.
The Second Lien Lender Claims will be deemed Allowed Claims in Class 3 in the aggregate amount of
175 million plus accrued and unpaid interest as of the Effective Date.
Pursuant to the Pre-Packaged Plan, on the Effective Date, each holder of a Class 3 Claim will receive its
Pro Rata share of (a) an estimated 47.64% of the NewCo Stock, subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on page 68, and dilution for the
Management Incentive Plan and (b) the Subscription Rights.
Class 3 is impaired. Therefore, holders of Class 3 Second Lien Lender Claims are entitled to vote to accept
or reject the Pre-Packaged Plan.
Class 4Other Secured Claims
Class 4 consists of any Claim against the applicable Debtor other than the Revolving Lender Claims, the
First Lien Lender Claims and the Second Lien Lender Claims, that is secured by a Lien on property in which the
Estate of any Debtor against which the Claim is asserted has an interest (which Lien is valid, perfected and
enforceable pursuant to applicable law or by reason of a Bankruptcy Court order) (a) to the extent of the value of
such persons interest in such estates interest in the property, determined pursuant to section 506(a) of the
Bankruptcy Code, or (b) subject to setoff under section 553 of the Bankruptcy Code, to the extent of the value of the
property subject to setoff.
On the Effective Date, each holder of an Allowed Class 4 Claim will receive, at the option of the Debtors,
with the consent of Centerbridge, or the Reorganized Debtors, as applicable either (a) payment in full in Cash, (b)
reinstatement pursuant to section 1124 of the Bankruptcy Code, (c) the return of the collateral securing its Other
Secured Claim, or (d) such other less favorable treatment as may be agreed to by such holder and the Debtors, with
the consent of Centerbridge, or the Reorganized Debtors, as the case may be.
Class 4 is unimpaired and is conclusively presumed pursuant to section 1126(f) of the Bankruptcy Code to
have accepted the Pre-Packaged Plan. Therefore, holders of Class 4 Other Secured Claims are not entitled to vote to
accept or reject the Pre-Packaged Plan.
Class 5Priority Claims
A Priority Claim is any Claim (or portion thereof), other than an Administrative Claim, a Priority Tax
Claim or a Section 507(b) Claim, to the extent that it is entitled to priority under section 507(a) of the Bankruptcy
Code.
Each holder of an Allowed Class 5 Claim will receive (a) Cash in the full amount of such Allowed Claim
on or as soon as reasonably practicable after the later of (i) the Distribution Date, (ii) the date on which such Claim
becomes an Allowed Claim or (iii) the date on which such Claim becomes payable by its terms in the ordinary
course of business, or (b) such other less favorable treatment as may be agreed to by such holder and the Debtors,
with the consent of Centerbridge, or the Reorganized Debtors.

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Class 5 is unimpaired and is conclusively presumed pursuant to section 1126(f) of the Bankruptcy Code to
have accepted the Pre-Packaged Plan. Therefore, holders of Class 5 Priority Claims are not entitled to vote to accept
or reject the Pre-Packaged Plan.
Class 6General Unsecured Claims
Class 6 consists of all unsecured claims other than Administrative Claims, Section 507(b) Claims, Priority
Claims, Priority Tax Claims, Current Employee Deferred Bonus Claims, Former Employee Deferred Bonus Claims
and Intercompany Claims.
Each holder of an Allowed Class 6 Claim will receive (a) Cash in the full amount of such Allowed Claim
on or as soon as reasonably practicable after the later of (i) the Distribution Date, (ii) the date on which such Claim
becomes an Allowed Claim or (iii) the date on which such Claim becomes payable by its terms in the ordinary
course of business, (b) treatment consistent with section 1124(1) of the Bankruptcy Code, or (c) such other less
favorable treatment as may be agreed to by such holder and the Debtors, with the consent of Centerbridge, or the
Reorganized Debtors, as the case may be.
Class 6 is unimpaired and is conclusively presumed pursuant to section 1126(f) of the Bankruptcy Code to
have accepted the Pre-Packaged Plan. Therefore, holders of Class 6 General Unsecured Claims are not entitled to
vote to accept or reject the Pre-Packaged Plan.
Class 7Current Employee Deferred Bonus Claim
Class 7 consists of Claims of any person employed by the Company as of May 15, 2012 arising under, or
relating to, the Special Bonus Plan.
On the Effective Date, each holder of an Allowed Class 7 Claim will receive (a) the Current Employee
Cash Amount, and (b) pursuant to the Current Employee Grant Agreement, the Current Employee NewCo Stock
Amount.
Class 7 is impaired. Therefore, holders of Class 7 Current Employee Deferred Bonus Claims are entitled to
vote to accept or reject the Pre-Packaged Plan.
Class 8Former Employee Deferred Bonus Claim
Class 8 consists of claims of any person formerly employed by the Debtors arising under, or relating to, the
Special Bonus Plan.
Each holder of an Allowed Class 8 Claim will receive, in its sole option, either (a) its Former Employee
Cash Amount, or (b) its Former Employee Adjusted Cash Amount plus its Former Employee Note Amount. Any
holder of an Allowed Class 8 Claim that fails to make an election with respect to its treatment as set forth herein
shall receive such holders Former Employee Cash Amount.
Class 8 is impaired. Therefore, Holders of Class 8 Former Employee Deferred Bonus Claims are entitled to
vote to accept or reject the Pre-Packaged Plan.
Class 9Intercompany Claims
Class 9 consists of (a) any account reflecting intercompany book entries by one Debtor with respect to any
other Debtor, (b) any Claim that is not reflected in such book entries and is held by a Debtor against any other
Debtor, including any Claim arising from an intercompany note or similar instrument, and (c) any other Claim of
any Debtor against any other Debtor.

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On or prior to or as soon as practicable after the Effective Date, each Class 9 Claim will be adjusted,
continued or discharged to the extent determined appropriate by the Reorganized Debtors, with the consent of each
of the Initial Lenders, which consent shall not be unreasonably withheld.
All Class 9 Intercompany Claims are held by the Debtors, each of which is deemed to accept the PrePackaged Plan.
Class 10aExisting Equity Interests
Class 10a consists of all of Interests in Culligan Investments issued and outstanding immediately prior to
the Effective Date.
On the Effective Date, each holder of a Class 10a Existing Equity Interest will (i) retain its Pro Rata share
of 2.27% of NewCo Stock, subject to adjustment as set forth in The RestructuringPotential Adjustments to
Equity Ownership, which begins on page 68, and dilution for the Management Incentive Plan and (ii) receive its
Pro Rata share of $474,193.
Class 10a is impaired. Therefore, holders of Class 10a Existing Equity Interests are entitled to vote to
accept or reject the Pre-Packaged Plan.
Class 10bSubsidiary Debtor Equity Interests
Class 10b consists of all Interests in the Debtors, other than the Existing Equity Interests.
On the Effective Date, the Class 10b Subsidiary Debtor Equity Interests will remain outstanding.
Class 10 for each subsidiary Debtor is unimpaired and is conclusively presumed pursuant to section 1126(f)
of the Bankruptcy Code to have accepted the Pre-Packaged Plan. Therefore, holders of Class 10b Subsidiary Debtor
Equity Interests are not entitled to vote to accept or reject the Pre-Packaged Plan.
H.

Confirmation of the Pre-Packaged Plan

If we seek to implement the Restructuring by commencing the Pre-Packaged Plan proceeding, we will
promptly request that the Bankruptcy Court hold a hearing to consider confirmation of the Pre-Packaged Plan (the
Confirmation Hearing), including a determination that the Pre-Packaged Plan solicitation was in compliance with
any applicable nonbankruptcy law, rule or regulation governing the adequacy of disclosure or, if there is not any
such law, rule or regulation, was made after disclosure of adequate information as defined in the Bankruptcy Code,
upon such notice to parties in interest as is required by the Bankruptcy Code and the Bankruptcy Court. Bankruptcy
Rule 2002(b) requires no less than 28 days notice by mail of the time for filing objections to confirmation of the
Pre-Packaged Plan and of the time and place of the confirmation hearing, unless the Bankruptcy Court shortens or
lengthens this period. Parties in interest, including all holders of impaired Claims and Interests, will be provided
notice by mail, or by publication if required by the Bankruptcy Court, of the date and time fixed by the Bankruptcy
Court for the Confirmation Hearing.
Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to confirmation of
the Pre-Packaged Plan. The Bankruptcy Court will also establish procedures for the filing and service of objections
to confirmation of the Pre-Packaged Plan. Those procedures will be described in a notice to parties in interest
informing them of the time for filing objections to confirmation of the Pre-Packaged Plan.
ANY OBJECTIONS TO CONFIRMATION OF THE PRE-PACKAGED PLAN MUST BE FILED
WITH THE BANKRUPTCY COURT IN ACCORDANCE WITH APPLICABLE BANKRUPTCY RULES
AND ANY PROCEDURES ESTABLISHED BY THE BANKRUPTCY COURT.

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In order for the Pre-Packaged Plan to be confirmed, and regardless of whether all impaired classes of
Claims and Interests vote to accept the Pre-Packaged Plan, the Bankruptcy Code requires that the Bankruptcy Court
determine that the Pre-Packaged Plan complies with the requirements of Section 1129 of the Bankruptcy Code.
Section 1129 of the Bankruptcy Code sets forth certain requirements that must be met in order for a plan of
reorganization to be confirmed including, among other things, that:
x

except to the extent the Pre-Packaged Plan meets the nonconsensual confirmation standards
discussed below under Confirmation of the Pre-Packaged Plan Without Acceptance by All Classes of
Impaired Claims, the Pre-Packaged Plan must be accepted by each impaired class of claims and
interests by the requisite votes of holders of Claims or Interests in such impaired classes;

the Pre-Packaged Plan must be feasible (that is, there must be a reasonable probability that we will be
able to perform our obligations under the Pre-Packaged Plan and continue to operate our business
without the need for further financial reorganization) (see Feasibility of the Pre-Packaged Plan
below); and

the Pre-Packaged Plan must meet the requirements of section 1129(a)(7) of the Bankruptcy Code,
which requires that, with respect to each impaired class, each holder of a Claim or Interest in such class
either (1) accepts the Pre-Packaged Plan or (2) receives at least as much pursuant to the Pre-Packaged
Plan as such holder would receive in a liquidation under chapter 7 of the Bankruptcy Code (see Best
Interests Test below).

In addition, we must demonstrate in accordance with section 1129 of the Bankruptcy Code that:

I.

the Pre-Packaged Plan is proposed in good faith;

the Pre-Packaged Plan complies with the Bankruptcy Code;

payments for services or costs and expenses in or in connection with the case, or in connection with the
Pre-Packaged Plan, have been approved by or are subject to the approval of the Bankruptcy Court;

the individuals to serve as our officers and directors have been disclosed and their appointment or
continuance in such office is consistent with the interests of creditors and interest holders;

the identity of any insider that will be employed or retained by us is disclosed, as well as any
compensation to be paid to such insider;

all statutory fees have been or will be paid; and

the Pre-Packaged Plan provides for the continued maintenance of retiree benefits, if any, at a certain
level.

Acceptance of the Pre-Packaged Plan

The Bankruptcy Code requires that, except as described below in Confirmation of the Pre-Packaged Plan
Without Acceptance by All Classes of Impaired Claims, each impaired class of claims or interests must accept a
plan in order for it to be confirmed. A class that is not impaired under a plan is deemed to have accepted the plan
and, therefore, solicitation of acceptances with respect to the class is not required. A class is impaired unless the
plan: (a) leaves unaltered the legal, equitable and contractual rights to which the claim or the interest entitles the
holder of the claim or interest or (b) cures any default, reinstates the original terms of such obligation, compensates
the holder for certain damages or losses, as applicable, and does not otherwise alter the legal, equitable or
contractual rights to which such claim or interest entitles the holder of such claim or interest.

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Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of impaired claims as
acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of non-insider
allowed claims in that class, counting only those claims that actually voted to accept or to reject the plan. Thus, a
class of claims will have voted to accept the plan only if two-thirds in amount and a majority in number actually
voting cast their ballots in favor of acceptance. For a class of impaired interests to accept a plan, section 1126(d) of
the Bankruptcy Code requires acceptance by interest holders that hold at least two-thirds in amount of the allowed
interests of such class, counting only those interests that actually voted to accept or reject the plan. Thus, a class of
interests will have voted to accept the plan only if two-thirds in amount actually voting cast their ballots in favor of
acceptance.
J.

Feasibility of the Pre-Packaged Plan

Section 1129(a)(11) of the Bankruptcy Code requires that confirmation of the plan of reorganization must
not be likely to be followed by the liquidation or the need for further financial reorganization of the debtor, or any
successor to the debtor (unless such liquidation or reorganization is proposed in the plan of reorganization).
To determine whether the Pre-Packaged Plan meets this feasibility requirement, we have analyzed our
ability to meet our obligations under the Pre-Packaged Plan. As part of this analysis, the Debtors have prepared the
projections attached to this Offering Memorandum and Disclosure Statement as Annex C. Based upon the
projections, we believe that the Reorganized Debtors will be a viable operation following the Chapter 11 Cases and
that the Pre-Packaged Plan will meet the feasibility requirements of the Bankruptcy Code.
K.

Best Interests Test

Often called the best interests test, section 1129(a)(7) of the Bankruptcy Code requires that a bankruptcy
court may confirm a chapter 11 plan only if it finds, with respect to each class of Claims or Interests, that each
holder of a Claim or an Interest in such class either (a) has accepted the plan or (b) will receive or retain under the
plan property of a value, as of the effective date of the plan, that is not less than the amount that such holder would
receive or retain if the debtors liquidated under chapter 7 of the Bankruptcy Code. To make these findings, a
bankruptcy court must: (a) estimate the cash liquidation proceeds that a chapter 7 trustee would generate if each of
the debtors chapter 11 cases were converted to a chapter 7 case and the assets of such debtors estate were
liquidated; (b) determine the liquidation distribution that each non-accepting holder of a claim or an interest would
receive from such liquidation proceeds under the priority scheme dictated in chapter 7; and (c) compare the holders
liquidation distribution to the distribution under the plan that the holder would receive if the plan were confirmed
and consummated.
To satisfy the requirements of section 1129(a)(7) of the Bankruptcy Code, we, together with our retained
advisors, prepared the Liquidation Analysis attached hereto as Annex D to this Offering Memorandum and
Disclosure Statement. Based upon on the Liquidation Analysis, we believe that holders of Claims and Interests will
receive equal or greater value as of the Effective Date than such holders would receive in a chapter 7 liquidation and
that the Pre-Packaged Plan will therefore meet the best interests test provided in section 1129(a)(7) of the
Bankruptcy Code.
L.

Confirmation of the Pre-Packaged Plan Without Acceptance by All Class of Impaired Claims

Section 1129(b) of the Bankruptcy Code allows a bankruptcy court to confirm a plan even if all impaired
classes have not accepted the plan, provided that the plan has been accepted by at least one impaired class of claims.
Pursuant to section 1129(b) of the Bankruptcy Code, notwithstanding an impaired class rejection or deemed
rejection of the plan, the plan will be confirmed, at the plan proponents request, in a procedure commonly known as
cramdown, so long as the plan does not discriminate unfairly and is fair and equitable with respect to each
class of claims or interests that is impaired under, and has not accepted, the plan.

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M.

No Unfair Discrimination

This test applies to classes of claims or interests that are of equal priority and are receiving different
treatment under a proposed plan. The test does not require that the treatment be the same or equivalent, but that the
treatment be fair. In general, bankruptcy courts consider whether a plan discriminates unfairly in its treatment of
classes of claims of equal rank (e.g., classes of the same legal character). Bankruptcy courts will take into account a
number of factors in determining whether a plan discriminates unfairly. Under certain circumstances, a proposed
plan could treat two classes of unsecured creditors differently without unfairly discriminating against either class.
N.

Fair and Equitable Test

This test applies to classes of different priority and status (e.g., secured versus unsecured) and includes the
general requirement that no class of claims receive more than 100% of the amount of the allowed claims in such
class. As to the dissenting class, this test sets different standards depending upon the type of claims or interests in
such class:
With respect to secured claims, the condition that a plan be fair and equitable to a non-accepting class of
secured claims includes the requirements that: (a) the holders of such secured claims retain the liens securing such
claims to the extent of the allowed amount of the claims, whether the property subject to the liens is retained by the
debtor or transferred to another entity under the plan; and (b) each holder of a secured claim in the class receives
deferred Cash payments totaling at least the allowed amount of such claim with a value, as of the Effective Date, at
least equivalent to the value of the secured claimants interest in the debtors property subject to the liens.
With respect to unsecured claims, the condition that a plan be fair and equitable to a non-accepting class
of unsecured claims includes the requirement that either: (a) the plan provides that each holder of a claim of such
class receive or retain on account of such claim property of a value, as of the Effective Date, equal to the allowed
amount of such claim; or (b) the holder of any claim or any interest that is junior to the claims of such class will not
receive or retain any property under the plan on account of such junior claim or junior interest, subject to certain
exceptions.
With respect to interests, the condition that a plan be fair and equitable to a non-accepting class of
interests, includes the requirements that either: (a) the plan provides that each holder of an interest in that class
receives or retains under the plan on account of that interest property of a value, as of the Effective Date, equal to
the greater of: (i) the allowed amount of any fixed liquidation preference to which such holder is entitled; (ii) any
fixed redemption price to which such holder is entitled; or (iii) the value of such interest; or (b) if the class does not
receive the amount as required under (a) hereof, no class of interests junior to the non-accepting class may receive a
distribution under the plan.
If any impaired class of Claims and Interests rejects the Pre-Packaged Plan, the Debtors reserve the right to
seek Confirmation utilizing the cramdown provision of section 1129(b) of the Bankruptcy Code. Specifically, to
the extent that any impaired Class rejects or is deemed to have rejected the Pre-Packaged Plan, the Debtors may
request Confirmation of the Pre-Packaged Plan, as it may be modified from time to time, under section 1129(b) of
the Bankruptcy Code. The Debtors reserve the right to alter, amend, modify, revoke or withdraw the Pre-Packaged
Plan before Confirmation, including to amend or modify the Pre-Packaged Plan to satisfy the requirements of
section 1129(b) of the Bankruptcy Code.
O.

Solicitation and Voting Procedures

The Company has engaged the Solicitation, Voting and Exchange Agent as the solicitation, voting and
exchange agent to assist in the balloting and tabulation process. The Solicitation, Voting and Exchange Agent will
process and tabulate Ballots for the Voting Classes and will file a voting report as soon as practicable on or after the
Commencement Date.

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The following summarizes briefly the procedures to accept or reject the Pre-Packaged Plan. Holders of
Claims and Interests are encouraged to review the relevant provisions of the Bankruptcy Code and/or to consult their
own attorneys.
P.

The Solicitation Package

The following materials constitute the solicitation package (collectively, the Solicitation Package):
x

the appropriate Ballots and applicable voting instructions;

a pre-addressed, postage pre-paid return envelope; and

the Offering Memorandum and Disclosure Statement with all exhibits, including the Pre-Packaged
Plan and any other supplements or amendments to these documents.

The Voting Classes shall be sent paper copies of the appropriate Ballots in the form attached hereto as
Annex F and applicable voting instructions and paper copies of the Offering Memorandum and Disclosure
Statement with all exhibits, including the Pre-Packaged Plan. All parties entitled to vote to accept or reject the PrePackaged Plan shall receive a paper copy of each appropriate Ballot.
The Plan Supplement shall be in form and substance acceptable to the Debtors and the Initial Lenders, to
the extent set forth in the Restructuring Support Agreement, and will be filed with the Bankruptcy Court no later
than ten days before the commencement of the Confirmation Hearing. The Plan Supplement will include: (a) the
identity of the members of the New Board of Directors of NewCo; (b) a list of rejected executory contracts and
unexpired leases; (c) the New Revolving Credit Agreement; and (d) the New Intercreditor Agreement. The
Company may subsequently amend, modify or supplement the Plan Supplement in accordance with the terms of the
Pre-Packaged Plan and the applicable provisions of the Bankruptcy Code and the Bankruptcy Rules.
Q.

Voting Deadline

The period during which Ballots with respect to the Pre-Packaged Plan will be accepted by the Solicitation,
Voting and Exchange Agent will terminate on the Voting Deadline, or 5:00 p.m., Eastern Daylight Time, on May
30, 2012, unless the Company extends the date until which Ballots will be accepted to the extent permitted under the
Restructuring Support Agreement. Except to the extent the Company so determines or as permitted by the
Bankruptcy Court, Ballots that are received after the Voting Deadline will not be counted or otherwise used by the
Company in connection with the Companys request for confirmation of the Pre-Packaged Plan (or any permitted
modification thereof).
To the extent permitted under the Restructuring Support Agreement, the Company reserves the right, at any
time or from time to time, to extend the period of time (on a daily basis, if necessary) during which Ballots will be
accepted for any reason, including determining whether or not the requisite number of acceptances have been
received. The Company will give notice of any such extension in a manner deemed reasonable to the Company in
its discretion. As of the date of the Offering, we have no intention of extending such date.
R.

Voting and Revocation Instructions

Only holders of claims and interests in the Voting Classes are entitled to vote to accept or reject the PrePackaged Plan, and they may do so by following the instructions below and the voting instructions attached to the
Ballot. The failure of a holder of a Claim in the Voting Classes to deliver a duly executed Ballot will be deemed to
constitute an abstention by such holder with respect to voting on the Pre-Packaged Plan, and such abstentions will
not be counted as votes for or against the Pre-Packaged Plan.

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The Company is providing the Solicitation Package to holders of Claims in the Voting Classes whose
names (or the names of their nominees) appear as of the Voting Record Date, which was May 14, 2012, in the
records maintained by the Company or the applicable agent.
If you hold Claims in the Voting Classes that are registered in your own name, you can vote on the PrePackaged Plan by completing the information requested on the appropriate Ballot, signing, dating and indicating
your vote and your election, if applicable, on the Ballot, and returning the completed Ballot by facsimile, email or by
using the enclosed, pre-addressed, postage-paid envelope so that it is actually received by the Solicitation, Voting
and Exchange Agent before the Voting Deadline, 5:00 p.m., Eastern Daylight Time, on May 30, 2012 (unless the
Voting Deadline is extended, in which case the Ballots must be received by the Solicitation, Voting and Exchange
Agent by any subsequent time or date to which the Voting Deadline is extended).
Any holder of a claim in the Voting Classes that has not received a Ballot should contact its nominee or the
Solicitation, Voting and Exchange Agent at its address and telephone number on the back cover of this Offering
Memorandum and Disclosure Statement.
Any Ballot that is properly executed by the holder of a Claim or Interest, but which does not clearly indicate
an acceptance or rejection of the Pre-Packaged Plan or which indicates both an acceptance and a rejection of
the Pre-Packaged Plan, will not be counted at all.
Any Ballot that is properly executed by the holder of a Claim 8Former Employee Deferred Bonus Claim, but
which does indicate an election to seek recovery in the form of either (a) the Former Employee Cash Amount or (b)
the Former Employee Adjusted Cash Amount and the Former Employee Note Amount will automatically receive
the Former Employee Cash Amount without any further action by such holder.
All Ballots are accompanied by a pre-addressed, postage pre-paid envelope. It is important to follow the
specific instructions provided on each Ballot.
Acceptances or rejections may be withdrawn or revoked at any time before the Voting Deadline by the
beneficial owner on the Voting Record Date who completed the original master Ballot or Ballot.
To be effective, a notice of revocation and withdrawal must:
x

be timely received by the Solicitation, Voting and Exchange Agent at its address specified on the
back cover of this Offering Memorandum and Disclosure Statement;

specify the name of the creditor whose vote on the Pre-Packaged Plan is being withdrawn or
revoked;

contain a description of the Claim or Interest as to which a vote on the Pre-Packaged Plan is
withdrawn or revoked; and

be signed by the beneficial owner of the Claim or Interest who executed the Ballot reflecting the
vote being withdrawn or revoked.

After the commencement of the chapter 11 cases in connection the Pre-Packaged Plan, a notice of
withdrawal of a previously furnished Ballot will not be effective without the approval of the Bankruptcy Court.
S.

Note to Holders of Claims in the Voting Classes

By signing and returning a Ballot, each holder of a Claim or Interest in the Voting Classes will be
certifying to the Bankruptcy Court and the Company that, among other things:

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T.

the holder is the claimant or has the power and authority to vote to accept or reject the PrePackaged Plan on behalf of the claimant;

the holder has been provided with a copy of the Offering Memorandum and Disclosure Statement
and the Pre-Packaged Plan; and

the Ballot submitted for a particular class of claim is the only Ballot submitted for such class of
claim.

Voting Tabulation

The Ballot does not constitute, and shall not be deemed to be, a proof of claim or an assertion or admission
of a claim. Only holders of Claims or Interests in the Voting Classes shall be entitled to vote with regard to such
Claims or Interests.
Unless the Company decides otherwise, Ballots received after the Voting Deadline may not be counted.
The method of delivery of the Ballots to be sent to the Solicitation, Voting and Exchange Agent is at the election
and risk of each holder of a Claim or Interest in the Voting Classes. Except as otherwise provided herein, a Ballot
will be deemed delivered only when the Solicitation, Voting and Exchange Agent actually receives a copy of the
executed Ballot. No Ballot should be sent to the Company, the Companys agents (other than the Voting and
Exchange Agent), or the Companys financial or legal advisors.
If multiple Ballots are received from the same holder with respect to the same Claim or Interest in the
respective Voting Class, the last Ballot timely received will be deemed to reflect that voters intent and will
supersede and revoke any prior Ballot. Each holder of Claims or Interests in the Voting Classes must vote all of its
Claims or Interests either to accept or reject the Pre-Packaged Plan and may not split his or her vote. Accordingly, a
Ballot that partially rejects and partially accepts the Pre-Packaged Plan will not be counted. Further, to the extent
there are multiple Claims in the same Voting Class, the Company may, in its discretion, and to the extent possible,
aggregate the respective Claims of any particular holder within the particular class for the purpose of counting votes.
In the event a designation of lack of good faith is requested by a party in interest under section 1126(e) of
the Bankruptcy Code, the Bankruptcy Court will determine whether any vote to accept and/or reject the PrePackaged Plan cast with respect to that Claim or Interest will be counted for purposes of determining whether the
Pre-Packaged Plan has been accepted and/or rejected.
The Company will file with the Bankruptcy Court, on the Commencement Date, or as soon as practicable
thereafter, the voting report prepared by the Solicitation, Voting and Exchange Agent. The voting report shall,
among other things, delineate every Ballot that does not conform to the voting instructions or that contains any form
of irregularity, including, but not limited to, those Ballots that are late or (in whole or in material part) illegible,
unidentifiable, lacking signatures or lacking necessary information, received via facsimile or e-mail or damaged.
The voting report also shall indicate the Companys intentions with regard to such irregular Ballots. Neither the
Company nor any other person or entity will be under any duty to provide notification of defects or irregularities
with respect to delivered Ballots other than as provided in the voting report, nor will any party incur any liability for
failure to provide such notification.
U.

Means for Implementation of the Pre-Packaged Plan

Formation of NewCo
NewCo was formed on May 8, 2012.

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Restructuring Transactions
As a result of a series of transactions occurring on or prior to the Effective Date, the Existing Equity
Interests will be contributed to NewCo, and, on the Effective Date, the equity ownership of NewCo will be as set
forth in the Pre-Packaged Plan. NewCo shall assume the NewCo Assumed Liabilities and the Existing Equityholder
will assign the NewCo Transferred Receivables to NewCo. All such transactions will be deemed to have occurred
by operation of the Pre-Packaged Plan without the need for any further documentation or any action of any person
unless otherwise specified therein. However, the Debtors may enter into such documentation or take such steps as
they may reasonably deem necessary or appropriate in order to effectuate the transactions.
On the Distribution Date, NewCo will deliver NewCo Stock in book entry form to holders of Class 3
Claims and holders of Class 7 Claims, pursuant to the terms set forth in the Pre-Packaged Plan and the Rights
Offering shall be completed as described below in The Rights Offering.
On the Effective Date, the NewCo Governing Documents will be adopted, and the Reorganized Debtors
will enter into the New Revolving Facility Documents, the Amended First Lien Facility Documents, the New
Second Lien Facility Documents, the New Bridge Loan Notes and, as applicable, the Former Employee Note. The
Debtors or Reorganized Debtors, as applicable, will be authorized to execute and deliver any and all documents
contemplated by or necessary or appropriate to effectuate the New Revolving Credit Facility, the Amended First
Lien Facility, the New Second Lien Facility, the New Bridge Loan and, as applicable, the Former Employee Note,
including without limitation all documents required in connection with the creation or perfection of Liens in
connection therewith and the New Intercreditor Agreement, all without further notice to or order of the Bankruptcy
Court, act or action under applicable law, regulation, order or rule or vote, consent authorization or approval of any
person.
The lenders and agents under the Amended First Lien Facility will have valid, binding and enforceable
Liens on the collateral specified in the Amended First Lien Facility Documents. The guarantees, mortgages, pledges,
Liens and other security interests granted pursuant to the Amended First Lien Facility Documents are granted in
good faith as an inducement to the lenders and agents under the Amended First Lien Facility to extend credit
thereunder and will be deemed not to constitute a fraudulent conveyance or fraudulent transfer, will not otherwise be
subject to avoidance, and the priorities of such Liens and security interests will be as set forth in the Amended First
Lien Facility Documents.
The lenders and agents under the New Second Lien Facility will have valid, binding and enforceable Liens
on the collateral specified in the New Second Lien Facility Documents. The guarantees, mortgages, pledges, Liens
and other security interests granted pursuant to the New Second Lien Facility Documents are granted in good faith
as an inducement to the lenders and agents under the New Second Lien Facility to extend credit thereunder and will
be deemed not to constitute a fraudulent conveyance or fraudulent transfer, will not otherwise be subject to
avoidance, and the priorities of such Liens and security interests will be as set forth in the New Second Lien Facility
Documents.
The lenders and agents under the New Revolving Facility Documents will have valid, binding and
enforceable Liens on the collateral specified in the New Revolving Facility Documents. The guarantees, mortgages,
pledges, Liens and other security interests granted pursuant to the New Revolving Facility Documents are granted in
good faith as an inducement to the lenders and agents under the New Revolving Facility Documents to extend credit
thereunder and will be deemed not to constitute a fraudulent conveyance or fraudulent transfer, will not otherwise be
subject to avoidance, and the priorities of such Liens and security interests will be as set forth in the New Revolving
Facility Documents
In addition to the actions described above and in Article V of the Pre-Packaged Plan, on or prior to the
Effective Date or as soon as reasonably practicable thereafter, the Debtors or the Reorganized Debtors, as
applicable, intend to simplify and rationalize their corporate structure and affiliate obligations by, among other
things, eliminating or merging certain entities that are deemed no longer essential to the Debtors or Reorganized
Debtors, as applicable, and may, subject to any restrictions and conditions set forth in the Post-Restructuring Debt
Facilities Documents, take all actions as may be necessary or appropriate to effect such transactions, including,

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without limitation, any transaction described in, approved by, contemplated by or necessary to effectuate the PrePackaged Plan, including (a) the execution and delivery of appropriate agreements or other documents of merger,
consolidation, restructuring, conversion, disposition, transfer, dissolution or liquidation that satisfy the applicable
requirements of applicable law and any other terms to which the applicable entity may agree; (b) the execution and
delivery of appropriate instruments of transfer, assignment, assumption or delegation of any asset, property, right,
liability, debt or obligation and having other terms for which the applicable parties agree; (c) the filing of
appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion or dissolution
pursuant to applicable state law; and (d) all other actions that the applicable entities determine to be necessary or
appropriate, including making filings or recordings that may be required by applicable law. The Pre-Packaged Plan
contemplates that any such action will be effective pursuant to the Confirmation Order without any action by the
stockholders or directors of any of the Debtors or the Reorganized Debtors, as applicable.
The Rights Offering
As set forth in the Pre-Packaged Plan, each holder of a Class 3 Claim will receive its Pro Rata share of the
Subscription Rights to participate in the Rights Offering. In accordance with the Backstop Agreement, which is
attached hereto as Annex G, each of the Backstop Purchasers has committed to (a) subscribe for its Pro Rata share
of the NewCo Rights Offering Stock and, to the extent applicable, the New Bridge Loan and (b) purchase its
proportionate share, as further set forth in the Backstop Agreement, of the entire amount of NewCo Rights Offering
Stock and, to the extent applicable the New Bridge Loan, that remains unsubscribed following the Rights Offering,
subject to the terms and conditions of the Backstop Agreement. The NewCo Rights Offering Stock and, to the
extent applicable, the New Bridge Loan, will be issued on the Effective Date to the holders of Class 3 Claims and/or
the Backstop Purchasers, as applicable.
The proceeds of the Rights Offering will be used to fund the First Lien Paydown Amount, the payment of
fees and expenses incurred in connection with or arising from the Restructuring Support Agreement, the Chapter 11
Cases or any of the transactions contemplated thereby or associated therewith, and the working capital and general
corporate requirements of the Reorganized Debtors.
The Rights Offering will only be made to persons who are accredited investors within the meaning of
Rule 501 of Regulation D under the Securities Act. Pursuant to the Subscription Form, each holder of a Class 3
Claim participating in the Rights Offering will represent that it is an accredited investor pursuant to Rule 501 of
Regulation D.
Management/Board of Directors
Prior to the Confirmation Date, in accordance with section 1129(a)(5) of the Bankruptcy Code, the Debtors,
with the consent of Centerbridge, will disclose in the Plan Supplement (a) the identity and affiliations of any
individual proposed to serve, after the Effective Date, as a director or officer of NewCo and (b) the identity of any
insider (as such term is defined in section 101(31) of the Bankruptcy Code) who will be employed and retained by
NewCo or the Reorganized Debtors and the nature of any compensation for such insider. The New Board will
consist initially of up to seven (7) members, all of whom will be designated by Centerbridge. The election of the
New Board will be approved by the Bankruptcy Court in the Confirmation Order. Thereafter the New Board will be
elected in accordance with the NewCo Governing Documents.
The New Board will appoint directors of the Reorganized Debtors other than NewCo (acting directly or
indirectly through the boards of its direct and indirect subsidiaries) to serve in their respective capacities after the
Effective Date until replaced or removed in accordance with each Reorganized Debtors respective governing
documents. The identity and affiliations of such directors will be disclosed in the Plan Supplement.
Management Incentive Plan
On or after the Effective Date, NewCo will be authorized to establish and implement the Management
Incentive Plan, which will provide for grants of options and/or restricted units or equity reserved for management,
directors, and employees for up to (at Centerbridges option) 15% of NewCo Stock. The amount, form, exercise

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price, allocation and vesting of such equity-based awards, and any limitations thereon, will be determined and
approved by the New Board, and the terms of the Management Incentive Plan will ensure that NewCo does not
become subject to the reporting requirements of the U.S. Securities and Exchange Commission.
Plan Supplement
No later than 10 days before the commencement of the Confirmation Hearing, the Debtors will file the Plan
Supplement with the Bankruptcy Court, which will contain the documents identified in the Pre-Packaged Plan and
certain agreements and other documents that may be necessary or appropriate to effectuate and further evidence the
terms and conditions of the Pre-Packaged Plan, in each case in form and substance acceptable to the Debtors and
acceptable to the Initial Lenders to the extent set forth in the Restructuring Support Agreement. Holders of Claims
or Interests may obtain a copy of the Plan Supplement upon written request to the Solicitation, Voting and Exchange
Agent. The Debtors reserve the right, with the prior consent of the Initial Lenders, as and to the extent set forth in
the Restructuring Support Agreement, to alter, amend or modify the Plan Supplement or any of the Plan Documents
at any time prior to the Effective Date.
Corporate Actions
On the Effective Date, all actions contemplated by the Pre-Packaged Plan and the Plan Supplement will be
deemed authorized, approved and, to the extent taken prior to the Effective Date, ratified in all respects (subject to
the provisions of the Pre-Packaged Plan), including, without limitation, all of the transactions contemplated by
Article V of the Pre-Packaged Plan. Each of the matters provided for under the Pre-Packaged Plan involving the
corporate structure of any Debtor or any Reorganized Debtor and any other transaction reasonably necessary to
facilitate the consummation of the Pre-Packaged Plan will be deemed to have occurred and will be in effect pursuant
to the Bankruptcy Code, and will be authorized, approved and, to the extent taken prior to the Effective Date,
ratified in all respects without any requirement of further action by the shareholders or the directors of any of the
Debtors or Reorganized Debtors. On the Effective Date, the appropriate officers of the Debtors and the Reorganized
Debtors are authorized and directed to execute and to deliver the Plan Documents and any other agreements,
documents and instruments contemplated by the Pre-Packaged Plan or the Plan Documents in the name and on
behalf of the Debtors or the Reorganized Debtors, and to take such actions as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of the Pre-Packaged Plan or to otherwise comply with
applicable law.
From and after the Effective Date, NewCo will be entitled, and be authorized without any further
documentation or any action of any person, to take such actions as it may deem necessary or advisable to close the
Chapter 11 Cases.
Sources of Consideration for Plan Distribution
All Cash necessary for the Reorganized Debtors to make payments or distributions pursuant to the PrePackaged Plan will be obtained from the New Revolving Facility (subject to limitations set forth in the Restructuring
Support Agreement and the Post-Restructuring Debt Facilities Documents), the Rights Offering or other cash on
hand of the Debtors, including cash derived from business operations.
Subject to and in compliance with the Pre-Packaged Plan and any applicable Plan Document, NewCo Stock
will be delivered to the holders of Claims in Classes 3 and 7 and in connection with the Rights Offering. All of the
shares of NewCo Stock issued or retained pursuant to the Pre-Packaged Plan will be duly authorized, validly issued,
fully paid and non-assessable. Each distribution, issuance or retention referred to in Article VII of the Pre-Packaged
Plan will be governed by the terms and conditions set forth in the Pre-Packaged Plan applicable to such distribution,
issuance or retention and by the terms and conditions of the instruments evidencing or relating to such distribution,
issuance or retention (which terms and conditions shall bind each holder receiving or retaining value under the PrePackaged Plan).
The NewCo Stock delivered to holders of Claims in Class 3 and 7 and to participants in the Rights
Offering, as well as the NewCo Stock retained by the Existing Equityholder under the Pre-Packaged Plan will be

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subject to dilution based upon the grant of equity-based awards pursuant to the Management Incentive Plan after the
Effective Date.
Preservation of Causes of Action
In accordance with section 1123(b) of the Bankruptcy Code, and except where such Causes of Action have
been expressly released (including, for the avoidance of doubt, pursuant to the releases by the Debtors provided by
Article X of the Pre-Packaged Plan), the Reorganized Debtors will retain and may enforce all rights to commence
and pursue, as appropriate, any and all Causes of Action, whether arising before or after the Commencement Date
and the Reorganized Debtors rights to commence, prosecute or settle such Causes of Action will be preserved
notwithstanding the occurrence of the Effective Date. The Reorganized Debtors may pursue such Causes of Action,
as appropriate, in accordance with the best interests of the Reorganized Debtors. No Entity may rely on the absence
of a specific reference in the Pre-Packaged Plan, the Plan Supplement or this Offering Memorandum and Disclosure
Statement to any Cause of Action against them as any indication that the Debtors or Reorganized Debtors, as
applicable, will not pursue any and all available Causes of Action against them. Except with respect to Causes of
Action as to which the Debtors or Reorganized Debtors have released any person or Entity on or before the Effective
Date (including pursuant to the Releases by the Debtors or otherwise), the Debtors or Reorganized Debtors, as
applicable, expressly reserve all rights to prosecute any and all Causes of Action against any Entity, except as
otherwise expressly provided in the Pre-Packaged Plan. Unless any Causes of Action against an Entity are expressly
waived, relinquished, exculpated, released, compromised or settled in the Pre-Packaged Plan or a Final Order of the
Bankruptcy Court, the Reorganized Debtors expressly reserve all Causes of Action, for later adjudication, and,
therefore, no preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue preclusion, claim
preclusion, estoppel (judicial, equitable or otherwise) or laches, will apply to such Causes of Action upon, after or as
a consequence of the Confirmation Date or consummation of the Pre-Packaged Plan.
V.

Executory Contracts and Unexpired Leases

Assumption of Executory Contracts and Unexpired Leases

The Bankruptcy Code gives the Debtors the power, after the commencement of the Chapter 11 Cases,
subject to the approval of the Bankruptcy Court, to assume or reject executory contracts and unexpired leases.
Generally, an executory contract is a contract under which material performance (other than the payment of money)
is still due by each party. Except as otherwise provided in the Pre-Packaged Plan, and subject to the consent of
Centerbridge, each executory contract and unexpired lease that exists between any Debtor and any person will be
deemed assumed by the Debtors on the Effective Date, unless such contract or lease:
x

was assumed or rejected previously by Final Order of the Bankruptcy Court;

previously expired or terminated pursuant to its own terms;

is the subject of a motion to reject filed on or before the Confirmation Date, and pending as of the
Effective Date; or

is set forth in a schedule, as an executory contract or unexpired lease to be rejected, filed by the
Debtors as part of the Plan Supplement.

The Pre-Packaged Plan contemplates, and the Restructuring Support Agreement requires, that the Debtors
will assume certain stock purchase and related agreements with United States Filter Corporation and WASCO LLC.
The Debtors reserve the right, with the consent of Centerbridge, at any time prior to the Confirmation Date, to add
any executory contract or unexpired lease to the schedule of rejected contracts, thus providing for its rejection
pursuant to Article VI of the Pre-Packaged Plan. The Debtors will provide notice of the schedule of rejected
executory contracts and unexpired leases, and any amendments thereof to the non-Debtor parties to the executory
contracts or unexpired leases affected thereby and to those parties entitled to notice pursuant to Bankruptcy Rule
2002.

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The Pre-Packaged Plan contemplates that entry of the Confirmation Order will constitute approval,
pursuant to section 365 of the Bankruptcy Code, of the assumption or rejection of executory contracts and unexpired
leases as provided for herein.
Cure Payments, Etc.
The Pre-Packaged Plan provides for the satisfaction of any monetary defaults under each executory
contract and unexpired lease to be assumed pursuant to section 365(b)(1) of the Bankruptcy Code by payment of the
default amount in Cash on the Effective Date, in the ordinary course of business, or on such other terms as the
Debtors, with the consent of Centerbridge, or the Reorganized Debtors (as the case may be) and such parties to such
executory contracts or unexpired leases may otherwise agree. In the event of a dispute concerning (a) the amount of
any cure payment, (b) the ability of NewCo, the Reorganized Debtors (as the case may be) or any subsidiary thereof
to provide adequate assurance of future performance (within the meaning of section 365 of the Bankruptcy Code)
under the executory contract or the unexpired lease to be assumed or (c) any other matter pertaining to the
assumption of an executory contract or an unexpired lease, NewCo, the Reorganized Debtors or such subsidiary, as
the case may be, will make such cure payment or provide such assurance, as required, in accordance with Final
Orders of the Bankruptcy Court or upon such other terms as the parties to such executory contract or unexpired lease
may otherwise agree, with the consent of Centerbridge.
Employee Compensation and Benefit Programs
Except as otherwise provided in the Pre-Packaged Plan, on or after the Effective Date, the Reorganized
Debtors may honor, in the ordinary course of business, all of the Debtors existing compensation and benefit
agreements, plans, policies and programs applicable to their employees, officers and non-employee directors who
served in such capacity at any time (other than obligations owed pursuant to the Special Bonus Plan, which will be
satisfied as provided for pursuant to the Pre-Packaged Plan). The Pre-Packaged Plan contemplates that the
Reorganized Debtors performance under any employment agreement will not entitle any person to any benefit or
alleged entitlement under any contract, agreement, policy, program or plan that has expired or been terminated or
modified before or in connection with the Effective Date, or restore, reinstate or revive any such benefit or alleged
entitlement under any such contract, agreement, policy, program or plan. Nothing in the Pre-Packaged Plan is
contemplated to have the effect of limiting, diminishing or otherwise altering the Reorganized Debtors defenses,
claims, Causes of Action or other rights with respect to any such contracts, agreements, policies, programs and
plans, including the Reorganized Debtors rights to modify unvested benefits pursuant to their terms.
Insurance Policies
The Pre-Packaged Plan contemplates that each of the Companys Insurance Policies will be deemed
assumed on the Effective Date to the extent such Insurance Policies are executory contracts of a Debtor under
section 365 of the Bankruptcy Code, notwithstanding anything in the Pre-Packaged Plan or the Confirmation Order
to the contrary. Regardless of whether any Insurance Policy is or is not an executory contract, the Pre-Packaged
Plan contemplates that the Insurance Policies will remain valid and enforceable in accordance with their terms on
and after the Effective Date, that the Insurance Policies will not be impaired by the Pre-Packaged Plan or
Confirmation Order, and that the Debtors or Reorganized Debtors, as the case may be, and the Insurers will perform
their respective obligations to one another, if any, under the Insurance Policies. Nothing contained in Article XI of
the Pre-Packaged Plan will affect any executory contract or Claim of any Entity other than the counterparties to the
Insurance Policies.
Rejection
A Claim under an executory contract or an unexpired lease that has been rejected will constitute a Class 4
Claim, if secured, or a Class 6 Claim, if unsecured. The Pre-Packaged Plan contemplates that all Claims arising out
of the rejection of executory contracts and unexpired leases must be filed within thirty (30) days after the
Bankruptcy Court enters an order approving the rejection. The Pre-Packaged Plan contemplates that the Bankruptcy
Court will enter an order barring any rejection damage Claims not filed within the required time from being asserted
against the Debtors and their Estates, the Reorganized Debtors and NewCo.

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Director and Officer Liability Insurance Policies

The Pre-Packaged Plan provides that, prior to the Effective Date, the Debtors shall obtain customary D&O
insurance coverage for current and former directors, officers, managers, employees and agents, and the Debtors shall
purchase tail coverage for any such insurance that terminates, in each case on terms and conditions acceptable to
Centerbridge.
W.

Distributions

The Pre-Packaged Plan contemplates that a Distribution Agent (which, as described in more detail in the
Glossary, may be the Reorganized Debtors) will be designated to make or facilitate distributions pursuant to the PrePackaged Plan and will be responsible for making all of the distributions required to be made by the Debtors or the
Reorganized Debtors under the Pre-Packaged Plan. All costs and expenses in connection with such distributions,
including, without limitation, any fee and expense of the Distribution Agent, will be borne by the Reorganized
Debtors.
The Pre-Packaged Plan contemplates Distribution Agent will have the right to employ one or more subagents or professionals on such terms and conditions as the Distribution Agent and such sub-agent(s) agree, subject
to approval of the Debtors, with the consent of Centerbridge, and the Reorganized Debtors.
The Pre-Packaged Plan further provides that, unless otherwise ordered by the Bankruptcy Court, no
Distribution Agent will be required to provide any bond or surety or other security in connection with the making of
any distributions pursuant to, and the performance of its duties under, the Pre-Packaged Plan.
Manner of Payment
The Pre-Packaged Plan provides that, at the sole option of the Distribution Agent, Cash distributions
required to be paid by the Debtors or the Reorganized Debtors under the Pre-Packaged Plan on or after the Effective
Date may be made in Cash, by wire transfer or by a check drawn on a domestic bank and such payment will be
deemed made when the check or wire transfer is transmitted. Distribution of the Post-Restructuring Debt Facilities,
NewCo Stock and the Former Employee Note will be made by the issuance and delivery of such Post-Restructuring
Debt Facilities, NewCo Stock and Former Employee Note.
Except as otherwise provided in the Pre-Packaged Plan:
x

all distributions to holders of the Revolving Lender Claims will be governed by the Revolving
Credit Agreement, and will be deemed completed when made to the Revolving Agent, who will in
turn make distributions in accordance with the Revolving Credit Agreement;

all distributions to holders of the First Lien Lender Claims will be governed by the First Lien
Credit Agreement, and will be deemed completed when made to the First Lien Agent, who will in
turn make distributions in accordance with the First Lien Credit Agreement;

all distributions to holders of the Second Lien Lender Claims will be governed by the Second Lien
Credit Agreement, and will be deemed completed when made to the Second Lien Agent, who will
in turn make distributions in accordance with the Second Lien Credit Agreement.

None of the Debtors, the Reorganized Debtors, NewCo, or the Distribution Agent will incur any liability
whatsoever on account of any distributions under the Pre-Packaged Plan except for gross negligence, willful
misconduct or fraud.

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Delivery of Distributions
Except as otherwise provided in the Pre-Packaged Plan, distributions to holders of Allowed Claims or
Interests will be made to holders of record as of the Confirmation Date or such other date that is designated in the
Confirmation Order by the Distribution Agent (the Distribution Date):
x

to the signatory set forth, or other representative identified in, the proof of Claim or Interest filed by
such holder, if any (or at the last known addresses of such holder if no proof of Claim or Interest is
filed or if the Debtors have been notified in writing of a change of address);

at the addresses set forth in any written notices of address changes delivered to the Distribution Agent
after the date of any related proof of Claim or Interest, if any;

at the addresses reflected in the Debtors schedule of liabilities, if any, if no proof of Claim or Interest
has been filed and the Distribution Agent has not received a written notice of a change of address; or

on any counsel that has appeared in the Chapter 11 Cases on the holders behalf.

Distributions (cash and debt) to the holders of the First Lien Lender Claims will be made to the agent under
the Amended First Lien Facility and the agent will be directed to immediately turn over distributions to the lenders
under the Amended First Lien Facility as of the Distribution Record Date. Any Dollar Equivalent (as defined in
the First Lien Credit Agreement) determination made for distribution purposes hereunder shall be calculated on the
basis of the Spot Rate (as defined in the First Lien Credit Agreement) determined as of the close of business of the
Business Day immediately preceding the Effective Date.
Undeliverable Distributions and Unclaimed Property
If a distribution is returned to the Distribution Agent as undeliverable, the Distribution Agent will hold such
distribution and will not be required to take any further action with respect to the delivery of the distribution unless
and until the Distribution Agent is notified in writing of the then current address of the person entitled to receive the
distribution. Such distributions will be deemed unclaimed property under section 347(b) of the Bankruptcy Code
and forfeited at the expiration of six (6) months from the applicable Distribution Date. After such date, all
unclaimed property or interests in property will revert to the Reorganized Debtors (notwithstanding any applicable
federal or state escheat, abandoned or unclaimed property laws to the contrary), and the Claim of any holder to such
property or Interest in property will be discharged and forever barred.
Rights of Holders of Revolving Lender Claims and Second Lien Lender Claims
The Pre-Packaged Plan provides that, on the Effective Date, the Revolving Credit Agreement, the Loan
Documents as defined under the Revolving Credit Agreement, the Second Lien Credit Agreement, and the Loan
Documents as defined under the Second Lien Credit Agreement will be deemed canceled, discharged, terminated
and of no further force and effect and the Liens securing the obligations thereunder will be deemed released and the
Debtors and the holders thereof will be authorized and directed to release any collateral or other property of any
Debtor (including, without limitation, any cash collateral) held by such Person and to take such actions as may be
requested by such Debtor to evidence the release of such Lien, including, without limitation, the execution, delivery
and filing or recording of such release as may be requested by such debtor. To the extent the New Revolving
Facility is implemented pursuant to an amendment to the Revolving Credit Agreement, the Revolving Credit
Agreement and the Loan Documents as defined in the Revolving Credit Agreement and the Liens securing the
obligations thereunder shall remain in effect in accordance with the terms of such amendment and the New
Intercreditor Agreement. Notwithstanding the foregoing, (a) such cancellation will not impair the rights of any
holder of a Revolving Lender Claim or a Second Lien Lender Claim to receive distributions on account of such
Claim under the terms of the Pre-Packaged Plan and (b) on the Effective Date, the Letter of Credit Cash Collateral
will be released to the Reorganized Debtors, provided that all such released Cash will remain subject to the Liens of

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the Post-Restructuring Debt Facilities, which Liens will be subject to the priority and other provisions set forth in the
New Intercreditor Agreement.
Cancellation of Liens
Except as otherwise provided in the Pre-Packaged Plan, on the Effective Date, any Lien securing any
Secured Claim, other than the First Lien Lender Claims, will be deemed released, and the holder of such Secured
Claim will be authorized and directed to release any collateral or other property of any Debtor (including, without
limitation, any cash collateral) held by such person and to take such actions as may be requested by such Debtor to
evidence the release of such Lien, including, without limitation, the execution, delivery and filing or recording of
such releases as may be requested by such Debtor.
Nothing in the Pre-Packaged Plan will be deemed to release any Liens securing the First Lien Credit
Agreement, which Liens will continue in full force and effect as security for the obligations arising under the
Amended First Lien Facility Documents and which Liens will remain valid and will be subject to the priority and
other provisions set forth in the applicable Amended First Lien Facility Documents including the New Intercreditor
Agreement.
Fractional Securities and Rounding of Payments
The Pre-Packaged Plan provides that no fractional share of NewCo Stock will be issued on the Effective
Date. Each person otherwise entitled to receive a number of shares of NewCo Stock issued on the Effective Date
that includes a fractional share will receive a share of NewCo Stock that has been rounded down to the next whole
number of shares (if such fraction is less than one-half) or rounded up to the next whole number of shares (if such
fraction is equal to, or greater than, one-half).
Whenever any payment of a fraction of a dollar under the Pre-Packaged Plan would otherwise be called for,
the actual payment will reflect a rounding of such fraction to the nearest whole dollar (up or down), with half dollars
or less being rounded down. To the extent that Cash remains undistributed as a result of the rounding of such
fraction to the nearest whole dollar, such Cash will be treated as unclaimed property under Article VII of the PrePackaged Plan.
Compliance with Tax Requirements
The Debtors, the Reorganized Debtors and the Distribution Agent are required to comply with all
withholding and reporting requirements imposed by applicable taxing authorities in connection with making
distributions pursuant to the Pre-Packaged Plan. With respect to any person from whom a tax identification number,
certified tax identification number or other Tax information required by law to exempt a distribution pursuant to the
Pre-Packaged Plan from the applicable withholding has not been received by the Debtors, the Reorganized Debtors
or the Distribution Agent, the Debtors, the Reorganized Debtors or the Distribution Agent may, at their sole option,
withhold the amount required to be withheld out of the Cash, the Post-Restructuring Debt Facilities, the NewCo
Stock and the Former Employee Note Amount distributable to such person and distribute the balance to such person
or decline to make any distribution to such person until the applicable Tax information is received or treat the
distribution as an undeliverable distribution under Article VII of the Pre-Packaged Plan.
Setoff
Except as otherwise expressly provided for in the Pre-Packaged Plan, each Reorganized Debtor pursuant to
the Bankruptcy Code (including section 553 of the Bankruptcy Code), applicable non-bankruptcy law or as may be
agreed to by the holder of a Claim or Interest, may set off against any Allowed Claim or Interest and the
distributions to be made pursuant to the Pre-Packaged Plan on account of such Allowed Claim or Interest (before
any distribution is made on account of such Allowed Claim or Interest), any Claims, rights and Causes of Action of
any nature that such Debtor or Reorganized Debtor, as applicable, may hold against the holder of such Allowed
Claim or Interest, to the extent such Claims, rights or Causes of Action against such holder have not been otherwise
compromised or settled on or prior to the Effective Date (whether pursuant to the Pre-Packaged Plan or otherwise).

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Neither the failure to effect such a setoff nor the allowance of any Claim or Interest pursuant to the Pre-Packaged
Plan will constitute a waiver or release by such Reorganized Debtor of any such Claims, rights and Causes of Action
that such Reorganized Debtor may have against such holder.
Distribution Record Date
On the Confirmation Date, subject to any contrary provision of the Confirmation Order, the Distribution
Agent will be authorized to recognize only those holders of Claims or Interests (a) listed on the Debtors books and
records, (b) with respect to First Lien Lender Claims, the First Lien Lenders set forth on the First Lien Agents
Register (as defined in the First Lien Credit Agreement), (c) with respect to Second Lien Lender Claims, the Second
Lien Lenders set forth on the Second Lien Agents Register (as defined in the Second Lien Credit Agreement), or
(d) in the case of Interests, the Debtors or the Debtors transfer agents books and records, in each case as of the
close of business on the Confirmation Date. Accordingly, the Distribution Agent will have no obligation to
recognize the transfer of, or the sale of any participation in, any Allowed Claim or Allowed Interest that occurs after
the close of business on the Confirmation Date, and will be entitled for all purposes herein to recognize and
distribute securities, property, notices and other documents only to those holders of Allowed Claims and Interests
who are holders of such Claims (or participants therein) or Interests as of the close of business on the Confirmation
Date.
X.

Procedures for Resolving Objections to Claims

The Debtors (with the consent of Centerbridge) or the Reorganized Debtors, as applicable, will have the
exclusive authority to file, settle, compromise, withdraw or litigate to judgment any objection to the allowance of
any Claim other than Claims that are Allowed Claims as of the Effective Date. Any objections to, or other
proceedings contesting the allowance of, any Claims to be adjudicated by the Bankruptcy Court will be commenced
by the Claims Objection Deadline, and, may be litigated to judgment, settled or withdrawn, in the Reorganized
Debtors discretion. The Reorganized Debtors may settle any such objections or proceedings without Bankruptcy
Court approval or may seek Bankruptcy Court approval without notice to any person other than the holder of the
applicable Claim. Nothing in the Pre-Packaged Plan limits the ability or rights of the Debtors prior to the Effective
Date or Reorganized Debtors after the Effective Date to object to or challenge the allowance of any Claim asserted
against them in any other Court of competent jurisdiction.
Y.

Treatment of Disputed Claims

If any portion of a Claim is a Disputed Claim, no payment or distribution provided for under the PrePackaged Plan will be made on account of the portion of such Claim that is a Disputed Claim unless and until such
Disputed Claim becomes an Allowed Claim. However, the payment or distribution provided for under the PrePackaged Plan will be made on account of the portion of such Claim that is an Allowed Claim.
If a Disputed Claim becomes an Allowed Claim after the Effective Date, the Distribution Agent will pay
such Claim in the ordinary course of business as promptly as practicable following the date upon which the Claim
becomes Allowed.
Z.

Effects of Confirmation

The Pre-Packaged plan provides that, except as otherwise expressly provided in the Pre-Packaged Plan or
the Confirmation Order, each Debtor shall be discharged, immediately upon the occurrence of the Effective Date,
from any Claim and any debt (as that term is defined in section 101(11) of the Bankruptcy Code), and each
Debtors liability in respect thereof shall be extinguished completely, whether reduced to judgment or not, liquidated
or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or not, matured or unmatured, disputed or
undisputed, legal or equitable, known or unknown, that arose from any agreement of any Debtor entered into or
obligation of any Debtor incurred before the Commencement Date, or from any conduct of any Debtor prior to the
Commencement Date, or that otherwise arose before the Commencement Date, including, without limitation, all
interest accrued and expenses incurred, if any, on any such debts, whether such interest accrued or such expenses
were incurred before or after the Commencement Date, and including, without limitation, any liability of a kind

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specified in sections 502(g), 502(h) and 502(i) of the Bankruptcy Code, whether or not a proof of claim was filed or
is deemed filed under section 501 of the Bankruptcy Code, such Claim is allowed under section 502 of the
Bankruptcy Code or the holder of such Claim has accepted the Pre-Packaged Plan.
Further, except as otherwise provided in the Pre-Packaged Plan or the Confirmation Order or any PostRestructuring Debt Facilities Documents, the Pre-Packaged plan provides that all property in each Estate and all
Causes of Action (except those released pursuant to Article X of the Pre-Packaged Plan) will vest in each respective
Reorganized Debtor, free and clear of all Liens, Claims, charges or other encumbrances, upon the occurrence of the
Effective Date. On and after the Effective Date, except as otherwise provided in the Pre-Packaged Plan, each
Reorganized Debtor may operate its business and may use, acquire or dispose of property and compromises or settle
any Claims, Interests and Causes of Action without supervision or approval by the Bankruptcy Court and free of any
restrictions of the Bankruptcy Code or Bankruptcy Rules. The Reorganized Debtors will be deemed successors or
affiliates of the Debtors under section 1145 of the Bankruptcy Code and Representatives of the Estates under section
1123(b) of the Bankruptcy Code.
AA.

Releases, Injunctions and Exculpation

Release by Debtors

The Pre-Packaged Plan defines Released Parties as (a) each of the Debtors, NewCo and the Reorganized
Debtors, and each such Entities current and former direct and indirect equityholders, subsidiaries, affiliates,
members, managing members, funds, managers, officers, directors, agents, financial advisors, principals,
accountants, investment bankers, consultants, attorneys, professionals, partners and other representatives (and each
of their direct and indirect equityholders, subsidiaries, affiliates, members, managing members, funds, managers,
officers, directors, agents, financial advisors, principals, accountants, investment bankers, consultants, attorneys,
professionals, partners and other representatives); (b) the Initial Lenders; (c) the Existing Equityholder; (d) the First
Lien Lenders; (e) the First Lien Agent, (f) the Second Lien Lenders; (g) the Second Lien Agent, (h) the Revolving
Lenders, (i) the Revolving Agent and (j) the Backstop Purchasers, and (k) with respect to each of the foregoing
Entities in clauses (b) through (j), such Entities current and former direct and indirect equityholders, subsidiaries,
affiliates, members, managing members, funds, managers, officers, directors, agents, financial advisors, principals,
accountants, investment bankers, consultants, attorneys, professionals, employees, partners and other representatives
(and each of their direct and indirect equityholders, subsidiaries, affiliates, members, managing members, funds,
managers, officers, directors, agents, financial advisors, principals, accountants, investment bankers, consultants,
attorneys, professionals, employees, partners and other representatives), in each case with respect to (a) through (k),
in their capacity as such, but excluding any holder of a Claim or Interest, entitled to vote to accept or reject the PrePackaged Plan, which does not vote to accept the Pre-Packaged Plan.
Pursuant to section 1123(b) of the Bankruptcy Code, and except as otherwise specifically
provided in the Plan, for good and valuable consideration, including the service of the
Released Parties, in any capacity, to facilitate the reorganization of the Debtors and the
implementation of the restructuring contemplated by the Plan, on and after the Effective
Date, the Released Parties are deemed released and discharged by the Debtors, NewCo, the
Reorganized Debtors and the Estates from any and all Claims, obligations, rights, suits,
damages, Causes of Action, remedies and liabilities whatsoever, including any derivative
claims, asserted or assertable on behalf of the Debtors, whether known or unknown,
foreseen or unforeseen, existing or hereinafter arising, in law, equity or otherwise, that the
Debtors, NewCo, the Reorganized Debtors, the Estates or their affiliates would have been
legally entitled to assert in their own right (whether individually or collectively) or on behalf
of the holder of any Claim or Interest or other Entity, based on or relating to, or in any
manner arising from, in whole or in part, the Debtors, the Chapter 11 Cases, the
Restructuring Support Agreement, the Disclosure Statement, the Pre-Packaged Plan, the
purchase, sale or rescission of the purchase or sale of any security of the Debtors, NewCo or
the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to,
any Claim or Interest that is treated in the Plan, the business or contractual arrangements
between any Debtor and any Released Party, the restructuring of Claims and Interests

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before or during the Chapter 11 Cases, the negotiation, formulation or preparation of the
Restructuring Support Agreement, the Plan and the Disclosure Statement, or related
agreements, instruments or other documents, or upon any act or omission, transaction,
agreement, event or other occurrence related thereto taking place on or before the Effective
Date (including prior to the Commencement Date), other than Claims or liabilities arising
out of or relating to any act or omission of a Released Party that constitutes willful
misconduct (including fraud) or gross negligence. Notwithstanding anything to the contrary
in the foregoing, the release set forth above does not release any post-Effective Date
obligations of any Released Party under the Plan, the Plan Documents or any document,
instrument or agreement (including those set forth in the Plan Supplement) executed to
implement the Plan.
Releases by Holders of Claims and Interests
The Pre-Packaged Plan also contains the following releases with respect to holders of Claims and Interests,
which should be read in their entirety:
As of the Effective Date, to the extent permitted by applicable law, each holder of a Claim or
an Interest who votes to accept the Pre-Packaged Plan shall be deemed to have conclusively,
absolutely, unconditionally, irrevocably and forever, released and discharged the Released
Parties from any and all Claims, Interests, obligations, rights, suits, damages, Causes of
Action, remedies and liabilities whatsoever, including any derivative Claims asserted on
behalf of a Debtor, whether known or unknown, foreseen or unforeseen, existing or
hereafter arising, in law, equity or otherwise, that such Entity would have been legally
entitled to assert (whether individually or collectively), based on or relating to, or in any
manner arising from, in whole or in part, the Debtors, the Debtors restructuring, the
Chapter 11 Cases, the Restructuring Support Agreement, the Disclosure Statement, the PrePackaged Plan, the purchase, sale or rescission of the purchase or sale of any security of the
Debtors, NewCo or the Reorganized Debtors, the subject matter of, or the transactions or
events giving rise to, any Claim or Interest that is treated in the Plan, the business or
contractual arrangements between any Debtor and any Released Party, the restructuring of
Claims and Interests before or during the Chapter 11 Cases, the negotiation, formulation or
preparation of the Restructuring Support Agreement, Plan, Disclosure Statement, Plan
Supplement or related agreements, instruments or other documents, or upon any other act
or omission, transaction, agreement, event or other occurrence related thereto taking place
on or before the Effective Date (including prior to the Commencement Date), other than
Claims or liabilities arising out of or relating to any act or omission of a Released Party that
constitutes willful misconduct (including fraud) or gross negligence. Notwithstanding
anything to the contrary in the foregoing, the release set forth above does not release any
post-Effective Date obligations of any party under the Plan or any document, instrument or
agreement (including those set forth in the Plan Supplement) executed to implement the
Plan.
We believe that the releases set forth in the Pre-Packaged Plan are appropriate because, among other things,
each of the Released Parties afforded value to the Debtors and aided in the reorganization process. The Debtors
believe that the Released Parties played an integral role in the formulation of the Pre-Packaged Plan and have
expended significant time and resources analyzing and negotiating the issues presented by the Debtors prepetition
capital structure.
Injunctions and Stays
UNLESS OTHERWISE PROVIDED IN THE PRE-PACKAGED PLAN OR THE
CONFIRMATION ORDER, ALL INJUNCTIONS AND STAYS PROVIDED FOR IN THE
CHAPTER 11 CASES PURSUANT TO SECTIONS 105 AND 362 OF THE BANKRUPTCY
CODE OR OTHERWISE IN EFFECT ON THE CONFIRMATION DATE, SHALL

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REMAIN IN FULL FORCE AND EFFECT UNTIL THE EFFECTIVE DATE. FROM
AND AFTER THE EFFECTIVE DATE, ALL PERSONS ARE PERMANENTLY
ENJOINED FROM, AND RESTRAINED AGAINST, COMMENCING OR CONTINUING
IN ANY COURT ANY SUIT, ACTION OR OTHER PROCEEDING, OR OTHERWISE
ASSERTING ANY CLAIM OR INTEREST, SEEKING TO HOLD (A) THE DEBTORS,
(B) THE REORGANIZED DEBTORS, (C) NEWCO, (D) THE PROPERTY OF THE
DEBTORS, THE REORGANIZED DEBTORS OR NEWCO, OR (E) ANY RELEASED
PARTIES LIABLE FOR ANY CLAIM, OBLIGATION, RIGHT, INTEREST, DEBT OR
LIABILITY THAT HAS BEEN DISCHARGED OR RELEASED PURSUANT TO THE
PLAN.
Exculpation
None of the Released Parties shall have or incur any liability to any holder of any Claim or
Interest or other Person for any act or omission in connection with or arising out of the
negotiation, documentation, preparation and pursuit of confirmation of the Plan, the
consummation of the Plan, the administration of the Plan, the Chapter 11 Cases, the
property to be distributed under the Plan, the Restructuring Support Agreement or the
transactions contemplated thereby, except for liability based on willful misconduct or fraud
as finally determined by the Bankruptcy Court. The Released Parties shall be entitled to
rely, in every respect, upon the advice of counsel with respect to their duties and
responsibilities under the Plan.
Protection Against Discriminatory Treatment
Consistent with section 525 of the Bankruptcy Code and the Supremacy Clause of the U.S. Constitution, all
Entities, including Governmental Units, shall not discriminate against NewCo, the Reorganized Debtors or deny,
revoke, suspend or refuse to renew a license, permit, charter, franchise or other similar grant to, condition such a
grant to, discriminate with respect to such a grant against, NewCo, the Reorganized Debtors or another Entity with
whom such Reorganized Debtors have been associated, solely because one of the Debtors has been a debtor under
chapter 11, has been insolvent before the commencement of the Chapter 11 Cases (or during the Chapter 11 Cases
but before the Debtor is granted or denied a discharge) or has not paid a debt that is dischargeable in the Chapter 11
Cases.
BB.

Conditions Precedent to Confirmation

It is a condition to Confirmation of the Pre-Packaged Plan that the following provisions, terms and
conditions have been satisfied or waived pursuant to the provisions of Section 11.3 of the Pre-Packaged Plan:
x

The Pre-Packaged Plan and the Plan Supplement, including any schedules, documents, supplements
and exhibits thereto shall be in form and substance acceptable to the Debtors and the Initial Lenders, in
each case, to the extent set forth in the Restructuring Support Agreement.

The Confirmation Order (a) shall be in form and substance acceptable to the Debtors and the Initial
Lenders, (b) shall, unless another order approving the Disclosure Statement has been entered, include
provisions approving the Disclosure Statement with respect to the Pre-Packaged Plan as containing
adequate information within the meaning of section 1125 of the Bankruptcy Code and (c) shall include
a finding and ruling by the Bankruptcy Court that the NewCo Stock to be issued on the Effective Date
will be authorized and exempt from registration under applicable securities law pursuant to section
1145 of the Bankruptcy Code.

The Restructuring Support Agreement shall not have terminated.

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CC.

Conditions Precedent to the Effective Date

It is a condition precedent to the Effective Date that the following provisions, terms and conditions shall
have been satisfied or waived pursuant to the provisions of Section 11.3:
x

The Pre-Packaged Plan and the Plan Supplement, including any schedules, documents, supplements
and exhibits thereto shall be in form and substance acceptable to the Debtors and the Initial Lenders, in
each case, to the extent set forth in the Restructuring Support Agreement.

The Bankruptcy Court shall have entered one or more Final Orders (which may include the
Confirmation Order) authorizing the assumption and rejection of executory contracts and unexpired
leases by the Debtors as contemplated herein.

The Confirmation Order shall have become a Final Order in form and substance acceptable to the
Debtors and the Initial Lenders. The Confirmation Order shall provide that, among other things, the
Debtors or the Reorganized Debtors, as appropriate, are authorized and directed to take all actions
necessary or appropriate to consummate the Pre-Packaged Plan, including, without limitation, entering
into, implementing and consummating the contracts, instruments, releases, leases, the PostRestructuring Debt Facilities Documents and other agreements or documents created in connection
with or described in the Pre-Packaged Plan.

The Post-Restructuring Debt Facilities Documents required to be executed in connection with the PostRestructuring Debt Facilities shall have been executed and all conditions to the effectiveness thereof
shall have been satisfied (other than the occurrence of the Effective Date or shall have been waived in
accordance with the applicable terms thereunder);

All fees contemplated to be paid pursuant to Section 14.9 of the Pre-Packaged Plan shall be Allowed
and shall have been paid in full in Cash by the Debtors or will be paid on the Effective Date without
any requirement of the filing of fee or retention applications in the Chapter 11 Cases.

The Restructuring Support Agreement shall be in full force and effect.

Each of the Transaction Documents, as defined in the Restructuring Support Agreement, shall be in
full force and effect, as and to the extent set forth in the Restructuring Support Agreement.

The Rights Offering shall have been completed and/or completed substantially contemporaneously
therewith in an aggregate amount of not less than $101 million less the amount set forth in clause (1)
under the definition of RO Reduction or such greater amount as Centerbridge in its sole discretion
agrees.

The Backstop Purchasers shall have satisfied all of their obligations under the Backstop Agreement
substantially contemporaneously therewith.

Immediately prior to the Effective Date, the Company shall have at least $92 million (or $90 million if
the Effective Date occurs after May 31, 2012 but on or before June 30, 2012) in Available Cash (as
defined in the Restructuring Support Agreement), as set forth, and to be used as provided, in the
Restructuring Support Agreement.

Upon the Effective Date and after giving effect to distributions under the Pre-Packaged Plan, NewCo
and its subsidiaries shall have at least $21 million in Minimum Cash, as such term is defined in the
Restructuring Support Agreement.

Any required approvals under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall have
been obtained.

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DD.

To the extent necessary, any approvals, consents, notices or filings required under any foreign antitrust, competition or similar laws having been obtained or made.

The Effective Date shall occur no later than the date that is thirty (30) calendar days following entry by
the Bankruptcy Court of the Confirmation Order.

Waiver of Conditions

Subject in all respects to the rights and limitations contained in the Restructuring Support Agreement,
including the rights of some or all parties to waive conditions as set forth in the Restructuring Support Agreement,
mutatis mutandis, the Debtors, with the consent of the Initial Lenders, may waive at any time, without notice, leave
or order of the Bankruptcy Court, and without any formal action other than proceeding to consummate the PrePackaged Plan, the conditions set forth in Sections Z and CC to consummation of the Pre-Packaged Plan.
EE.

Effect of Nonoccurrence of Conditions

If the Consummation of the Pre-Packaged Plan does not occur, the Pre-Packaged Plan shall be null and
void in all respects and nothing contained in the Pre-Packaged Plan or the Disclosure Statement shall:

FF.

constitute a waiver or release of any claims by or Claims against or Interests in the Debtors;

prejudice in any manner the rights of the Debtors, any holders or any other Entity; or

constitute an admission, acknowledgement, offer or undertaking by the Debtors, any holders or any
other Entity in any respect.

Retention of Jurisdiction

Notwithstanding the entry of the Confirmation Order or the occurrence of the Effective Date, the PrePackaged Plan contemplates that the Bankruptcy Court will retain jurisdiction over the Chapter 11 Cases and any of
the proceedings arising from, or relating to, the Chapter 11 Cases pursuant to section 1142 of the Bankruptcy Code
and 28 U.S.C. 1334 to the fullest extent permitted by the Bankruptcy Code and other applicable law, including,
without limitation, such jurisdiction as is necessary to ensure that the purpose and intent of the Pre-Packaged Plan
are carried out. Without limiting the generality of the foregoing, the Pre-Packaged Plan provides that the
Bankruptcy Court will retain jurisdiction for the following purposes:
x

to hear and determine any and all objections to the priority, classification or allowance, or requests for
estimation, of Claims or the establishment of reserves pending the resolution of Disputed Claims;

to consider and act on the compromise and settlement of any Claim against, or cause of action on
behalf of, any Debtor or any Estate;

to hear and determine any motions pending on the Effective Date, to assume any executory contract or
unexpired lease or to reject any executory contract or unexpired lease and to determine the allowance
of any Claim resulting therefrom;

to hear and determine any issues regarding the application of section 1145 of the Bankruptcy Code to
the issuance and resale of the NewCo Stock;

to enter such orders as may be necessary or appropriate in connection with the recovery of any
Debtors assets wherever located;

to hear and determine any and all applications for allowance of compensation and reimbursement of
expenses;

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to hear and determine any and all controversies, suits and disputes arising under or in connection with
the interpretation, implementation or enforcement of the Pre-Packaged Plan and any of the documents
intended to implement the provisions of the Pre-Packaged Plan or any other matters to be resolved by
the Bankruptcy Court under the terms of the Pre-Packaged Plan. Any dispute arising under or in
connection with the Restructuring Support Agreement, the Backstop Agreement, the Former Employee
Note, the Deferred Bonus Modification Agreement, the Employee Compensation Grant Agreement,
the Post-Restructuring Debt Facilities, the Post-Restructuring Debt Facilities Documents, or the
NewCo Governing Documents and any other agreements contemplated hereby or thereby shall be dealt
with in accordance with the provisions of the Pre-Packaged Plan;

to hear and determine any motions or contested matters involving Taxes, tax refunds, tax attributes and
tax benefits and similar and related matters with respect to any Debtor arising prior to the Effective
Date or relating to the administration of the Chapter 11 Cases, including, without limitation, matters
involving U.S. federal, state and local Taxes in accordance with sections 346, 505 and 1146 of the
Bankruptcy Code (including the expedited determination of taxes under section 505(b) of the
Bankruptcy Code);

to hear and determine any and all applications, Claims, adversary proceedings and contested or
litigated matters pending on the Effective Date or that may be commenced thereafter as provided in the
Pre-Packaged Plan or timely filed pursuant to the Bankruptcy Code or an order of the Bankruptcy
Court, including, without limitation, any Claims or causes of action arising under chapter 5 of the
Bankruptcy Code;

to effectuate distributions under and performance of, and resolve any issues relating to distributions
under, the provisions of the Pre-Packaged Plan;

to hear and determine any applications to modify any provision of the Pre-Packaged Plan to the full
extent permitted by the Bankruptcy Code;

to correct any defect, cure any omission or reconcile any inconsistency in the Plan, the exhibits to the
Pre-Packaged Plan, the Plan Supplement, or any order of the Bankruptcy Court, including the
Confirmation Order, as may be necessary to carry out the purposes and intent of the Pre-Packaged
Plan;

to determine such other matters as may be provided for in the Confirmation Order or as may from time
to time be authorized under the provisions of the Bankruptcy Code or any other applicable law;

to enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings
issued or entered in connection with the Chapter 11 Cases or the Pre-Packaged Plan;

to enter such orders as may be necessary or appropriate in aid of confirmation and to facilitate
implementation of the Pre-Packaged Plan, including, without limitation, any stay orders as may be
appropriate in the event that the Confirmation Order is for any reason stayed, revoked, modified or
vacated and appropriate orders (which may include contempt or other sanctions) to protect the Debtors
and the Reorganized Debtors;

to determine any other matter that may arise in connection with the Chapter 11 Cases, the PrePackaged Plan or the Confirmation Order or that is not inconsistent with the Bankruptcy Code; and

to enter an order closing the Chapter 11 Cases.

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GG.

Modification or Withdrawal

At any time prior to the Confirmation Date, as and to the extent set forth in the Restructuring Support
Agreement and with Initial Lender consent to the extent required therein, the Debtors may supplement, amend or
modify the Pre-Packaged Plan. After the Confirmation Date, subject to Initial Lender Consent as and to the extent
set forth in the Restructuring Support Agreement, the Debtors may apply to the Bankruptcy Court, pursuant to
Section 1127 of the Bankruptcy Code, to modify the Pre-Packaged Plan or waive any of the conditions thereto.
After the Confirmation Date, with the consent of Centerbridge, the Debtors may apply to remedy defects or
omissions in the Pre-Packaged Plan or the Confirmation Order or to reconcile inconsistencies in the Pre-Packaged
Plan, the Plan Supplement or the Confirmation Order. Except as specifically provided herein and subject to Section
1127 of the Bankruptcy Code, a holder of a Claim that has voted to accept the Pre-Packaged Plan shall be deemed to
accept the Pre-Packaged Plan as altered, amended or modified so long as such alteration, amendment or
modification does not effect a material adverse change in the treatment of the Claim of such holder. Otherwise, the
Debtors (with the consent of Centerbridge) or the Reorganized Debtors may alter, amend or modify the treatment of
Claims if the holders of the Claims that have voted to accept the Pre-Packaged Plan agree or consent to such
alteration, amendment or modification, or as ordered by the Bankruptcy Court. No such alteration, amendment or
modification will adversely affect the treatment of the First Lien Lender Claims without the consent of the Initial
Lenders.
The Debtors, with the consent of the Initial Lenders, reserve the right to revoke or withdraw the PrePackaged Plan before the Confirmation Date. If the Debtors revoke or withdraw the Pre-Packaged Plan, or if
Confirmation or the Effective Date do not occur, then: (a) the Pre-Packaged Plan shall be null and void in all
respects; (b) any settlement or compromise embodied in the Pre-Packaged Plan (including the fixing or limiting to
an amount certain any Claim or Interest or Class of Claims or Interests), assumption or rejection of executory
contracts or unexpired leases effected by the Pre-Packaged Plan, and any document or agreement executed pursuant
to the Pre-Packaged Plan, shall be deemed null and void; and (c) nothing contained in the Pre-Packaged Plan shall:
(i) constitute a waiver or release of any Claims or Interests; (ii) prejudice in any manner the rights of such Debtor or
any other Entity; or (iii) constitute an admission, acknowledgement, offer or undertaking of any sort by such Debtor
or any other Entity.
The Pre-Packaged Plan contemplates that entry of the Confirmation Order shall mean that all modifications
or amendments to the Pre-Packaged Plan occurring after the solicitation thereof are approved pursuant to section
1127(a) of the Bankruptcy Code and do not require additional disclosure or resolicitation under Bankruptcy Rule
3019.
HH.

Miscellaneous
Payment Dates

Whenever any payment or distribution to be made under the Pre-Packaged Plan shall be due on a day other
than a Business Day, the Pre-Packaged Plan provides that such payment or distribution shall instead be made,
without interest, on the immediately following Business Day.
Governing Law
Except to the extent that the Bankruptcy Code, Bankruptcy Rules or other federal law shall be applicable,
or to the extent an exhibit to the Pre-Packaged Plan, any Plan Supplement or any Plan Document provides otherwise
(in which case the governing law specified therein shall be applicable to such exhibit), the Pre-Packaged Plan
provides that the rights, duties and obligations arising thereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, without giving effect to the principles of conflicts of law
thereof to the extent that the application of the law of another jurisdiction would be required thereby.

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Successors and Assigns

The Pre-Packaged Plan provides that the rights, duties and obligations of any person or Entity named or
referred to therein shall be binding upon and shall inure to the benefit of, the successor and assigns of such person or
Entity.
Committee
If a Committee is appointed in the Chapter 11 Cases, the Pre-Packaged Plan provides that, the Committee
will cease to exist on the Effective Date, the Committee and its members, employees or agents (including, without
limitation, attorneys, investment bankers, financial advisors, accountants and other professionals) will be released
and discharged from any further authority, duties, responsibilities and obligations relating to, arising from, or in
connection with the Committee, the Chapter 11 Cases, section 1103 of the Bankruptcy Code, and the Pre-Packaged
Plan or its implementation, provided, however, that the Committee will continue to exist after the Effective date
solely with respect to (a) all applications filed pursuant to sections 330 and 331 of the Bankruptcy Code seeking
payment of fees and expenses incurred by any professional and (b) any appeals of the Confirmation Order.
Severability of Plan Provisions
If, prior to the Confirmation Date, any term or provision of the Pre-Packaged Plan is held by the
Bankruptcy Court to be invalid, void or unenforceable, the Pre-Packaged Plan contemplates that the Bankruptcy
Court, shall (with the consent of the Debtors and the Initial Lenders) have the power to interpret, modify or delete
such term or provision (or portions thereof) to make it valid, enforceable or confirmable to the maximum extent
practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable,
and such term or provision shall then be operative as interpreted, modified or deleted. Notwithstanding any such
interpretation, modification or deletion, subject to section 1127 of the Bankruptcy Code, the remainder of the terms
and provisions of the Pre-Packaged Plan will in no way be affected, impaired or invalidated by such interpretation,
modification or deletion. The Pre-Packaged Plan contemplates that the Confirmation Order will constitute a judicial
determination and will provide that each term and provision, as it may have been interpreted, modified or deleted in
accordance with the foregoing, is valid and enforceable pursuant to its terms.
No Waiver
The Pre-Packaged Plan provides that the failure of any Debtor to object to any Claim for purposes of voting
shall not be deemed a waiver of such Debtors or any Reorganized Debtors right to object to or examine such
Claim, in whole or in part, except to the extent such Claim has already been Allowed.
Payment of Fees and Expenses of the Initial Lenders
On the Effective Date, and in accordance with the Restructuring Support Agreement, Pre-Packaged Plan
provides that the Debtors or Reorganized Debtors will pay in Cash in full all reasonable and documented fees and
expenses incurred by the advisors to the Initial Lenders, including, but not limited to Akin Gump Strauss Hauer &
Feld LLP, Simpson Thacher & Bartlett LLP, separate Delaware counsel for each of the Initial Lenders and the
financial advisor to the First Lien Agent, in each case in accordance with any applicable engagement letters, in
connection with the restructuring, including, without limitation, in connection with the negotiation, documentation
and consummation of the Pre-Packaged Plan, the Plan Supplement, and all other documents related to the PrePackaged Plan and the restructuring. For the avoidance of doubt, such fees and expenses shall be paid by the
Debtors or Reorganized Debtors without the need for the filing of any fee or retention applications in the Chapter 11
Cases.
Payment of Post-Petition Interest and Attorneys Fees
Unless otherwise expressly provided in the Pre-Packaged Plan, the Cash Collateral Order or allowed by
such other order of the Bankruptcy Court or required by applicable bankruptcy law, the Pre-Packaged Plan provides

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that the Debtors shall not pay to any holder of a Claim any interest or any attorneys fees with respect to such Claim
accruing on or after the Commencement Date.
Post-Effective Date Fees and Expenses
From and after the Effective Date, the Pre-Packaged Plan provides that the Debtors and the Reorganized
Debtors will be authorized to employ and pay any professional, in the ordinary course of business without the
necessity for any notice to or approval by the Bankruptcy Court.
Exemption from Certain Transfer Taxes and Recording Fees
Pursuant to section 1146(a) of the Bankruptcy Code, any transfer from a Debtor to NewCo or to any other
Entity in accordance with, in contemplation of, or in connection with the Pre-Packaged Plan or pursuant to: (a) the
issuance, distribution, transfer or exchange of the Post-Restructuring Debt Facilities, the NewCo Stock, the Former
Employee Note Amount or the Subscription Rights or any other debt, securities, or other Interests under or in
connection with the Pre-Packaged Plan, (b) the creation or recording of public record of any mortgage, deed of trust
or other security interest, or the securing of additional indebtedness by such or other means, (c) the making,
assignment or recording, of any lease or sublease or (d) the making, delivery or recording of any deed or other
instrument of transfer under, in furtherance of, or in connection with the Pre-Packaged Plan, including any merger
agreements or agreements of consolidation, deeds, bills of sale or assignments or other instrument of transfer,
executed in connection with any of the transactions contemplated under the Pre-Packaged Plan, shall not be taxed
under any law imposing a stamp tax or similar Tax, and the Confirmation Order shall direct the appropriate state or
local governmental officials or agents to forego the collection of any such Tax or governmental assessment and to
accept for filing and recordation any of the foregoing instruments or other documents without the payment of any
such Tax or governmental assessment.
Statutory Fees
The Pre-Packaged Plan provides that all fees payable under Chapter 123 of 28 U.S.C. 1930, as
determined by the Bankruptcy Court at the Confirmation Hearing, will be paid by the Reorganized Debtors or
NewCo on the Effective Date. Any such fees accrued after the Effective Date will be paid when due pursuant to
such Section 1930 until the entry of a final decree or the conversion, dismissal or closing of the Chapter 11 Cases.
In addition, (a) before the Effective Date, the Debtors shall, and (b) following the Effective Date, the Reorganized
Debtors or NewCo shall, file quarterly reports in compliance with the guidelines of the United States Trustee for the
District of Delaware until the entry of an order closing or converting the Chapter 11 Cases.
Further Documents and Action
The Pre-Packaged Plan provides that the Debtors, the Reorganized Debtors and NewCo shall execute, and
are authorized to file with the Bankruptcy Court, such agreements and other documents, take or cause to be taken
such action, and deliver such documents or information as may be necessary or appropriate to effect and further
evidence the terms and conditions of the Pre-Packaged Plan and to consummate the transactions and transfers
contemplated by the Pre-Packaged Plan. The Debtors, the Reorganized Debtors, NewCo and all other parties, shall
execute any and all documents and instruments that must be executed under or in connection with the Pre-Packaged
Plan in order to implement the terms of the Pre-Packaged Plan or to effectuate the distributions under the PrePackaged Plan, provided that such documents and instruments are reasonably acceptable to such party or parties.
Reservation of Rights
If the Pre-Packaged Plan is not confirmed by the Confirmation Order, or if the Pre-Packaged Plan is
confirmed and does not become effective, the rights of all parties in interest in the Chapter 11 Cases are and will be
reserved in full. Any concessions or settlements reflected herein, if any, are made for purposes of the Pre-Packaged
Plan only, and if the Pre-Packaged Plan does not become effective, no party in interest in the Chapter 11 Cases shall
be bound or deemed prejudiced by any such concession or settlement.

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Inconsistencies
In the event that the terms or provisions of the Pre-Packaged Plan are inconsistent with the terms and
provisions of the exhibits to the Pre-Packaged Plan, the Plan Supplement, the Offering Memorandum and Disclosure
Statement or documents executed in connection with the Pre-Packaged Plan, the terms of the Pre-Packaged Plan will
control.
Compromise of Controversies
In consideration for the distributions and other benefits provided under the Pre-Packaged Plan, the
provisions of the Pre-Packaged Plan constitute a good faith compromise and settlement of all claims and
controversies resolved under the Pre-Packaged Plan and the entry of the Confirmation Order shall constitute the
Bankruptcy Courts approval of such compromise and settlement under Bankruptcy Rule 9019.
Exemption from Securities Laws
The issuance of the NewCo Stock on the Effective Date and any other securities issued pursuant to the PrePackaged Plan and any subsequent sales, resales or transfers or other distributions of any such securities will be
authorized under section 1145 of the Bankruptcy Code and will be exempt from any federal or state securities laws
registration requirements as of the Effective Date without any further act or action by any person. For the avoidance
of doubt, except as otherwise provided in the Pre-Packaged Plan, to the maximum extent permitted under section
1145 of the Bankruptcy Code, any and all NewCo Stock contemplated by this Pre-Packaged Plan and any other
securities issued pursuant to the Pre-Packaged Plan will be freely tradable by the recipients thereof, subject to (1) the
provisions of section 1145(b)(1) of the Bankruptcy Code relating to the definition of an underwriter in section
2(a)(11) of the Securities Act of 1933, 15 U.S.C. 77a-77aa, as now in effect or hereafter amended, or any similar
federal, state, or local law, and compliance with any rules and regulations of the United States Securities and
Exchange Commission, if any, applicable at the time of any future transfer of NewCo Stock or and any other
securities issued pursuant to the Pre-Packaged Plan, (2) the restrictions, if any, on the transferability of such NewCo
Stock and any other securities issued pursuant to the Pre-Packaged Plan (including any such restrictions contained in
the NewCo Governing Documents), and (3) applicable regulatory approval.
II.

Treatment of Trade Creditors and Employees During Our Reorganization Case

WE INTEND PROMPTLY FOLLOWING THE COMMENCEMENT OF THE PRE-PACKAGED

PLAN PROCEEDING TO SEEK BANKRUPTCY COURT APPROVAL OF VARIOUS MEASURES
DESIGNED TO ENSURE THAT OUR TRADE CREDITORS AND EMPLOYEES ARE UNAFFECTED BY
THE FILING.
We intend to seek the approval of the Bankruptcy Court, promptly following the commencement of the
Pre-Packaged Plan proceeding, to make payments in the ordinary course of business in respect of Claims of trade
creditors. There can be no assurance, however, that the Bankruptcy Court will permit the payment of the Claims of
trade creditors in the ordinary course.
IN ANY EVENT, THE PRE-PACKAGED PLAN PROVIDES THAT VALID CLAIMS OF
UNSECURED CREDITORS, INCLUDING TRADE CREDITORS, ARE TO BE PAID IN FULL AND
THAT SUCH TRADE CREDITORS WILL NOT BE REQUIRED TO FILE A PROOF OF CLAIM OR
TAKE ANY OTHER FORMAL ACTION TO OBTAIN SUCH PAYMENT.
Salaries, wages, expense reimbursements, accrued paid vacations, health-related benefits, severance
benefits and similar benefits of our employees will be unaffected by the Pre-Packaged Plan. To ensure the
continuity of our work force and to further accommodate the unimpaired treatment of employee benefits, we intend
to seek the approval of the Bankruptcy Court, promptly following the commencement of the Pre-Packaged Plan
proceeding, to pay all accrued prepetition salaries or wages, and expense reimbursements, to permit employees to
utilize their paid vacation time which accrued before the commencement of our reorganization case (so long as they
remain our employees) and to continue paying medical benefits under our health plans. There can be no assurance

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that the Bankruptcy Court will permit the payment of employee claims and health benefits in the ordinary course.
IN ANY EVENT, THE PRE-PACKAGED PLAN PROVIDES FOR ALL EMPLOYEE CLAIMS AND
BENEFITS TO BE PAID OR HONORED NO LATER THAN THE DATE ON OR AFTER THE DATE
THE PRE-PACKAGED PLAN BECOMES EFFECTIVE WHEN SUCH PAYMENT OR OTHER
OBLIGATION BECOMES DUE AND PERFORMABLE. EMPLOYEES SHALL NOT BE REQUIRED TO
FILE A PROOF OF CLAIM OR TAKE ANY OTHER FORMAL ACTION TO OBTAIN SUCH
PAYMENT.
The Debtors will continue to pay their trade creditors and employees in the ordinary course of business
post-petition.
JJ.

Other First Day Relief

In addition to any orders relating to the payment of prepetition claims of trade creditors and employees, we
intend to seek certain orders very shortly after commencement of our reorganization case, including the following (if
necessary):
x

an order authorizing us to obtain debtor-in-possession financing or to use cash collateral;

an order authorizing us (a) to continue our current cash management system, (b) to maintain
prepetition bank accounts, (c) to continue use of existing business forms and existing books and
records and (d) authorizing us to continue our current investment guidelines and invest our available
cash in the customary manner and consistent with past practices;

an order seeking approval of the Backstop Agreement

an order fixing the dates for the hearings on approval of this Offering Memorandum and Disclosure
Statement and the Pre-Packaged Plan solicitation and confirmation of the Pre-Packaged Plan; and

such other orders as are typical in reorganization cases or that may be necessary for the preservation of
our assets or for confirmation of the Pre-Packaged Plan.

The orders will be sought pursuant to accompanying motions and, if appropriate, memoranda of law. The
foregoing list is subject to change depending upon our needs in connection with our operations during our
reorganization case. Failure of the Bankruptcy Court to enter one or more of these orders, or a delay in doing so,
could result in our reorganization case becoming protracted and could delay, perhaps materially, the hearing on, and
the ultimate confirmation of, the Pre-Packaged Plan.
KK.

Securities Laws Considerations

Under the Pre-Packaged Plan, shares of NewCo Stock will be distributed to holders of Claims and Interests
in Classes 3, 7 and 10a. Additionally, under the Pre-Packaged Plan, each holder of Claim in Class 3 will receive its
Pro Rata Share of the Subscription Rights to participate in the Rights Offering. Finally, holders of Former
Employee Deferred Bonus Claims who choose to receive part of their distribution in the form of the Former
Employee Note Amount, will receive an interest in the Former Employee Note (together with the NewCo Stock and
the Subscription Rights, the Securities). Section 1145 of the Bankruptcy Code provides certain exemptions from
the securities registration requirements of federal and state securities laws with respect to the distribution of
securities pursuant to a plan of reorganization.
LL.

Issuance of Securities

Section 1145 of the Bankruptcy Code exempts the original issuance of securities under a plan of
reorganization (as well as subsequent distributions by the distribution agent) from registration under the Securities
Act and state law. Under Section 1145, the issuance of securities pursuant to the Pre-Packaged Plan is exempt from

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registration if three principal requirements are satisfied: (a) the securities must be issued by a debtor, its successor
or an affiliate participating in a joint plan with the debtor, under a plan of reorganization, (b) the recipients of the
securities must hold a claim against the debtor or such affiliate, an interest in the debtor or such affiliate, or a claim
for an administrative expense against the debtor or such affiliate and (c) the securities must be issued entirely in
exchange for the recipients claim against or interest in the debtor or such affiliate or principally in such exchange
and partly for Cash or property.
The Company believes that the issuance of the Securities to the holders of the Second Lien Claims, Current
Employee Deferred Bonus Claims, Former Employee Deferred Bonus Claims will satisfy all three conditions
because (a) NewCo is a successor to or an affiliate participating in a joint plan with the Debtors, (b) the issuances
are expressly contemplated under the Pre-Packaged Plan, (c) the recipients are holders of claims against the Debtors
and (d) the recipients will obtain the Securities in exchange for their prepetition claims.
MM.

Subsequent Transfers of Securities

The securities issued pursuant to the Pre-Packaged Plan may be freely transferred by most recipients
following distribution under the Pre-Packaged Plan, and all resales and subsequent transactions of the Securities are
exempt from registration under federal and state securities laws, unless the holder is an underwriter with respect to
such securities. Section 1145(b) of the Bankruptcy Code defines four types of underwriters:
x

persons who purchase a claim against, an interest in, or a claim for an administrative expense against
the debtor with a view to distributing any security received in exchange for such a claim or interest;

persons who offer to sell securities offered under a plan for the holders of such securities;

persons who offer to buy such securities from the holders of such securities, if the offer to buy is
(a) with a view to distributing such securities and (b) under an agreement made in connection with the
plan, with the consummation of the plan, or with the offer or sale of securities under the plan; and

a person who is an issuer with respect to the securities (as defined in Section 2(11) of the Securities
Act), which includes any person directly or indirectly controlling or controlled by the issuer, or any
person under direct or indirect common control with the issuer.

To the extent that persons deemed to be underwriters receive securities pursuant to the Pre-Packaged Plan, resales
by such persons would not be exempted by section 1145 of the Bankruptcy Code from registration under the
Securities Act or other applicable law. Persons deemed to be underwriters, however, may be able to sell such
securities without registration subject to the provisions of Rule 144 under the Securities Act, which permits the
public sale of securities received pursuant to the Pre-Packaged Plan by persons who would be deemed to be
underwriters pursuant to section 1145 of the Bankruptcy Code, subject, in certain cases, to the availability to the
public of current information regarding the issuer and to volume limitations and certain other conditions.
Whether or not any particular person would be deemed to be an underwriter with respect to any of the Securities
would depend upon various facts and circumstances applicable to that person. Accordingly, the Company expresses
no view as to whether any particular person receiving distributions under the Pre-Packaged Plan would be an
underwriter with respect to the Securities.
GIVEN THE COMPLEX AND SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE COMPANY MAKES NO
REPRESENTATION CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN THE SECURITIES
ISSUED UNDER THE PRE-PACKAGED PLAN. THE COMPANY RECOMMENDS THAT POTENTIAL
RECIPIENTS OF A LARGE AMOUNT OF NEW SECURITIES CONSULT THEIR OWN COUNSEL
CONCERNING WHETHER THEY MAY FREELY TRADE THESE SECURITIES WITHOUT
COMPLIANCE WITH THE SECURITIES ACT.

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In addition, the NewCo Stock will be subject to the transfer restrictions set forth in the Memorandum and
Articles, including the following:
x

Consent of Directors. A shareholder must seek the consent of the directors for any proposed
transfer of NewCo Stock, subject to certain exceptions. The New Board of Directors of NewCo,
in its sole discretion, may refuse to accept any application for transfer of NewCo Stock or decline
to register any transfer of NewCo Stock, for any or no reason.

Certain Transfers. The Memorandum and Articles provide that, subject to the required consent of
the directors set forth above, no shareholder holding less than 25% of the then outstanding NewCo
Stock may transfer its NewCo Stock, other than (a) a transfer of NewCo Stock to a transferee that
directly or indirectly through one or more intermediaries controls, is controlled by or is under
common control with the transferring shareholder; (b) a transfer (or deemed transfer) of NewCo
Stock by Culligan Ltd. to its shareholders upon or prior to its liquidation (or deemed liquidation);
or (c) if the shareholder is an individual, a transfer of NewCo Stock to a trust or estate planningrelated entity for estate planning purposes, or in the case of such shareholders (or in the case of a
trust, the grantors) death, by will, the laws of intestate succession or in accordance with the
applicable trust instrument to executors, administrators, testamentary trustees, legatees or
beneficiaries of such shareholder.

Number of Shareholders. No direct or indirect transfer of NewCo Stock, shall be effective, and
any such transfer of NewCo Stock shall be deemed null and void ab initio, if, as a result of any
such transfer, the record number of shareholders of NewCo of the applicable class of NewCo
Stock (as determined in accordance with Rule 12g5-1 under the Exchange Act or any successor
rule or interpretation) would exceed 400.

Tax Matters. NewCo will be taxed as a partnership for U.S. federal and state income tax purposes.
Without the consent of the New Board of Directors of NewCo, any otherwise permitted transfer of
NewCo Stock (other than a transfer or deemed transfer of NewCo Stock by Culligan Ltd. to its
shareholders on or prior to its liquidation or deemed liquidation) shall be deemed null and void ab
initio, if such transfer (a) would cause NewCo to cease to classified as a partnership for U.S.
federal or state income tax purposes or (b) would cause NewCo to become a publicly traded
partnership, as such term is defined in Sections 469(k)(2) or 7704(b) of the Internal Revenue
Code of 1986, as amended (the Code) and the regulations promulgated thereunder
(notwithstanding Section 7704(c) of the Code).

Drag-Along Right. The Memorandum and Articles provide that if a shareholder or a group of
shareholders representing 50% or more of the NewCo Stock then outstanding agree to sell 50% or
more of their NewCo Stock in certain transactions, or any merger or similar transaction involving
the entire company, then all other shareholders shall be subject to certain customary drag
provisions. The transfer of the drag-along NewCo Stock shall be subject to terms and conditions
which, in the reasonable, good faith opinion of the directors, are no less favorable than those terms
and conditions to which the transfer of NewCo Stock of the same class by the dragging
shareholder(s) will be subject pursuant to such drag-along transaction.
Each dragged shareholder shall be required to (a) enter into any contract, instrument, undertaking
or obligation, and deliver all documents, necessary or reasonably requested in connection with
such drag-along transaction; (b) vote for any merger or similar action connected to with such dragalong transaction in the same manner as the dragging shareholder; (c) in respect of itself and its
own NewCo Stock only, to make the same representations and warranties relating to status,
capacity, authorization and title to and ownership of NewCo Stock that the dragging shareholder
of the same class makes in respect of itself and its NewCo Stock; and (d) join on a pro rata basis
(based on the percentage of the proceeds received by such Shareholder as compared to the
aggregate proceeds received by all shareholders), severally and not jointly, in any indemnification,

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escrow or other obligations that are specified in the drag-along notice, other than any such
obligations which relate specifically to a particular Shareholder such as indemnification with
respect to representations and warranties given by a shareholder regarding such shareholders title
to and ownership of NewCo Stock.

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XIV.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF CULLIGAN HOLDING

The following unaudited pro forma consolidated financial data of Culligan Holding are derived from the
historical consolidated financial statements of Culligan Holding, which are included elsewhere in this Offering
Memorandum and Disclosure Statement. See Selected Historical Financial Information of Culligan Holding,
which begins on page 143 The unaudited pro forma statements of operations data of Culligan Holding for the year
ended December 31, 2011 and the three months ended March 31, 2012, and unaudited pro forma balance sheet data
of Culligan Holding as of March 31, 2012 have been prepared to give pro forma effect to:
x

the restructuring of indebtedness under the First Lien Credit Agreement which the lenders will receive
an aggregate Cash payment of $180 million, the Amended First Lien Facility with a face value of
approximately $180 million and the New Second Lien Facility with an aggregate face value of $175
million;

exchange of existing second lien term loans for equity in NewCo, which will become the parent of
Culligan Holding;

consummation of a rights offering for 49.65% (subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership) of NewCo Stock and an estimated $10.5
million of the New Bridge Loan with an aggregate offering amount of $104.5 million (subject to
adjustment as set forth in The RestructuringPotential Adjustments to Equity Ownership. See page
68);

payment of deferred bonuses to employees and former employees of certain subsidiaries of Culligan
Holding consistent with the Restructuring;

payment to deferred share unit holders of Culligan Ltd., Culligan Holdings existing ultimate parent
company; and

payment of approximately $21 million of estimated expenses in connection with the Restructuring, of
which $6 million are reflected as new debt issuance costs on the Pro Forma Consolidated Balance
Sheet; the estimated expenses will not, however, be reflected on the Pro Forma Consolidated
Statements of Operations.

The Restructuring transactions described above and the resulting change in control of Culligan
Investments, the parent company of Culligan Holding, will be accounted for using the purchase method of
accounting, which will establish a new basis of accounting for all assets acquired and liabilities assumed at fair
value. The unaudited pro forma adjustments are based upon currently available information and certain assumptions
that are factually supportable and that we believe are reasonable under the circumstances. These estimates include a
preliminary allocation of purchase price based on managements best estimate of the fair value of assets acquired
and liabilities assumed (including identifiable tangible and intangible assets) in the Restructuring. The final
purchase price allocation will be completed as soon as practicable. Revisions to the preliminary purchase price
allocation and any adjustment to the purchase price may have a significant impact on our pro forma condensed
combined financial statements. The excess purchase price over the fair value of the net assets acquired is recorded
as goodwill.
The unaudited pro forma consolidated financial data of Culligan Holding reflect pro forma adjustments that
are described in the accompanying notes and are based on available information and certain assumptions we believe
are reasonable, but are subject to change. We have made, in our opinion, all adjustments that are necessary to
present fairly these pro forma financial data. The unaudited pro forma consolidated financial data of Culligan
Holding are presented for information purposes only and should not be considered indicative of actual results of
operations that would have been achieved had the Restructuring been consummated on the dates indicated, and do
not purport to be indicative of balance sheet data or results of operations as of any future date or for any future
period.

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The unaudited pro forma condensed financial data of Culligan Holding should be read in conjunction with
Presentation of Financial Information, Risk Factors, The Restructuring, Capitalization, Selected Historical
Financial Information of Culligan Holding, Managements Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements of Culligan Holding and the related notes appearing
elsewhere in this Offering Memorandum and Disclosure Statement.

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Culligan Holding S.r.l. and Subsidiaries

Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2012
In millions
Historical
Assets
Current Assets:
Cash and cash equivalents .....................................
Restricted cash .......................................................
Trade receivables, net of allowance for doubtful
accounts of $7.5M at March 31, 2012.................
Inventories .............................................................
Prepaid expenses and other current assets .............
Deferred income taxes ...........................................
Current assets held for sale ....................................
Total current assets ................................................
Property, plant, and equipment, net of
accumulated depreciation of $55.1M at
March 31, 2012 ...................................................
Other assets:
Goodwill and other intangibles, net of
accumulated amortization of $9M at
March 31, 2012 ................................................
Other long-term assets ........................................
Total other assets ...................................................

Pro Forma
Adjustments

$ 135
8

(94)

75
49
13
5
36
321

(94)

75
49
13
5
36
227

41

41

368
10
378

188
4
192

Total assets ...........................................................

$ 740

Liabilities and Equity (Deficit)

Current liabilities:
Current installments of long-term debt ..................
Trade payables .......................................................
Accrued liabilities ..................................................
Other current liabilities ..........................................
Total current liabilities...........................................
Long-term debt, excluding current installments
Deferred income taxes ...........................................
Other liabilities ......................................................
Total long-term liabilities ......................................
Total liabilities......................................................

$ 535
40
61
30
666
234
94
35
363
1,029

$ (513)

(513)
120
30
(8)
142
(371)

Equity (deficit):
Common stock, $31.10 par value; 500 shares
issued and outstanding at March 31, 2012 and
December 31, 2011 .............................................

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(a)

Pro Forma

41
8

(b)
(c)

98

556
14
570
$ 838

(d)

(e)
(f)
(g)

22
40
61
30
153
354
124
27
505
658

Additional paid-in capital ......................................

Retained deficit......................................................
Accumulated other comprehensive
(loss) income.......................................................

230
(533)

(35)
517

13

(13)

Total deficit before noncontrolling interest ...........

(290)

469

179

Noncontrolling interest ..........................................

Total (deficit) equity ..............................................

1
(289)

469

1
180

Total liabilities and (deficit) equity ....................

$ 740

98

$ 838

See accompanying notes to the Unaudited Pro Forma Consolidated

Balance Sheet of Culligan Holding.

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195
(16)

Notes to Unaudited Pro Forma Consolidated Balance Sheet

of Culligan Holding
A. Adjustments to reflect: (a) estimated cash received from the Rights Offering ($104.5 million); (b) payment of
deferred bonuses to current and former employees and a cash payment to holders of deferred share units ($7
million); (c) initial borrowing under the New Revolving Credit Facility ($10 million of loans); (d) cash payment
to existing First Lien Lenders ($180 million); and (e) estimated transaction fees (including total estimated fees
of $21 million of which $6 million will be capitalized as new debt issuance costs).
B. Adjustments to intangible assets from the application of purchase accounting in connection with the
Restructuring and resulting change-in-control of Culligan Investments, the parent company of Culligan
Holding. The resulting allocation of the purchase price of $568 million is based upon preliminary estimates of
the fair value of the identifiable assets and liabilities of Culligan Holding. We have estimated the purchase
price as follows:
Purchase Price (in millions):
Rights Offering5
Conversion of existing second lien notes
Other equity considerations
Amended first lien notes
New second lien notes
New revolving credit borrowing

$105
93
5
180
175
10
$568

Aggregate Purchase Price

Net Assets Acquired (in millions):
Net assets acquired
Less: Goodwill and other intangible assets
Less: Debt reduction, net of cash

$(289)
(368)
699

Net tangible assets acquired

Identifiable intangible assets
Goodwill
Deferred income taxes

42
310
246
(30)
$568

Net Assets Acquired

The initial allocation of the purchase price to specific assets and liabilities is based solely on managements best
estimate as of the date of this Offering Memorandum and Disclosure Statement. Upon closing of the
Restructuring, Culligan Holding will engage a third-party firm to assist in the allocation of the purchase price.
The final allocation will likely be different from this preliminary estimate.
C. Adjustments to reflect: (a) capitalization of debt issuance costs related to New Revolving Facility, Amended
First Lien Facility and New Second Lien Facility ($6 million); and (b) write-off of debt issuance costs
associated with Culligan Holdings existing debt facilities ($2 million).
D. Adjustments to reflect: (a) initial borrowing under the New Revolving Credit Agreement ($10 million of loans)
and New Bridge Loan ($10.5 million); (b) cash payment to First Lien Lenders ($180 million); (c) exchange of
First Lien Debt for debt under the New Second Lien Facility ($175 million); and (d) amendment of First Lien
Facility to provide for new first lien term loans ($180 million, less $2 million currently due).

Reflects $104.5 million estimated Rights Offering amount, rounded to the nearest million.

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E. Adjustments to reflect: (a) exchange of existing first lien term loans for new second lien term loans ($175
million); (b) amendment of existing first lien term loans for new first lien term loans ($178 million); and (c)
exchange of existing second lien term loans for equity in NewCo.
F. Adjustments to reflect: deferred income taxes on estimated indefinite-lived intangible assets ($30.0 million).
G. Adjustment for payment of deferred bonus and deferred share units.

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139

Culligan Holding and Subsidiaries

Pro Forma Consolidated Statement of Operations
Year ended December 31, 2011
In millions

Historical

Pro Forma
Adjustments

Pro Forma

Total revenues........................................................

$ 603

Cost of goods sold .................................................

362

362

Gross profit .........................................................

240

240

Operating expenses:
Selling, general, and administrative ....................
Restructuring and other.......................................
(Gains) losses on sale of businesses....................

218
12
(46)

(1) (a)

218
11
(46)

Total operating expenses..................................

184

(1)

183

56

57

Other expense (income):

Interest expense, net of interest income of $0.6..
Other expense (income), net ...............................

41
7

(11)

29
7

Income before income taxes ..................................

12

20

Income tax expense (benefit) ...........................

Operating income

Net Income.......................................................

(b)

See accompanying notes to the Unaudited Pro Forma Consolidated

Statement of Operations of Culligan Holding.

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140

603

11
$

Culligan Holding and Subsidiaries

Pro Forma Consolidated Statement of Operations
Three months ended March 31, 2012
In millions

Historical

Pro Forma
Adjustments

Pro Forma

Total revenues........................................................

$ 115

Cost of goods sold .................................................

71

71

Gross profit .........................................................

45

45

Operating expenses:...............................................
Selling, general, and administrative.......................
Restructuring and other..........................................
(Gains) losses on sale of businesses.......................
Total operating expenses.....................................

46
1
(3)
43

46
1
(3)
43

Operating income

8
1

Income before income taxes ..................................

(7)

Income tax expense (benefit) ...........................

(5)

(2)

(b)

141

8
1
(7)

(c)

See accompanying notes to the Unaudited Pro Forma Consolidated

Statement of Operations of Culligan Holding.

23633137v19

115

(a)

Other expense (income):

Interest expense, net............................................
Other expense (income), net ...............................

Net Income.......................................................

(5)
$

(2)

Notes to Unaudited Pro Forma Consolidated Statements of Operations

of Culligan Holding

A. Adjustments to remove management fee paid to existing private equity sponsor of $1 million per year.
B. Interest on the new debt facilities was computed as follows:
Amount
Amended First Lien Facility
New Second Lien Facility
New Revolving Facility
New Bridge Loan
TOTAL

$180
$175
$10
$10

Interest rate
6.25%
9.50%
4.5%
15.0%

Year Ended
12/31/11
11.2
16.6
0.5
1.5
29.8

Three Months
Ended 3/31/12
2.8
4.2
0.1
0.4
7.5

C. Adjustments to reflect income tax expense based upon a 40% effective United States income tax rate, resulting
in additional tax expense of $5 million for the year ended December 31, 2011 and no impact for the three-month
period ended March 31, 2012.

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142

XV.

SELECTED HISTORICAL FINANCIAL INFORMATION OF CULLIGAN HOLDING

Because NewCo was not formed until May 8, 2012, the following tables set forth, for the periods and dates
indicated, selected historical consolidated financial information of Culligan Holding. See Presentation of Financial
Information, which begins on page 1. The financial condition and results of operations of NewCo would have been
different if NewCo had been formed and operated during the periods presented, including due to changes in
ownership and capital structure that will occur as a result of the Restructuring.
Selected historical financial information as of December 31, 2011 and 2010 and for the years ended
December 31, 2011, 2010 and 2009 was derived from audited historical consolidated financial statements of
Culligan Holding that are included elsewhere in this Offering Memorandum and Disclosure Statement. Selected
historical financial information as of December 31, 2009, 2008 and 2007 and for the years ended December 31,
2008 and 2007 was derived from audited historical consolidated financial statements of Culligan Holding that are
not included in this Offering Memorandum and Disclosure Statement. Selected historical financial information as of
and for the three months ended March 31, 2011 and 2010 was derived from unaudited historical consolidated
financial statements of Culligan Holding that are included elsewhere in this Offering Memorandum and Disclosure
Statement. These unaudited consolidated financial statements have been prepared on the same basis as the audited
consolidated financial statements of Culligan Holding and, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods.
The results for any interim period are not necessarily indicative of the results that may be expected for a full year.
The historical results included here and elsewhere in this Offering Memorandum and Disclosure Statement are not
necessarily indicative of future performance or results of operations.
The selected historical financial information presented below represents portions of the financial statements
of Culligan Holding and is not complete. You should read this information in conjunction with Use of Proceeds,
Capitalization, Unaudited Pro Forma Financial Information, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial statements of Culligan Holding and
related notes included elsewhere in this Offering Memorandum and Disclosure Statement.

2007 (1)
Total revenues ...................................
Cost of goods sold .............................
Gross profit ................................
Operating expenses:
Selling, general, and
administrative ..........................
Restructuring ................................
Intangible amortization ................
Stock-based compensation...........
Stock option bonus.......................
(Gains) losses on sale of
businesses ................................
(Gains) losses on sale of assets ....
Total operating expenses ...........
Operating income.......................
Other expense (income):
Interest expense, net .....................
Loss on early extinguishment of
debt ..........................................
Other expense (income), net ........
Gain (loss) from continuing
operations before income
taxes ......................................
Income tax expense (benefit) ............
Net gain (loss) from continuing
operations..............................
Discontinued operations:
Income from discontinued

23633137v19

$ 777,365
450,685
326,680

Year ended December 31,

2008 (1)
2009
2010
(in thousands)
$ 780,425
$ 672,456
$ 641,700
453,378
391,816
377,135
327,047
280,640
264,565

2011
$ 602,595
362,330
240,265

Three Months Ended

March 31,
2011
2012
(in thousands; unaudited)
$ 152,310
$ 115,229
94,186
70,462
58,124
44,767

266,695
3,706
2,896
2,686
12,429

268,487
2,842
2,762
1,086
2,381

235,985
4,358
2,463
934
586

241,001
2,676
2,041
358
137

218,056
10,225
1,427
160
28

63,358
4,484
517
57
11

45,482
886
236
19

(8,927)
279,485
47,195

(122)
277,436
49,611

(4,900)
98
239,524
41,116

13,317
910
260,440
4,125

(45,274)
(226)
184,396
55,869

(4,259)
(25)
64,143
(6,019)

(3,237)
(28)
43,358
1,409

57,257

65,696

50,999

42,894

40,565

10,618

7,490

39,537
(1,978)

(394)

(1,619)

(2,587)

7,369

1,787

499

(47,621)
61,667

(15,691)
21,974

(8,264)
7,387

(36,182)
(22,082)

7,935
6,392

(18,424)
2,838

(6,580)
(5,038)

(109,288)

(37,665)

(15,651)

(14,100)

1,543

(21,262)

(1,542)

4,253

3,956

143

operations ................................
Gain on sale of discontinued
operations ................................
Gain from discontinued
operations, net of income
taxes ......................................
Less income attributed to
noncontrolling interest .................
Net income (loss).......................

Total Cash..........................................
Total Assets .......................................
Current portion of long-term debt.....
Long-term debt, net of current
portion ..........................................
Other long-term obligations ..............

39,093

4,253

43,049

295
$(109,583)

590
$ (38,255)

555
$ (11,953)

344
$ 28,605

76
$ 1,467

83
$ (21,345)

2007

2008

As of December 31,
2009
(in thousands)

2010

2011

$ 47,124
845,349
16,577

$ 43,184
800,640
27,166

$ 41,647
782,424
20,623

$ 62,302
787,404
6,242

$141,964
749,845
535,883

$ 50,070
782,352
6,165

$143,383
740,079
535,241

814,449
45,803

795,561
48,464

796,401
50,849

770,902
42,650

227,486
35,870

786,027
42,966

234,207
34,946

As of March 31,
2011
2012
(in thousands; unaudited)

(1) Information for 2008 and 2007 has not been restated to present Culligan Holdings CSS business as a discontinued operation.

23633137v19

144

(119)
$ (1,423)

XVI.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS OF CULLIGAN HOLDING

The following discussion and analysis of the financial condition and results of operations of Culligan
Holding covers periods prior to the consummation of the Restructuring. See Presentation of Financial
Information, which begins on page 1. Accordingly, the discussion and analysis of historical periods does not
reflect the impact that the Restructuring will have on Culligan Holding or NewCo, including levels of indebtedness
and the impact of purchase accounting. You should read the following discussion in conjunction with (1) the
audited consolidated financial statements of Culligan Holding as of and for the fiscal years ended December 31,
2011, 2010 and 2009, (2) the unaudited condensed consolidated financial statements of Culligan Holding as of and
for the three-month periods ended March 31, 2011 and 2010 and (3) the unaudited pro forma condensed
consolidated financial information of Culligan Holding, each of which is included elsewhere in this Offering
Memorandum and Disclosure Statement, and the related notes, as well as with the information presented under the
section entitled Selected Consolidated Financial and Operating Data of Culligan Holding.
The following discussion may contain forward-looking statements based upon current expectations and
related to future events and our future financial performance that reflect our plans, estimates and beliefs and
involve risks and uncertainties. Our actual results and timing of events could differ materially from those discussed
in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not
limited to, those discussed below and elsewhere in this Offering Memorandum and Disclosure Statement,
particularly in Risk Factors and Cautionary Note Regarding Forward-Looking Statements.
Overview
We are a leading global provider of water treatment products and services for household, commercial and
industrial applications. Our business comprises a diverse mix of products and services, distribution channels,
customers, and geographies.
We generate revenue from two end markets:
x

Consumer solutions (76% of 2011 revenue). We offer point-of-entry water softeners, problem water
filters and point-of-use drinking water systems that are tailored to meet local water conditions.

Commercial and industrial (C&I) solutions (24% of 2011 revenue). We offer large point of entry
softeners and filtration to commercial end users. We also offer larger scale, highly customized turnkey solutions, including pre-treatment, membrane systems, polish, disinfection and distribution
equipment, to address the specific customer needs across a wide range of end markets.

We have been in the business of manufacturing, selling and licensing water-related products and services in
the United States since our inception in 1936. Within ten years of our founding, we had over 230 franchised
operations and today have grown to approximately 900 worldwide. We began international operations in 1958 and
have expanded operations to ten countries with company owned distribution. We have franchisees and licensees in
approximately 90 countries. Our primary regions of operation include:

A.

North America, which includes the United States and Canada; and

Europe, which consists primarily of our operations in European countries, along with operations in
other regions of the world.

Restructuring

As discussed in note 18 to the audited consolidated financial statements of Culligan Holding, we have a
substantial amount of debt. We amended our $110 million revolving credit facility on April 24, 2012 and no longer
have the availability to draw funds under this facility. See RestructuringBackground to the Restructuring,

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145

which begins on page 64. At December 31, 2011, we had $536 million in first lien term notes that mature on
November 24, 2012. The first lien term notes have been classified in our consolidated financial statements as a
current liability.
As discussed in note 3 to the audited consolidated financial statements of Culligan Holding, the financial
statements have been prepared on a going-concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. As described in note 4 to the
consolidated financial statements, we and other parties have entered into an agreement to restructure and recapitalize
Culligan Holding. See The RestructuringThe Restructuring Support Agreement, which starts on page 66. The
Restructuring, if successful, will be carried out through either (a) an out-of-court transaction or (b) pursuant to a
joint pre-packaged Chapter 11 plan of reorganization. For a summary of the principal terms of the Restructuring,
see SummaryThe Restructuring, which begins on page 18.
There can be no assurance that the Restructuring will be consummated. Should we be unable to complete
the Restructuring or raise capital and refinance our debt in some other manner, we may not meet our business
objectives, risk violation of our debt covenants and face serious adverse consequences. These circumstances raise
substantial doubt about our ability to continue as a going concern beyond December 31, 2012. These financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
B.

Dispositions
North American Company-Owned Dealers Refranchising

In first quarter 2011, we announced a major initiative to sell our NACODs in North America. This
refranchising initiative was undertaken as part of our strategic priority to focus exclusively on strengthening our
position as the best franchisor in the water treatment industry. We intend to deliver best-in-class products, brand
marketing, sales training and operational support. Total revenues for NACOD were approximately $225.0 million
in 2010.
During the twelve months ended December 31, 2011, we sold 26 Hubs consisting of 69 NACODs for
approximately $102.8 million, of which approximately $101.5 of was received in Cash. In addition, $0.5 million is
being held in escrow and a receivable of approximately $0.8 million was recorded for promissory notes and other
adjustments. We recognized a pre-tax gain of approximately $43.2 million on the sales of dealerships in 2011.
In first and second quarters of 2012, Culligan Holding sold 4 Hubs consisting of 7 NACODs for
approximately $17.6 million, various real estate properties for approximately $3.8 million and the balance of its
New Jersey hub for approximately $1.5 million.
Primo
In second quarter 2011, we sold our investment in Primo Water Corporation (Primo) common stock: We
were issued 2.6 million Primo shares in connection with the 2010 sale of our Culligan Store Solutions (CSS
Group) vended water business. The CSS Group transaction was valued at $109.0 million and generated a pre-tax
gain of $73.7 million. As noted below, we received an additional 0.3 million shares of Primo stock in March 2011.
The sale of the 2.9 million Primo shares realized cash proceeds of approximately $31.0 million and generated a pretax loss of approximately $7.9 million.
International
In first quarter 2011, we sold the assets of our Canadian bottled water national accounts business to a
subsidiary of Primo. This business sells 18 liter sized containers of bottled water to large retailers in Canada who
sell the product to their customers. The revenue associated with this business was not material to us. The total value
of consideration was $1.6 million in Cash and 0.3 million shares of Primo common stock with a value of $3.8
million. A pre-tax gain on the sale of approximately $4.3 million was recognized.

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146

In second quarter 2011, we sold the shares of a French business that sold household products to the retail
market. Net proceeds from the sale were approximately $1.3 million and a pre-tax loss of $1.9 million was
recognized. The revenue associated with this business was not material to us.
During the second quarter 2010, the Company sold certain of its U.K. operations (primarily, the bottled
water delivery and household equipment businesses). Proceeds from the sale were approximately $8.7 million. A
loss of approximately $13.3 million was recognized.
During the fourth quarter of 2009, the Company sold its bottled water business in Holland. Proceeds from
the sale were approximately $4.8 million. A gain on the sale of approximately $2.4 million was recognized.
During the first quarter of 2009, the Company sold its bottled water business in Spain. Proceeds from the
sale were approximately $3.2 million. A gain on the sale of approximately $2.5 million was recognized.
Culligan Store Solutions Group (CSS Group)
On November 10, 2010, Culligan Holding completed the sale of its CSS Group to Primo. The total value
of the consideration received in connection with the sale was $109 million, consisting of Cash of $74 million and 2.6
million shares of Primo common stock with a value of $35 million. Culligan Holding used a portion of the Cash
received to repay outstanding borrowings under its revolving credit agreement. The operating results of the CSS
Group have been classified as discontinued operations in Culligan Holdings financial statements and notes for 2010
and 2009. See note 7 to the audited financial statements for more information about discontinued operations
accounting for the CSS Group.
C.

Currency Information

In preparing our financial statements, we have translated into U.S. dollars certain amounts denominated in
currencies other than U.S. dollars. Assets and liabilities denominated in a functional currency other than U.S.
dollars are translated into U.S. dollars at the current rate of exchange at period end. Revenues, expenses, gains and
losses are translated at average exchange rates. See notes 1(g) and 16 to the audited consolidated financial
statements.
D.

Results of Operations

The following table provides certain financial information regarding our operations in North America,
Europe and Corporate. The results of the CSS Group have been removed from the years 2010 and 2009 as the
business was classified as a discontinued operation.

23633137v19

147

Three Month Periods Ended

March 31,
2012
2011

Year Ended December 31,

2011
2010
2009
(dollars in millions)
Net revenues:
North America........................................ $
Europe ....................................................
Total ................................................... $

320.5
282.1
602.6

Gross profit:
North America........................................ $
Europe ....................................................
Total ................................................... $

120.1
120.2
240.3

SG&A:
North America........................................ $
Europe ....................................................
Corporate................................................
Total ................................................... $

88.4
92.4
37.3
218.1

Operating Income (loss): (1)

North America........................................ $
Europe ....................................................
Corporate................................................
Total ................................................... $

72.3
23.5
(39.9)
55.9

Adjusted operating income (loss): (1)(3)

North America........................................ $
Europe ....................................................
Corporate................................................
Total ................................................... $

31.8
27.9
(32.9)
26.8

Adjusted EBITDA: (2)(3)

North America........................................ $
Europe ....................................................
Corporate................................................
Total ................................................... $

40.0
35.8
(29.9)
45.9

Capital expenditures:
North America........................................ $
Europe ....................................................
Corporate................................................
Total ................................................... $

12.3
8.3
0.4
21.0

362.3
279.4
641.7

139.8
124.8
264.6

112.8
93.3
34.9
241.0

24.7
16.3
(36.9)
4.1

29.6
31.0
(33.7)
26.9

44.4
38.5
(31.5)
51.4

19.0
8.3
1.0
28.3

357.8
314.7
672.5

141.9
138.7
280.6

106.7
101.6
27.7
236.0

30.8
37.2
(26.9)
41.1

37.3
37.8
(26.6)
48.5

51.7
46.5
(24.5)
73.7

15.6
8.5
0.1
24.2

56.0
59.2
115.2

20.8
24.0
44.8

11.1
22.3
12.1
45.5

11.1
1.3
(11.0)
1.4

8.6
1.6
(7.3)
2.9

9.0
3.4
(6.9)
5.5

0.8
1.8
0.1
2.7

88.0
64.3
152.3
31.0
27.1
58.1
28.1
23.1
12.2
63.4
5.0
3.6
(14.6)
(6.0)
4.4
4.1
(12.8)
(4.3)
8.0
5.9
(12.2)
1.7
4.4
2.0
6.4

(1) We define adjusted operating income as operating income plus any restructuring charges, intangible amortization,
stock-based compensation expense, certain consulting expenses, and any non-recurring charges (or minus any nonrecurring gains) included in (a) gross profit, (b) selling, general and administrative costs, or (c) sales of assets. The
adjustments to operating income for the years ended December 31, 2011, 2010 and 2009 include expenses related to:
(x) the NACOD refranchising initiative; and (y) legal expenses associated with litigation and corporate structure
matters. Adjusted operating income is a non-GAAP financial measure.
(2) We define adjusted EBITDA as adjusted operating income plus depreciation. Adjusted EBITDA is a non-GAAP
financial measure.
(3) Both adjusted operating income and adjusted EBITDA are non-GAAP financial measures and, as such, are not
calculated in accordance with GAAP. We believe these measures facilitate company-to-company operating
performance comparisons by backing out potential differences caused by variations in capital structures (affecting net
interest income and expense), taxation and the age and book depreciation of facilities and equipment (affecting relative
depreciation expense), which may vary for different companies for reasons unrelated to operating performance. We
also use these measures as a supplemental measure to assess our performance. We present these measures because we
believe that they are useful for investors and lenders to analyze disclosures of our operating results on the same basis as
that used by our management.

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148

Adjusted operating income and adjusted EBITDA are not necessarily comparable to other similarly titled financial
measures of other companies due to the potential inconsistencies in the method of calculation. Adjusted operating
income and adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as
substitutes for analyzing our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA
and adjusted operating income do not reflect:
x

changes in, or cash requirements for, our working capital needs;

our interest expense, or the cash requirements necessary to service interest or principal payments on our debt;

our tax expense or the cash requirements to pay our taxes;

historical cash expenditures or future requirements for capital expenditures or contractual commitments;

the cash and non-cash expenses associated with stock-based compensation and stock option bonuses;

our cash expenditures related to certain legal and consulting services; and

cash and non-cash expenditures associated with certain non-ordinary strategic actions, such as restructuring,
headquarters relocation and distribution center transition.

In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized
will often have to be replaced in the future, and adjusted EBITDA and adjusted operating income do not reflect any
cash requirements for such replacements. Other companies in our industries may calculate adjusted operating income
and adjusted EBITDA differently, limiting their usefulness as comparative measures.
The following is a reconciliation of adjusted operating income and adjusted EBITDA to the most directly comparable
GAAP financial measure operating income:
Three Months Ended
March 31,
2012
2011

Year Ended December 31,

2011
2010
2009
(in millions)
Operating Income....................................... $
Adjustments to operating income:
Restructuring..........................................
Intangible amortization ..........................
Stock-based amortization .......................
(Gains) losses on sale of businesses .......
(Gains) losses on sale of assets...............
Legal/consulting/other............................
Adjusted operating income.........................
Depreciation ...............................................
Adjusted EBITDA...................................... $

E.

55.9

10.2
1.4
0.2
(45.3)
(0.2)
4.6
26.8
19.1
45.9

4.1

2.7
2.0
0.4
13.3
0.9
3.5
26.9

24.5
51.4

41.1

4.4
2.5
0.9
(4.9)
0.1
4.4
48.5

25.2
73.7

1.4

0.9
0.2

(3.2)

3.6
2.9

2.6
5.5

(6.0)
4.5
0.5
0.1
(4.3)

0.9
(4.3)

6.0
1.7

Description of Key Statement of Operations Items

The following is a description of certain key line items of our statements of operations.

Net revenues. We provide our products and services directly to end users primarily through our CompanyOwned Dealers and through our network of independently owned Culligan dealers. When we distribute a product
through our independent Culligan dealers, we recognize revenue from an initial sale to the dealer, who then resells
the product or service to the end user. We also recognize revenue from royalties paid to us by our independent
dealers.

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149

We recognize revenue generally upon shipment to the customer or upon installation if our sales agreement
provides for installation. Revenue is recognized if there are no uncertainties regarding customer acceptance,
persuasive evidence of an arrangement exists, the sales price is fixed and determinable and collectability is deemed
reasonably assured. We recognize revenue from equipment rentals as earned over the rental period. We record
allowances for returns, discounts, and uncollectible accounts at the time of sale. Upon shipment of goods to
customers, we include in net sales amounts billed to customers for shipping and handling. Sales taxes collected
from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded
from revenues in our consolidated statement of operations. Amounts billed to customers for shipping and handling
are included in net revenues and are recorded upon shipment of goods to customers.
Cost of goods sold. Our cost of goods sold includes the cost of inventory shipped and our cost of labor,
materials and delivery for services provided to our customers. Cost of goods sold also includes shipping and
handling incurred for shipments to customers, as well as installation and warranty costs. Costs associated with our
rental portfolio, including maintenance and service, are also included in cost of goods sold.
Selling, general and administrative expenses. Our selling, general and administrative expenses include
the costs to attract and secure new customers, including advertising, sales, customer service and marketing as well as
support management of business units, including operating our Company-Owned Dealers and managing
relationships with our independent Culligan dealers. Selling, general and administrative expenses also include the
costs related to our research and development, finance, accounting, legal, information technology, human resources
and administrative functions.
Other operating expenses. We include in other operating expenses restructuring charges, intangible
amortization, stock-based compensation, gains and losses on the sales of assets/businesses, and a special bonus paid
to holders of Culligan Ltd. stock options.
Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011
Net Revenues
Net revenues for the three months ended March 31, 2012 were $115.2 million, a decrease of 24.4% versus
net revenues of $152.3 million for the same period in 2011. The following table summarizes certain factors that led
to increases and decreases in our net revenues, including organic growth and changes in the value of certain
currencies relative to the U.S. dollar, our reporting currency. Organic growth has been estimated after removing the
impact of currency fluctuations, acquisitions, divestitures and any other non-recurring revenue categories.
North America
Excluding NACOD
%
Amount
Growth
Net revenues 2011.................... $
Growth components
Organic/refranchising .............
Currency .................................
Acquisitions/divestitures ........
Net revenues 2012.................... $

32.8
8.8
(2.0)
6.8
39.6

NACOD
Amount
$

55.2

(0.1)
(38.7)
(38.8)
16.4

26.8%
(6.1%)
(0.0%)
20.7%

Europe
%
%
Amount
Growth
Growth
(dollars in millions)
$

64.3

(0.9)
(2.6)
(1.7)
(5.1)
59.2

0.0%
(0.2%)
(70.1%)
(70.3%)

Combined Total
%
Amount
Growth
$

152.3

8.0
(4.7)
(40.4)
(37.1)
115.2

(1.2%)
(4.0%)
(2.6%)
(7.9%)

5.3%
(3.1%)
(26.5%)
(24.4%)

North America Excluding NACOD. Net revenues for North America excluding NACOD for the three months
ended March 31, 2012 were $39.6 million, an increase of 20.7% compared to 2011. Excluding the impact of
currency, organic revenues increased 26.8% in 2012 compared to 2011 primarily a result of our refranchising
program. Sales increased to franchised dealers as we sold many of our company-owned locations in 2012.
NACOD. Net revenues for NACOD for the three months ended March 31, 2012 were $16.4 million, a decrease of
70.3% compared to 2011 mainly due to divestitures from refranchising.

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Europe. Net revenues for Europe for the three months ended March 31, 2012 were $59.2 million, a decrease of
7.9% compared to 2011. Excluding the impact of currency and divestitures, Europe organic revenues decreased
1.2% compared to 2011, primarily as a result of timing of certain commercial and industrial projects.
Gross Profit
Gross profit for the three months ended March 31, 2012 was $44.8 million, a decrease of $13.3 million
compared to the prior-year period. Our gross profit margin for the three months ended March 31, 2012 increased
slightly to 38.9% compared to 38.1% in the prior-year period.
Selling, General & Administrative Expenses
SG&A expenses for the three months ended March 31, 2012 decreased approximately $17.9 million in
2012 compared to the prior-year period.
In North America, SG&A expenses decreased by $17.0 million in the three months ended March 31, 2012
compared to the prior-year period. This decrease was primarily due to divestitures of our NACOD Hubs.
In Europe, SG&A expenses decreased by approximately $0.8 million in the three months ended March 31,
2012 compared to the prior-year period. Excluding currency and divestitures, SG&A expenses increased by $0.3
million.
Corporate expenses remained generally flat in the three months ended March 31, 2012 compared to the
prior-year period.
Other Operating Expenses
Restructuring costs of $0.9 million and $4.5 million were incurred in the three months ended March 31,
2012 and 2011, respectively. The most significant programs were refranchising of the NACODs and closing of
facilities in several non-U.S. locations.
Operating Income
Operating income was $1.4 million in the three months ended March 31, 2012 compared to a loss of $6.0
million in the prior-year period. Excluding divestitures, operating income was a loss of $1.8 million in the three
months ended March 31, 2012 and $10.3 in the prior-year period. The improvement in operating income in the
three months ended March 31, 2012 is due to lower restructuring costs in the period and the divestitures of
company-owned dealerships, which had poor results in the three months ended March 31, 2011.
Interest Expense
Interest expense was $7.5 million in 2012 compared to $10.6 million in 2011 due to lower outstanding
borrowings in the first quarter of 2012 compared to 2011 along with the expiration of interest rate swap agreements
in the third quarter of 2011.

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Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net Revenues
Net revenues for the year ended December 31, 2011 were $602.6 million, a decrease of 6.1% versus net
revenues of $641.7 million for 2010. The following table summarizes certain factors that led to increases and
decreases in our net revenues, including organic growth and changes in the value of certain currencies relative to the
U.S. dollar, our reporting currency. Organic growth has been estimated after removing the impact of currency
fluctuations, acquisitions, divestitures and any other non-recurring revenue categories.
North America
Excluding NACOD
%
Amount
Growth
Net revenues 2010.................... $
Growth components
Organic/refranchising .............
Currency .................................
Acquisitions/divestitures ........
Net revenues 2011.................... $

137.3
5.7
1.3
7.0
144.3

NACOD
Amount
$

225.0

(6.0)
1.7
(44.5)
(48.8)
176.2

4.2%
0.9%
0.0%
5.1%

Europe
%
%
Amount
Growth
Growth
(dollars in millions)
$

279.4

8.6
9.2
(15.1)
2.7
282.1

(2.7%)
(0.8%)
(19.8%)
(21.7%)

Combined Total
%
Amount
Growth
$

641.7

8.3
12.2
(59.6)
(39.1)
602.6

3.1%
3.3%
(5.4%)
1.0%)

1.3%
1.9%)
(9.3%)
(6.1%)

North America Excluding NACOD. Net revenues for North America excluding NACOD for the year ended
December 31, 2011 were $144.3 million, an increase of 5.1% compared to 2010. Excluding the impact of currency,
NACOD net revenues increased 4.2% in 2011 compared to 2010. The increase in net revenues was primarily a
result of higher commercial and industrial revenues.
NACOD. Net revenues for NACOD for the year ended December 31, 2011 were $176.2 million, a decrease of
(21.7%) compared to 2010. The decline in NACOD net revenues was mainly due to divestitures of our NACOD
Hubs in connection with refranchising.
Europe. Net revenues for Europe for 2011 were $282.1 million, an increase of 1.0% compared to 2010. Excluding
the impact of currency and divestitures, Europe net revenues increased 3.1% in 2011 compared to 2010, primarily as
a result of growth in our commercial and industrial business, which was partially offset by lower household
equipment sales.
Gross Profit
Gross profit in 2011 was $240.3 million, which was a decrease of $24.3 million compared to the prior year.
Our gross profit margin realized for 2011 was 39.9% compared to 41.2% for 2010.
In North America, gross profit margin percentage decreased to 37.5% from 38.6% in 2010. Lower
revenues in NACOD from the migration of household equipment sales to rentals drove the lower gross profit margin
percentage.
In Europe, gross profit margin decreased to 42.6% in 2011 from 44.7% in 2010, primarily due to the shift
in product mix (i.e., higher commercial and industrial equipment sales and lower household equipment sales in 2011
compared to 2010).
Selling, General & Administrative Expenses
SG&A expenses decreased approximately $22.9 million to $218 million in 2011 from $241 million in
2010.

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In North America SG&A expenses decreased by $24.4 million in 2011 compared to 2010. Excluding the
impact of currency, SG&A expenses decreased by $23.7 million. This decrease is primarily due to divestitures of
our NACOD hubs.
In Europe SG&A expenses decreased by approximately $0.9 million compared to 2010.
currency and divestitures, SG&A expenses were relatively flat, decreasing by $0.2 million.

Excluding

Corporate expenses increased by $2.4 million in 2011, primarily due to higher legal and consulting expense
related to both refranchising and other corporate strategy matters.
Other Operating Expenses
Restructuring costs of $10.2 million and $2.7 million were incurred in 2011 and 2010, respectively. The
most significant programs were: (a) refranchising of the NACODs; and (b) closing of facilities in several non-U.S.
locations.
Operating Income
Operating income was $55.9 million in 2011 compared to $4.1 million in 2010. Excluding divestitures,
operating income was $10.6 million in 2011 and $17.4 in 2010. The decrease in operating income excluding
divestitures in 2011 was primarily due to higher restructuring charges in 2011 compared to 2010.
Interest Expense
Interest expense was $40.6 million in 2011 compared to $42.9 million in 2010 due to lower interest rates
following the expiration of interest rate swap agreements.

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Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Revenues
Net revenues for the year ended December 31, 2010 were $641.7 million, a decrease of 4.6% versus net revenues of
$672.5 million for 2009. The following table summarizes certain factors that led to increases and decreases in our
net revenues, including organic growth and changes in the value of certain currencies relative to the U.S. dollar, our
reporting currency. Organic growth has been estimated after removing the impact of currency fluctuations,
acquisitions, divestitures and any other non-recurring revenue categories.
North America
Excluding NACOD
%
Amount
Growth
Net revenues 2009.................... $
Growth components
Organic/refranchising .............
Currency .................................
Acquisitions/divestitures ........
Net revenues 2010.................... $

129.9
4.1
3.3
7.4
137.3

NACOD
Amount
$

227.9

(8.6)
5.7
(2.9)
225.0

3.2%
2.5%
0.0%
5.7%

Europe
%
%
Amount
Growth
Growth
(dollars in millions)
$

314.7

0.4
(11.2)
(24.5)
(35.3)
279.4

(3.8%)
2.5%
0.0%
(1.3%)

Combined Total
%
Amount
Growth
$

672.5

(4.1)
(2.2)
(24.5)
(30.8)
641.7

0.1%
(3.6%)
(7.8%)
(11.2%)

(0.6%)
(0.3%)
(3.6%)
(4.6%)

North America Excluding NACOD. Net revenues for North America excluding NACOD for the year ended
December 31, 2010 were $137.3 million, an increase of 5.7% compared to 2009. Excluding the impact of currency,
net revenues increased 3.2% in 2010 compared to 2009. The increase in net revenues was primarily a result of
growth in our commercial and industrial equipment business.
NACOD. Net revenues for NACOD for 2010 were $225.0 million, a decrease of 1.3% compared to 2009.
Excluding the impact of currency, NACOD net revenues declined 3.8% in 2010 compared to 2009. This decline
was primarily a result of lower revenues from sales of bottled water and household rental and equipment.
Europe. Net revenues for Europe for 2010 were $279.4 million, a decrease of 11.2% compared to 2009. The most
significant reason for the sales reduction was the divestiture of our UK business. Excluding the impact of currency
and divestitures, Europe net revenues increased 0.1% in 2010 compared to 2009. Revenues increased in bottle-free
cooler and services, which were partially offset by declines in bottled water.
Gross Profit
Gross profit in 2010 was $264.6 million, which was a decrease of $16.0 million compared to the prior year.
Our gross profit margin realized for 2010 was 41.2% compared to 41.7% for 2009.
In North America, gross profit margin percentage decreased to 38.6% from 39.7% in 2009. Lower
revenues from our strategy shift toward bottle-free coolers and equipment rental drove the lower gross profit margin.
Gross profit margins in Europe increased to 44.7% in 2010 from 44.1% in 2009, primarily due to favorable
product mix.
Selling, General & Administrative Expenses
SG&A expenses increased approximately $5.0 million in 2010 compared to 2009.
In North America, SG&A expenses increased by $6.1 million to $112.8 million in 2010 compared to
$106.7 million in 2009. Excluding the impact of currency, SG&A expenses increased by $2.8 million, primarily due
to higher selling costs associated with our investment in our bottle-free cooler and household rental businesses.

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In Europe, SG&A expenses were $93.3 million compared to $101.6 million in 2009. Excluding the impact
of currency and divestitures, SG&A expenses increased $0.8 million, primarily due to higher selling expenses.
Corporate expenses increased by $7.2 million in 2010, primarily due to: (a) a one-time retention bonus in
2010; (b) the favorable financial impact of changes to benefit programs in 2009; and (c) higher expenses in 2010 to
support strategic revenue generating initiatives in North America.
Other Operating Expenses
Restructuring charges of $2.7 million and $4.4 million were incurred in 2010 and 2009, respectively. The
2010 restructuring charges consist primarily of severance and facility closing costs. The most significant programs
were rationalization and exit of certain facilities in the NACOD business and closing of facilities in several non-U.S.
locations.
Operating Income
Operating income was $4.1 million in 2010 compared to $41.1 million in 2009. In 2010, operating income
was negatively affected by: (a) loss on the divestiture of certain UK operations; (b) organic revenue declines in our
North America operations; and (c) higher Corporate SG&A expenses. These items were partially offset by lower
legal expenses, restructuring charges, stock-based compensation and stock option bonus in 2010. In addition, a gain
of $4.9 million on the sale of the bottled water businesses in Spain and Holland is included in 2009 operating results.
Interest Expense
Interest expense was $42.9 million in 2010 compared to $51.0 million in 2009, primarily due to lower
interest rates as a result of lower interest rates (LIBOR)
F.

Liquidity and Capital Resources

Overview

As of March 31, 2012, we had $769 million of long-term debt, of which $535 million is current and due in
2012. Our total long-term debt, including current installments, consists of the following:
x

$535 million of First Lien Debt, plus accrued but unpaid interest;

$233 million of Second Lien Debt, plus accrued but unpaid interest; and

$1 million in capital leases and other indebtedness.

As of December 31, 2011, we had no outstanding borrowings under our Revolving Credit Facility and we
had $10.2 million of letters of credit outstanding. Our primary source of liquidity is the cash generated by our
business operations. Our primary obligations and commitments are the debt service on our indebtedness, primarily
our first lien term loans and second lien term loans, our capital expenditures, on-going operating costs and working
capital.
As discussed under Restructuring in this Managements Discussion and Analysis of Financial Condition
and Results of Operations of Culligan Holding, we have a substantial amount of debt that matures in 2012. We have
entered into the RSA which sets forth terms and conditions to restructure our outstanding obligations. The
Restructuring is subject to numerous conditions and there can be no assurance as to whether or on what terms any
such Restructuring will be consummated.

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The following table summarizes cash flow information for the periods presented:
Three Months Ended
March 31,
2012
2011

Year Ended December 31,

2011
2010
2009
(in millions)
Net cash provided (used) by operating
activities of continuing operations .......... $
Net cash (used) provided by investing
activities ..................................................
Net cash provided by (used in) financing
activities ..................................................
Effect of exchange rate changes on cash
and cash equivalents................................
Net increase (decrease) in cash and cash
equivalents .............................................. $

(30.3)

(13.1)

27.5

(11.6)

(7.2)

115.4

55.4

(16.9)

13.9

(4.5)

(6.1)

(20.6)

(13.8)

(1.5)

(1.5)

(0.3)

(0.7)

1.3

0.3

0.8

78.7

21.0

(1.9)

1.0

(12.5)

Net cash used in operating activities was $11.6 million and $7.2 million in the three-month periods ended
March 31, 2012 and 2011, respectively. The primarily reason for the higher use of cash in the 2012 period
compared to the 2011 period was the timing of cash related to working capital matters.
Net cash provided by (used in) investing activities was $13.9 million and ($4.5) million in the three-month
periods ended March 31, 2012 and 2011, respectively. The primarily reason for the generation of cash in 2012 was
the proceeds from our refranchising process.
Net cash used in financing activities was $1.5 million and $1.5 million in the three-month periods ended
March 31, 2012 and 2011, respectively. The primarily reason for the use of cash in each period was amortization
payments on the Companys existing first lien debt.
Net cash (used in) provided by operating activities was ($30.3) million, ($13.1) million and $27.5 million
in fiscal 2011, 2010 and 2009, respectively. The Company used cash from operating activities in 2011 and 2010
because of weaker operating results compared to 2010.
Net cash provided by (used in) investing activities was $115.4 million, $55.4 million and ($16.9) million in
fiscal 2011, 2010 and 2009, respectively. The cash generated in 2011 was from the sale of company-owned dealers
as part of our refranchising program. In 2010 cash was generated from the sale of our Culligan Store Solutions
business.
Net cash used in financing activities was $6.1million, $20.6 million and $13.8 million in fiscal 2011, 2010
and 2009, respectively. In 2010 and 2009 cash generated from operations and asset sales was used to repay
borrowings under our revolving credit agreement.
Existing Credit Agreements
For a description of the existing credit agreements of Culligan Holding, see The Restructuring
Background to the Restructuring, which begins on page 64.
On April 4, 2012, the revolving credit, first lien term loan and second lien term loan lenders approved
waivers of the loan covenants that required Culligan Holding to furnish certain annual audited financial statements
without modification in the auditors report for going concern, reports and other documents by April 6, 2012. The
lenders waived these requirements until May 24, 2012.
On April 24, 2012, Culligan Holding and its lenders amended the revolving credit facility. The amendment
extended the expiration date of the facility to October 24, 2012 and reduced the availability under the facility to

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$10.2 million. We provided $11.2 million in cash collateral under the terms of the amendment. The availability
under the facility will be used to issue letters of credit for certain contractual obligations.
Restructuring: Amended Credit Agreements
For a description of the post-restructuring credit agreements of Culligan Investments, see The PostRestructuring Debt Facilities, which begins on page 186.
Capital Expenditures
The following table summarizes our capital expenditures by type and region for the three-year period from
2009 to 2011.
Fiscal Year Ended December 31,
2010
$
%

2011
$

Rental assets:
North America............................... $
Europe ...........................................
Total ..........................................

10.5
5.4
15.9

50.0%
25.7
75.7

Other:
North America...............................
Europe ...........................................
Total ..........................................
Total .................................................. $

2.2
2.9
5.1
21.0

10.5
13.8
24.3
100.0%

13.8
5.1
18.9

48.8%
18.0
66.8

6.2
3.2
9.4
28.3

21.9
11.3
33.2
100.0%

2009
$

%
8.1
4.1
12.2

33.5%
16.9
50.4

7.6
4.4
12.0
24.2

31.4
18.2
49.6
100.0%

Rental assets include water-conditioning equipment that is rented in North America and bottled water
assets.
Other capital expenditures include spending related to certain projects such as facility consolidation,
sourcing projects and IT development projects.
Our total capital expenditures from continuing operations decreased to $21.0 million in 2011 from $28.3
million in 2010. The decrease in capital spending is primarily due to NACOD refranchising. Our total capital
expenditures from continuing operations increased to $28.3 million in 2010 from $24.2 million in 2009, primarily as
a result of investment in rental equipment at company-owned dealerships. We expect that our capital expenditures
in 2012 will be below 2011 levels. After 2012, investments in rental assets in North America are expected to be
minimal as a result of NACOD refranchising.
Contractual Obligations
The following table details the payment schedule for debt, capital leases, operating leases and other
contractual obligations as of December 31, 2011.
As of December 31, 2011
1-3 years
4-5 years
>5 years
(dollars in millions)

<1 year
First lien term loans......................................... $
Euro-denominated second lien term loans.......
Capital lease and other debt obligations ..........
Operating leases ..............................................
Total ................................................................ $

535.7
0.2
16.6
552.5

226.8
23.9
250.7

11.5
11.5

0.7
5.9
6.6

Total
$

535.7
226.8
0.9
57.9
821.3

In the normal course of business, Culligan Holding provides letters of credit as financial security for the
completion or performance of contractual obligations under certain commercial contracts. These instruments are not

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reflected on Culligan Holdings consolidated balance sheets as a liability because management believes that they
will not result in a liability unless Culligan Holding fails to perform the contractual obligations, which are secured
by the corresponding instrument. Approximately $10.2 million and $20.3 million of these guarantees were
outstanding as of March 31, 2012 and 2011, respectively. If the Restructuring is not consummated or if some other
actions to address Culligan Holdings capital structure are not completed, the beneficiaries of the letters of credit
will draw such letters of credit and Culligan Holding will be required to cash fund such obligations.
For further information with respect to commitments and contingencies with respect to the business of
Culligan Holding, see note 11 to the unaudited consolidated financial statements and note 22 to the audited
consolidated financial statements.
We sponsor a defined benefits plan for employees in Belgium. In addition, we sponsor a postretirement
benefit plan for employees in France and we sponsor a postretirement medical benefits plan in the United States.
For more information with respect to these benefit plans, see note 21 to the audited consolidated financial
statements.
G.

Off-Balance Sheet Arrangements

As of December 31, 2011 and March 31, 2012, we had no off-balance sheet transactions, arrangements or
other relationships with unconsolidated entities or other persons that were reasonably likely to affect materially
liquidity or the availability of or requirements for capital resources.
H.

Critical Accounting Policies

Our accounting policies are described in Note 1 to our consolidated financial statements. The preparation
of financial statements requires management to make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying combined financial statements and related notes. In preparing these financial
statements, management has made its best estimates and judgments of certain amounts included in the financial
statements, giving due consideration to materiality. Application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these
estimates.
Revenue Recognition
Revenue is recognized from product sales and services when earned, as defined by GAAP, and in
accordance with ASC Topic 650, Revenue Recognition. Specifically, revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is
reasonably assured. For product sales, revenue is not recognized until title and risk of loss have transferred to the
customer, generally upon shipment or installation. Revenue from rental of equipment or other services is recognized
as earned over the rental or service period.
An allowance for doubtful accounts is established based upon historical losses on trade receivables, the
aging of customer account balances and the creditworthiness of specific customers. Historically, Culligan Holding
has not realized significant losses on trade receivables.
Allowance for Slow-moving and Obsolete Inventory
Inventory is valued at manufactured cost or purchase cost. An allowance is established to adjust the cost of
inventory to its net realizable value. The allowance is based upon historical and estimated future sales of specific
inventory items. Changes in future demand for products or inaccurate estimates of demand for new products could
have a significant impact on Culligan Holdings allowance.

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Notes Receivable
Notes receivable are related to the financing of certain dealer and consumer sales activity, including the
financing of customer sales contracts and purchase of inventory by dealers. Notes receivable are considered
impaired when management determines it is probable that we will be unable to collect all amounts due according to
the contractual terms of the note agreement, including principal and interest. Impaired notes receivable are valued
based on the present value of expected future cash flows, discounted at the receivables effective rate of interest, or
based on the fair value of the collateral if the receivable is collateral dependent. Interest income and late fees on
impaired notes receivable are recognized only when payments are received.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assets of business acquired. Goodwill and
intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are
not amortized, but are instead tested for impairment at least annually in accordance with ASC Topic 350, Intangibles
Goodwill and Other (ASC 350). Intangible assets with estimable useful lives are amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 360.
We completed our annual goodwill impairment tests using estimates of future financial performance as of December
31, 2011 and 2010 and determined that goodwill and other indefinite life intangibles were not impaired during these
periods.
Insurance
Over the three year period ended December 31, 2011, we retained risks for medical, general liability,
automobile and workers compensation at levels which varied by type of coverage and policy year from $0 to
$250,000. We purchase coverage for individual claims in excess of these limits. Estimates of losses expected under
these programs are based upon claim history and readily available commercial loss development factors. While
Culligan Holding believes that reserves for losses are adequate, if actual claims are higher than current estimates
Culligan Holding would be required to increase its insurance reserves.
I.

Legal Proceedings

For a discussion of certain key legal proceedings with respect to the business of Culligan Holding, see
BusinessLegal Proceedings, which begins on page 175.
J.

Seasonality

Our bottled water business experiences some seasonality, with historically increased demand in the second
and third calendar quarters, as the warmer months in northern climates tend to increase demand. However, this
fluctuation can be offset by adverse economic conditions. Our other businesses are not subject to significant
seasonal fluctuations.
K.

Impact of Inflation

We have certain costs (e.g., fuel, commodity driven materials, and sourced product) that are impacted by
inflation. Historically, we have offset inflationary cost increases through price increases and cost reductions.
Although we cannot predict our ability to cover future cost increases, we believe through adherence to cost
containment policies and reasonable price increases, the effects of inflation on future operating margins should be
manageable. Our ability to pass on increased costs associated with our products to our customers may be limited in
some cases.
Under our 2006 Franchise Agreement, our ability to raise the price of products we sell to our independent
franchise dealers who signed that agreement is generally limited to increases in a broad-based U.S. inflation index.
That index may not reflect increases in costs we experience in producing or acquiring the products we sell or the

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other costs of running our business. Accordingly, we may face increases in our costs that cannot be recovered
through increased prices we charge to our franchise dealers.
L.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to various market risks, including changes in foreign currency exchange rates and interest

rates.
Assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies
for transaction purposes are sensitive to changes in currency exchange rates. All material trade receivable balances
are denominated in the functional currency of the local operation. See Risk FactorsRisks Relating to Business of
the Company and NewCoBecause we generate revenue denominated in several different currencies, fluctuations
in the value of those currencies may impair our ability to service our indebtedness and other obligations and may
adversely affect our financial results, which begins on page 49.
We are exposed to various interest rate risks that arise in the normal course of business. All of our debt
carries floating rates of interest. Beginning in 2007, we entered into interest rate swap agreements to fix the interest
rate on the majority of our floating rate debt. The interest rate swap agreements matured in September 2011. See
Risk FactorsRisks Relating to Consenting to the Offerings or Voting in Favor of the Pre-Packaged Plan, which
begins on page 37 To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control and any failure to meet our debt service obligations could
harm our business, financial condition and results of operations.
M.

Recent Accounting Standards

In September 2011, the FASB issued Accounting Standards Update (ASU) 2011-08, Intangibles
Goodwill and Other. ASU 2011-08 simplifies how entities test goodwill for impairment. The ASU permits an
entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether to perform the two-step goodwill
impairment test. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted. Culligan Holding will implement the provisions
of the ASU 2011-08 as of January 1, 2012.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05
eliminates the option to report other comprehensive income and its components in the statement of changes in
equity. ASU 2011-05 requires that all non-owner changes in stockholders equity be presented in either a single
continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in
this update are to be applied retrospectively. The amendments are effective for Culligan Holding for fiscal year
ending December 31, 2012. Culligan Holding has not determined which presentation option it will use upon
implementation.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04
changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for
disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. ASU
2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable
(Level 3) inputs. This new guidance is to be applied prospectively and is effective for Culligan Holding for fiscal
year ended December 31, 2011. The adoption of this standard did not materially expand its consolidated financial
statement note disclosures.
In December 2010, the FASB issued ASU 2010-28, IntangiblesGoodwill and Other (Topic 350): When
to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, a
consensus of the FASB Emerging Issues Task Force (Issue No. 10-A). ASU 2010-28 modifies Step 1 of the
goodwill impairment test under ASC Topic 350 for reporting units with zero or negative carrying amounts to require
an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment

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exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider
whether there are adverse qualitative factors, including the examples provided in ASC paragraph 350-20-35-30, in
determining whether an interim goodwill impairment test between annual test dates is necessary. The ASU allows
an entity to use either the equity or enterprise valuation premise to determine the carrying amount of a reporting
unit. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning December 15,
2011 for a nonpublic company. Culligan Holding expects that the adoption of ASU 2010-28 in 2012 will not have a
material impact on its consolidated financial statements.

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XVII.
A.

BUSINESS

Overview

With over 75 years of history and an installed base of over three million customers worldwide, Culligan is a
leading pure-play provider of water treatment solutions globally. The Culligan brand is the most recognized in the
industry, with a reputation based on quality, innovation, service and local water expertise. Culligan provides
comprehensive, customizable solutions to its customers through an unparalleled dealer distribution network that is
more than twice the size of the nearest competitor and that includes 900 Culligan-branded locations across 90
countries. Our expansive channel to market delivers one of the industrys broadest and most technologicallyadvanced product portfolios along with an extensive range of services to a diversified customer base.
Since its founding in 1936, Culligan has been dedicated to delivering industry-leading, innovative water
treatment solutions to customers that are interested in the very best water for use in essential daily tasks. Culligans
heritage dates back to Emmett Culligan, our founder, who discovered soft water in 1921 and spent over 40 years
developing and expanding the water industry. In 1940, Culligan entered the C&I market, forming the foundation for
our current mix of business.
Culligan Holding acquired Culligan Corporation and its subsidiaries (together, the Culligan Group) from
a subsidiary of Veolia Environnement, S.A. (Veolia) on September 30, 2004. Culligan Holding was established to
acquire the Culligan Group from Veolia. Culligan Holding and its ultimate parent company, Culligan Ltd., are
beneficially owned primarily by a private equity fund managed by Clayton, Dubilier & Rice, LLC (CD&R), a
private investment company.
Our broad mix of products and services, distribution, customers, and geographies generates a diverse
revenue base that is largely recurring in nature. We operate in 10 countries around the world and generate the bulk
of our revenue from operations in the United States and Canada, France and Italy. We also sell products to our
licensees in 90 additional countries. For the twelve months ended December 31, 2011, our revenue was $602.6
million, our net income was $1.4 million and our adjusted EBITDA was $45.9 million.
We generate revenue primarily from two end markets:
x

Consumer solutions (76% of 2011 revenue). We offer point-of-entry water softeners, problem water
filters and point-of-use drinking water systems that are tailored to meet local water conditions.

Commercial and industrial (C&I) solutions (24% of 2011 revenue). We offer large point of entry
softeners and filtration to commercial end users, as well as larger scale, highly customized turn-key
solutions, including pre-treatment, membrane systems, polish, disinfection and distribution equipment,
to address the specific customer needs across a wide range of end markets.

Both markets are supported by a full line of services including water testing, product design assistance and
installation, ongoing repair and maintenance, technical support and consumables supply. Our fully integrated
product and service solutions are provided through our Culligan network of franchisees, company-owned dealers
and licensees and provides us with differentiated end consumer access and the ability to bring new product or
service solutions to market rapidly and at low cost.
No single customer accounts for more than 5% of our revenue in either of the Consumer solutions or C&I
solutions markets.
Our European operations (which includes all operations outside the U.S. and Canada) generated
approximately 55% of our revenue before corporate overhead for the twelve months ended December 31, 2011, with
the balance generated by our North American operations.

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Consumer solutions business

Culligan is a leader in consumer water treatment solutions with a leadership position in North America,
leading market positions in Europe and a growing presence in other key markets. Culligans history of technology
leadership, product innovation and customer service has enabled us to solidify our position as a premier water
treatment company that we believe will continue to gain share in the growing consumer market.
The consumer solutions business offers water treatment and filtration equipment, aftermarket supply of
consumables and services to end users in homes and offices worldwide. Our product offering includes whole-house
softening, drinking water systems and problem water solutions, each custom-tailored by highly trained technicians
to local water conditions. Culligan products are supported by value-added services, including water testing,
installation, ongoing repair and maintenance, filter changes and supply of consumables such as salt, which provide a
stable recurring revenue stream.
Culligan offers its consumer solutions predominantly through a global distribution network that includes
franchisees, company-owned dealers and licensees. With approximately 900 Culligan-branded locations, 1,000
highly trained sales representatives and 4,100 customer service representatives and technicians worldwide as of
March 31, 2012, Culligans network has enabled us to establish an installed base of over two and half million
consumer solutions customers. These customers are reached through Culligans high-touch sales and service
model that provides end user knowledge for tailoring solutions.
While Culligans consumer solutions business shares best practices and market strategies on a global basis,
we analyze the business trends and financial performance by the following geographies: North America and
International. Both geographies have similar products, service offerings and channels to market, but can be
distinguished by a few strategic differences resulting from the unique market opportunities in the two regions.
North America consumer solutions
We have enjoyed 75 years of success in North America and estimate that our dealers enjoy an installed
base of over two and half million customers. Culligans success in the North America consumer solutions business
is in large part due to the strength of the Culligan franchisee network. These Culligan franchisees provide a larger
distribution channel than the nearest dealer competitor and deliver the community presence, local water expertise
and customer relationships that are key to the Companys business model. Given the efficient franchise distribution
model and high-margin royalty revenue streams.
International consumer solutions
With an installed base of over 500,000 customers as of March 31, 2012 and a strong brand positioning,
Culligans international consumer solutions business has leading market positions throughout Europe and significant
growth opportunities in China, South America and other key markets. In France, which accounted for 60% of
international consumer solution sales in 2011, Culligan is the leader in water treatment.
The international consumer solutions business is operated through both company owned dealers and
independent franchisees. Offering a product line similar to the offering in North America, our service offering in
international consumer solutions is differentiated through the use of Privilege service contracts, which bundle all
ongoing services to the consumer into one monthly package. For example, in France, Culligan sold a service
contract with 65% of new equipment placements in 2011, which drives substantial recurring revenues. This
initiative has also been rolled out with success to franchisees in North America. Unlike North America, the
markets remaining revenue is generated by Culligans water cooler operation, which is primarily a business-tobusiness rental model with a high degree of recurring revenue. Culligans water cooler business has leading share
positions across its company-owned dealer markets, strong route density and significant momentum in the fast
growing bottle-free market, which result in compelling economics for the business.

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C&I solutions business

Leveraging our consumer-oriented roots, Culligans C&I water treatment history dates back to 1940. More
than just a vendor of products, Culligans C&I solutions business offers customized water treatment solutions to
businesses globally, with global brand equity and recognized expertise across geographies, end markets and
applications. Culligans product offering, which addresses customer needs, includes pre-treatment, membrane and
de-ionization systems, storage and distribution equipment, and is typically packaged by Culligan into a complete
turn-key solution with controls, instrumentation and skid mounting. Our C&I products are typically backed by a full
range of services including installation, maintenance, extended service contracts, spare parts and specialty chemicals
supply. Culligans global C&I sales are driven by a dedicated direct sales force, with the support of a highly
engaged franchisee and licensee network.
Culligans C&I business is well positioned as a global player with the scale, service network and brand
recognition to cover large, multi-location corporate accounts, but with the agility to maintain industry leading speed
to market (time to bid / order to ship) and customization a unique advantage compared to other key competitors.
Culligan seeks projects where we are able to provide the most value-added customized equipment and engineering
expertise, and as such, does not generally engage in large, project oriented construction bids.
International C&I
Based in Cadriano, Italy, Culligans international C&I solutions business is a leading provider of
customized water treatment solutions to its served geographies. We have a 50 year history of providing innovative
solutions to a wide variety of end markets, including energy, oil & gas, food & beverage, recreation / swimming
pools, hotels & lodging, general manufacturing, municipal, marine, healthcare and foodservice. With leading
positions in key markets served by company-owned dealers including Italy and Dubai, a growing position in France,
and strong licensee markets such as Poland, Portugal and Czech Republic, Culligans international C&I business has
developed meaningful inroads with large blue chip customers.
North America C&I
Culligan has a growing presence in North America C&I markets, leveraging our established global brand
and continued success in international C&I markets. Following the acquisition of Culligan by U.S. Filter in 1998,
Culligans focus on the North America C&I market was significantly diminished due to strategic overlap with U.S.
Filters legacy business. Beginning in 2008, we launched an effort to reinvigorate Culligans North America C&I
platform to capitalize on our leading C&I position and expertise in international markets as well as on our North
American distribution footprint. Culligan has focused on bolstering its C&I infrastructure with dedicated direct
sales representatives, applications engineers, a new comprehensive product line and highly engaged franchisees.
The North America C&I market is now serviced by a strong and growing direct sales force segmented by end
market franchisees that have a long established and strong presence in C&I.
B.

Material Trends and Uncertainties Affecting Our Business

Consumer Solutions Industry Trends and Dynamics

Our consumer solutions business operates in a large and fragmented industry, with tangible growth drivers
across key end markets. From a broader macro environment perspective, Culligans brand and its stable revenue
base have insulated us, on a relative basis, from the recent weakness in residential markets. Culligan remains wellpositioned to benefit from continued share gains with or without a recovery in the residential construction market.
The consumer water treatment industry has several unique characteristics that dictate the advantages and
disadvantages of the various competitors and channels to market. These dynamics include: (a) significant
geographic water differences necessitate local presence and expertise; (b) high degree of consultation and
customization required; and (c) brand matters due to the importance of water quality for most consumers. We
believe that our consumer business model addresses these key industry dynamics and allows us to continue to take
share from our competitors.

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C&I Solutions Industry Trends and Dynamics

We believe that the global C&I market is significantly underpenetrated, with tangible demand drivers that
are expected to result in market growth around the world. Key industry growth drivers include: (a) a growing
awareness of water quality and safety concerns among businesses and their customers; (b) an increasing focus on
water footprint due to costs and discharge restrictions; (c) expanding demand for energy and the importance of water
as a key component; and (d) the increasing demand for water treatment solutions in emerging markets with poor
water infrastructure.
Culligans C&I business is well positioned to benefit from market growth and share gains across global
markets. We believe that our position is sustainable, as a result of the following: (a) customizable solutions that
address customer needs; (b) a direct sales team, backed by strong application engineering support, that works
directly with customers; (c) a modular, flexible product line delivering differentiated speed to market; (d) strong
global brand equity with focused marketing strategy and support; (e) competitive pricing due to cost leverage from
the consumer solutions business; and (f) differentiated service capabilities provided by Culligans network and
proprietary technologies.
C.

Our Strengths

Powerful, Leading Brand in Water Treatment. The Culligan brand name, which has a global presence in
both Consumer and C&I markets and a long-term track record, is critical to our success. Hey Culligan Man! is one
of the most recognizable advertising slogans in the United States and Canada. Internationally, Culligan is the #1
brand in water treatment in France, one of the largest global markets with adverse water conditions and has strong
brand presence and leading positions in other key Consumer and C&I markets throughout Europe and the Middle
East. We strongly believe that our brand recognition and reputation play a key role in winning new business and
supporting our position as a premium solutions provider globally.
Strong Distribution Network. Our global distribution network, which spans 90 countries and 900 Culliganbranded locations with an installed base of over three million customers as of March 31, 2012, is the largest in the
water treatment industry. With over 750 Culligan-branded franchisees (75% of which are in North America), 94
global licensees and 53 company-owned dealers in international markets as of March 31, 2012, we offer strong
community presence and local water expertise as well as the ability to service large, multi-location C&I customers.
Anchored by a stable and dedicated franchisee base, the Culligan network provides an extensive on-the-ground sales
force that reinforces our high-touch, consultative sales model in both Consumer and C&I markets. As a result of
Culligans local knowledge, ability to customize solutions and close proximity to the end user, we believe that our
channel to market is truly differentiated, will enable us to take market share and can be leveraged to bring any new
products and technology to market rapidly and at a low cost.
Innovative Products with Customizable Solutions. Our brand name and distribution network are
supplemented by a portfolio of water treatment products that are customizable to meet the requirements of our large
and diverse Consumer and C&I customer base. Our R&D and innovation capabilities have resulted in a
differentiated portfolio of products as well as a pipeline of future products and technologies in development. Our
product portfolio has been significantly refreshed in recent years, with most of Culligans products having been
launched or substantially upgraded in the last four years. These innovative products are brought to market by our
trained network of sales and service technicians, who leverage their water knowledge and engineering applications
expertise to work directly with end users to deliver value-added solutions based on water quality differences and
customer requirements.
Business Transformation with Favorable Economics. Since 2004, Culligan has executed a complete
business transformation aimed at more effectively leveraging our market position and improving sales growth,
margins and return on capital. Key initiatives include: (a) secured a royalty based franchise agreement in North
America; (b) outsourced North American manufacturing with lower costs and improved quality; (c) revitalized
product portfolio through R&D investments and industry-leading innovation; (d) rebuilt North America C&I
business with direct sales force, applications engineers, full product line and highly engaged franchisees; (e)
streamlined business through non-core asset divestitures; and (f) refranchising NACOD. Following these initiatives,

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Culligan has a more attractive financial profile, with a well diversified business mix, strong free cash flow
characteristics and a more significant and growing C&I business, each of which position us for continued earnings
growth.
Opportunities for Future Growth. We have significant, tangible opportunities for future growth across end
markets and geographies. First, we believe Culligan has substantial runway to leverage its business model and
strong brand to continue to gain share organically in both Consumer and C&I markets. Second, Culligans
innovation process and robust product pipeline offer continued opportunities to develop and launch new solutions to
sell through our differentiated channels to market. For example, we continue to pursue new technologies in water
conservation and water re-use and are working on product extensions and expansions in high efficiency and green
offerings such as salt-free softeners in Consumer, and technology module fill-ins in C&I such as arsenic removal
and ultra-filtration. Third, Culligans brand and trusted water expertise has proven to be successful in new
geographies. We have opportunities to expand our footprint by filling in existing markets, opening new offices in
adjacent markets, entering new markets via acquisition and adding franchisees and licensees in high potential
geographies, including emerging markets.
Favorable Industry Dynamics. The industry in which Culligan operates is large, fragmented and has strong
underlying growth drivers. Key industry growth drivers include: (a) growing awareness of water scarcity, quality
and safety concerns; (b) increasing focus on reducing water footprint due to costs and environmental concerns;
(c) expanding demand for energy and the importance of water as a key component; and (d) a rising middle class in
emerging markets with poor water infrastructure. Culligans brand, strong global distribution platform and
customizable product solutions position us very well to benefit from these favorable industry dynamics and growth
drivers.
D.

Our Products and Services

Consumer solutions products

Culligans consumer solutions product offering is the industrys most complete, covering water softening,
problem water solutions and drinking water systems with a wide variety of innovative features that are responsive to
consumer requests including high efficiency functionality and advanced control systems. Additionally, all of our
consumer solutions product offerings are tested by independent laboratories such as the Water Quality Association
to ensure they meet all relevant industry standards.
Water Softeners: Culligans softener line offers a variety of solutions to water problems, which if left
untreated, can result in water that is scale-depositing, corrosive and potentially damaging to plumbing and
appliances.
While we have extensive expertise across all complex solutions, Culligan primarily provides water
softeners to the Consumer market that improve the quality of hard water. Hard water is water that contains a high
degree of dissolved minerals and is a pervasive issue worldwide with over 85% of U.S. households alone receiving
hard water. Effective water softening with Culligans products has a number of positive effects including: (a)
helping appliances work more efficiently and last longer; (b) lowering utility bills; (c) preventing fixtures from
building up water stains and spots; (d) improving the appearance of dishes and glasses; and (e) improving the look
and feel of skin and hair after washing.
Beyond the traditional benefits of water softening, Culligans softener line is also one of the industrys
most technologically advanced, including high efficiency offerings and electronic control systems. Culligans high
efficiency water softener reduces salt consumption by up to 46% and uses less water and energy. In addition,
components such as wireless remote controls and smart sensing and detection systems, which have been highly
rated among our customers, are not offered by competitors and enable premium pricing for Culligans offerings.
Culligans smart technologies used in its products are predominantly patented.
Problem Water Filtration: Our problem water solutions primarily consist of whole home filters, which
feature patented technology that creates a customized solution to solve specific local water problems. Household

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water filtration systems are primarily used to remove chlorine, lead and other contaminants, as well as unpleasant
odors and tastes from a given water supply. Filters are also available to reduce the level of iron, arsenic or sediment
in the local water. At each residential site, a Culligan franchisee performs a free water analysis and helps the
consumer choose the system that fits the needs for their home and family. The system is then installed at the pointof-entry to the home.
Drinking Water Solutions: Culligans drinking water solutions can be divided into two categories: pointof-use filtration and water coolers.
x

Point-of-Use Filtration
Culligan point-of-use filtration systems, installed at a particular water outlet in the home, range from
retail products (e.g. shower filters, water pitchers, faucet filters) and under-the-sink filters to patented
reverse osmosis filtration systems.
Culligan has a long history of success and innovation in water filtration, as illustrated by its receipt in
1988 of the first certification from the independent National Sanitation Foundation for its reverse
osmosis system, and our water filtration products have continued this legacy.

Water Coolers
Culligan and its franchisees offer water cooler systems to businesses, typically in an office setting for
use by employees. Our water cooler operation is primarily a rental business model with a high degree
of recurring revenue. Culligans water cooler business has leading share across its key markets and
strong route density, which result in compelling economics for the business.
Culligan offers both traditional home / office delivery (HOD) and BFC solutions. In recent years, our
growth in BFC solutions has meaningfully outpaced HOD growth, driven by favorable industry trends
and Culligans filtration expertise.
Culligan has also established new technologies within the market including the AquaBar system,
which was successfully introduced in Italy in 2010.

Consumer solutions services

Culligans service capabilities are a significant competitive advantage in developing comprehensive
solutions for its customers. We employ a full service model, and consumers trust Culligans highly trained
experts for all water treatment needs. Initial services are most often embedded into the product pricing, with
ongoing service contracts typically being sold as add-ons to equipment sales. Culligans high-touch sales and
service model create a loyal customer base with ongoing relationships as well as a captive audience for new
products.
Culligan offers an extensive range of services that include water quality testing, equipment installation,
ongoing maintenance and repair, and the aftermarket supply of salt, chemicals, replacement filters and parts for use
in our water treatment equipment. Culligans broad array of services across the product lifecycle provide continued
customer touch-points to reinforce our value proposition.
A more detailed discussion of our primary service offerings are including below:
x

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Local Water Expertise: One of Culligans greatest strengths is its unmatched local water expertise,
provided by our extensive sales and service presence in communities around the world. Culligans
sales representatives consult directly with end users, making in-home appointments to test water,
explain differences in water quality and recommend a comprehensive treatment solution. Our in-house
water testing lab enables technicians to test customers water against specific desired characteristics,

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and select the appropriate, customized solution that will provide them with the greatest value and
experience.
x

Full Service (Privilege) Contracts: Culligans full service or Privilege contracts offer customers a
wide array of services including: water testing, installation, maintenance and repair, replacement parts,
filter change and consumables (chemicals, salt). Culligans service commitment is highly appealing to
customers, as it essentially guarantees that our water treatment equipment will function correctly on an
ongoing basis, which gives the end user a high degree of comfort.

Consumables: Culligan supports its equipment sales with all of the salt, chemicals, filters, cartridges
and other consumables that are necessary to ensure continued operation. We provide a range of service
options, including one-time or regularly scheduled deliveries. In addition to salt, which is Culligans
largest consumable category, we also supply our customers with chemicals and agents used to
stabilize, clean and regenerate equipment.

C&I solutions products

Culligans C&I business designs and manufactures its products in three primary categories: (a) pretreatment; (b) membrane systems; and (c) polish, disinfection and distribution. Culligans true differentiation and
competitive advantage lies in its proprietary platform called Matrix Solutions, in which we combine products from
all three categories in various configurations to deliver customized solutions and applications across a variety of
verticals.
x

Pre-treatment: Culligans pre-treatment solutions include softeners, depth and carbon filters and
chemical feeders used for water treatment at a C&I facilitys points of entry.

Membrane systems: We offer large-scale advanced membrane systems making use of technologies
such as reverse osmosis or micro, nano- and ultra-filtration for applications requiring highly purified
water.

Polish, disinfection and distribution: Encompassing electronic and exchange deionization systems and
making use of technologies and components such as UV, chlorinators, ozone and chemical treatment to
provide sub-micron filtration, Culligans polish, disinfection and distribution equipment ensures the
highest quality of water needed for the most sensitive applications.

C&I solutions services

We support our C&I offerings with a full range of services including installation, maintenance, technical
support, refurbishment, service contracts and all the consumables necessary to keep equipment functioning properly
including spare parts and specialty chemicals.
x

Installation, maintenance, technical support and refurbishment: Following careful consultation and
customization by our direct sales force working directly with the customer, Culligans global service
footprint provides us with the on-the-ground presence and highly trained technicians needed to followup sales with the appropriate installation, ongoing repair and maintenance and value-added technical
support that forges lasting relationships with customers and generates continual contact points. Our
global service network is a key driver of C&I account wins, particularly contracts that cover large,
multi-location accounts.

Service contracts: In addition to ad hoc service and repair, Culligan offers its C&I customers ongoing
service contracts (typically 1 to 3 years in duration) alongside the sale of equipment, including regular
maintenance, water testing and consumables delivery. In addition to ensuring customer satisfaction
through the proper functioning of Culligan equipment, these service contracts also provide Culligan
with attractive recurring revenue streams.

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E.

Consumables: C&I water treatment equipment requires a significant amount of consumables such as
salt and specialty chemicals to ensure proper operation. Culligan supports its equipment sales by
supplying a full line of consumables and spare parts, which also provides an additional customer touch
point and source of recurring revenue for us.

Our Customers: Sales and Marketing

Through a dedicated worldwide marketing staff, we develop a variety of marketing programs for dealers
and retailers. Dealers in North America are required to participate in our cooperative advertising program. This
program provides for a variety of dealer programs and services such as regional co-op advertising, local advertising,
public relations, trade shows, market research and sales recognition initiatives.
The Culligan brand is by a wide margin the most recognized brand in water treatment in the United States.
Our famous Hey Culligan Man! tag line, in use since 1958, has contributed to our reputation and our dealer network
as a supplier of high quality water treatment products and as the leading service provider in the water purification
and treatment industry. While most of the revenue that we generate through the Culligan network is sold under the
Culligan brand, we also have several strong regional brands, including Hydrotech and Petwa, that we use for the
wholesale channel in the United States and Canada.
The typical household selling process of a company-owned or independent Culligan dealer involves lead
generation followed by an in-the-home appointment and demonstration. Lead generation is conducted through a
variety of marketing strategies, including local advertising (such as the yellow pages and internet), direct mail, and
heavy involvement in or sponsorship of local community activities. Most often, a consumer contacts the dealership
to inquire about the dealerships products and services. Subsequently, the dealership arranges an in-home
appointment, during which a Culligan salesperson educates the consumer on the benefits of the given products and
services, provides a product demonstration and, if the consumer is interested, completes the sales process.
F.

Our Customers: Distribution

We distribute our products and services through three main channels, the dealer channel, the wholesale
channel and the retail channel. Our primary distribution channel is the dealer channel, which for us includes our
company-owned dealers, our extensive network of independent Culligan dealers and licensees. The following table
provides our revenue by distribution channel for 2011.
Dealer Network
Culligans global distribution network has access to most locations in North America and many countries
worldwide, whether through on-the-ground local presence or through export markets. We believe that the size and
scope of our dealer network makes us uniquely positioned to distribute our wide range of products and services
globally. As of March 31, 2012, our global coverage network spanned 90 countries and 900 Culligan-branded
locations and included an installed base of over three million customers: the largest in the water treatment industry.
With over 750 franchisees (75% of which are in North America), 94 global licensees and 53 company-owned
dealers in international markets as of March 31, 2012, we offer community presence and local water expertise as
well as the ability to service large, multi-location C&I customers. Our distribution and dealer network enables us to
offer complete solutions to treat water problems for household, commercial and industrial customers through a
combination of testing, product selection, installation, monitoring and service.
Water conditions, and therefore the particular needs our products must address, vary from region to region
and between customers. Because each dealer resides close to our customers and has special knowledge of the water
in its local area, our dealers are uniquely positioned to provide valuable advice and service to customers. We also
use our dealer network and distributors to introduce new product lines and enter into new markets.
The vast majority of our independent dealers in the United States and Canada operate under our form of
franchise agreement that was renegotiated in 2006 (the 2006 Franchise Agreement). Some of the principal
elements of our 2006 Franchise Agreement include:

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franchise authorization for household products, drinking water, commercial and industrial products and
services, deionization, bottled water production and/or distribution;

an initial 20-year term with dealers retaining the right to terminate upon 90 days written notice;

non-exclusive territories, other than for household products and most bottled water distribution, subject
to certain exceptions (including provisions addressing national accounts and sales through alternative
distribution channels, such as the internet);

restrictions on the sales of non-Culligan equipment;

restrictions on our ability to raise relevant prices in excess of an inflation index;

provisions for royalties to be paid to us based upon dealer gross revenues;

adherence to minimum performance standards;

Culligan reimbursement for certain dealer warranty costs and indemnification for Culligan products
proven to be defective; and

institutionalization of the dealer advisory council (elected by North American dealers) and a greater
role for that body in certain matters affecting dealers under the 2006 Franchise Agreement.

The 2006 Franchise Agreement also places restrictions on our ability to sell certain Culligan products
through alternative distribution channels (including through retailers, catalog sales, the Internet or other electronic
commerce, or through 800 or toll-free telephone services). These restrictions include our not being able to sell our
premier model in any restricted product category through these channels within Culligan dealers assigned territories
and our not being able to exploit new products with exclusive technologies through these channels until the first
anniversary of their introduction. We may also be required to pay reverse royalties to independent dealers where we
make sales of certain products to national account customers or through alternative distribution channels within
dealers assigned territories.
Licensees. Supplementing the Culligan network is a global network of licensees operating around the
world that buy and resell Culligan products in their markets. Each licensee is an independent business that has
agreed to carry Culligan products as its exclusive offering of products within the range of products we sell. Sales of
products to licensees totaled $29.3 million in 2011, which represented 4.9% of our total sales. Licensees are our
primary means of distribution for us outside of the United States, Canada and Western Europe.
Independent Unbranded Dealers. In the United States and Canada, we also sell equipment to independent
unbranded dealers. These dealers provide us with an additional channel and have not signed franchise or exclusivity
agreements with us. They are generally single location operations with a limited geographic reach and product or
service offering.
Wholesale Channel
Using different products and brand names, we have developed a wholesale channel in Canada, through
which we sell our product to wholesalers who then resell our product primarily to plumbers and other contractors.
In Canada, we sell water treatment equipment and pump products under the Novatek and Duro brand names. The
2006 Franchise Agreement restricts our ability to sell to certain products in the United States and Canada to
wholesalers or other middlemen who resell those products to a competitive retail dealer within a Culligan dealers
assigned territory.

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Retail Channel
We offer a variety of small water filtration products through our retail distribution channel, such as faucetmounted filtration products, filtration pitchers, and sediment filter systems that are targeted at first time users. The
business enjoys a growing distribution through Amazon. As noted above, the 2006 Franchise Agreement places
restrictions on our being able to offer certain products through the retail channel in North America.
G.

Geography

We sell our products and services directly in ten countries and through our licensees in approximately 90
countries around the world, and generate the bulk of our revenue in the United States, Canada and Western Europe.
Our principal markets are the United States, Canada, France, Belgium and Italy. The following table provides our
revenue by country for 2011.
Revenue for 2011
By Business Unit Geography
Country
United States...............................................................................
Canada ........................................................................................
North American operations..................................................
France .........................................................................................
Italy.............................................................................................
Belgium ......................................................................................
Other ...........................................................................................
European operations ............................................................
Total revenue .......................................................................

H.

Amount
% of Total
(dollars in millions)
$
227.9
37.8%
92.6
15.4
320.5
53.2%
118.6
19.7%
100.1
16.6%
17.4
2.8%
46.0
7.7%
282.1
46.8%
$
602.6
100%

Manufacturing & Suppliers

Culligans manufacturing and supply chain infrastructure and strategy can be broken down by its consumer
and C&I product lines. In Culligans consumer business, which is characterized by higher volumes and less relative
customization, Culligan uses contract manufacturing through its key partners in low cost countries such as China,
India and Taiwan. Contract manufacturers are utilized for these more standardized consumer product lines due to
the following: (a) simplified outsourcing; (b) dual sourcing; (c) ability to change suppliers as costs change; (d)
affordable transport costs due to product size; and (e) lowest overall cost.
All manufacturing in Asia is performed on a contract basis, with Culligan sourcing and quality teams based
in Shanghai to manage local suppliers. Most of the materials necessary for the manufacture of our products are
commodities available from multiple suppliers.
For C&I products, volumes are lower and customization is meaningfully higher than consumer products.
Culligan sources components for its C&I products and solutions from low-cost countries, but performs the finished
product assembly in-house at Culligans Vernon Hill, IL, Regina, Canada and Cadriano, Italy facilities. Most
components are available from multiple suppliers. Low volumes and a higher degree of customization often leads to
the following: (a) the need for highly skilled labor; (b) significant freight costs; and (c) requirements to manufacture
close to Culligans customer base given the collaborate process to deliver the optimal solutions for each situation.
We manufacture industrial water treatment equipment at our facilities in Vernon Hills, Illinois, Regina,
Canada and Cadriano, Italy. The Regina, Canada facility is also utilized as a warehouse facility for wholesale
distribution. In addition, our Libertyville, Illinois facility is utilized primarily for distribution and quality assurance.

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I.

Competition

The markets in which we compete are highly competitive. We compete with many domestic and
international companies in our global markets. In most of the areas in which we compete, we believe that we have a
competitive advantage based on our brand recognition and the ability of our dealer network to install, service and
provide technical support for our products. We also believe that the breadth and range of our products distinguish us
from our competitors. The principal methods of competition are distribution capabilities, product specifications,
product knowledge, reputation, technology, service and price. Some of our competitors are multi-line companies
with other principal sources of income who have substantially greater resources than us, while many others are local
product assemblers or service companies that purchase components and supplies such as valves and tanks from more
specialized manufacturers.
In the North America dealer channel, Culligan competes with branded players as well as with small, nonbranded independent dealers. We believe that Culligans unparalleled distribution network, which is more than
twice the size of its closest competitor, strong brand recognition, comprehensive portfolio of innovative products
and more consistent service will drive continued share gains versus its dealer channel competitors.
In international markets, water treatment is a much less penetrated industry, and Culligan is considered a
pioneer. The dealer channel in Europe is similarly situated, with Culligan competing against branded water
treatment competitors as well as local mom-and-pop dealers. Leveraging the same competitive advantages as in
North America, Culligan, particularly in France, is the clear market leader.
To a lesser extent, Culligan competes with the retail channel in North America. While Culligan sells
certain products through the retail channel, primarily hardware stores, our retail solutions are very basic, entry-level
products. We believe that the retail channel is disadvantaged in selling the more complex solutions as it lacks the
ability to customize products at the customers site to meet specific local needs and has limited ability to service the
equipment, each of which are particularly important as water needs become more complex at homes and offices. In
international consumer markets, the retail channel is not as well developed.
We also face competition from the wholesale/plumbing channel in both North America and international
markets. Without a brand, access to the end user or meaningful innovation capabilities, we believe the wholesale
channel has been losing share in recent years to the franchise/dealer channel, and we expect this trend to continue.
Beyond water treatment, Culligans international business-to-business water cooler operations are wellpositioned in key company-owned dealer markets including Italy, Belgium, Argentina and France. Culligan has
leading brand recognition, strong route density and differentiated service in these geographies. Further, given
Culligans significant filtration expertise, we have seen rapid growth in its BFC solutions and expect to continue to
drive BFC growth and share gain in the future. We primarily compete with branded players in the water cooler
market.
J.

Intellectual Property

As of March 31, 2012, we held over 500 registered trademarks and trademark applications, and over 200
issued patents and patent applications worldwide. We do not have any registered copyrights. We regard our
trademarks, patents and other intellectual property rights as valuable assets and believe they are important to our
business.
Our most important trademarks include the Culligan mark and its related trademarks, including the
Culligan script with drop of water, the Culligan wave design, Hey Culligan Man! and better water. pure and
simple. We have registered these and other important trademarks in the United States and certain foreign countries
and intend to maintain the trademark registrations so long as they remain valuable to our business. Generally,
registered trademarks have perpetual life, provided that they are renewed on a timely basis and continue to be used
properly as trademarks.

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We hold patents, or have applied for patent protection, in the United States and certain foreign countries,
and intend to maintain the patents during their respective terms so long as they remain valuable to our business.
We license our trademarks to dealers and other third parties in the ordinary course of our business. We do
not believe that any of these trademark licenses are material to our business taken as a whole. We also license or
have agreements with respect to the use of trademarks or patents owned by others. We do not believe that any of
these trademark or patent agreements are material to our business taken as a whole.
K.

Research and Development

Culligans portfolio of products and water expertise are driven by our R&D capabilities and product
innovation track record. Culligans position in innovation is made possible by an in-house R&D and engineering
team responsible for all core product design, including 10 R&D experts, 30 applications engineers and 60 additional
engineers working on a variety of products and projects as of March 31, 2012. Importantly, in 2006 and 2007,
Culligan invested a meaningful amount of capital to revamp our new product development team and institute new
business processes, which now drive a differentiated and proven innovation process.
Our internal team is supplemented by a strategic group of external partners who provide low level
engineering services and certain specialized skills, enabling us to focus as much of our energy and resources as
possible on driving innovation in attractive water treatment applications.
Culligans product innovation is guided by interaction with both consumer and C&I customers through our
distribution network. Culligan obtains feedback directly from the market regarding customer needs and demands.
This enables us to focus innovation efforts on the most relevant products, technologies and applications required by
its customer base.
Our pipeline of new product introductions is extensive with approximately 12 and 14 new product lines
expected to be launched in 2011 and 2012, respectively (as compared to 10 in 2010). Our research and development
expenditures for fiscal years 2009, 2010 and 2011 were approximately $3,517 million, $3,976 million and $4,511
million, respectively.
L.

Employees

As of March 31, 2012, we employed approximately 2,452 people worldwide (exclusive of employees of
independent Culligan dealers), of which 422 were employed in the United States and 2,030 in other countries. In the
United States, no employees are members of unions. In Europe, substantially all of our employees are members of
unions. We believe that our relationship with our employees is good.
M.

Properties and Facilities

Culligan is headquartered in Rosemont, IL, with operations located in four principal manufacturing,
assembly and warehouse facilities in North America and Europe. The table below describes our principal facilities.

Location
Rosemont, IL
Cadriano, Italy
Regina, SK
Voisins
Bretonneux,
France

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Principal Facilities
Primary Use
Approx. Size (sq. ft)
Sales/Laboratory/Global HQ
53,200
110,000
Sales/Manufacturing/Distribution/Italy
HQ
80,000
Sales/Manufacturing/Distribution/Canada
HQ
Sales/France HQ
30,000

173

Owned/Leased
Owned
Owned
Owned
Leased

Cambridge, ON
Libertyville, IL
Fridley, MN
Vernon Hills, IL
N.

Distribution/Sales
Distribution
Distribution/Sales
Manufacturing/Assembly

40,000
85,000
20,000
52,000

Owned
Leased
Leased
Leased

Franchise Regulation

In the United States, we are subject to Federal Trade Commission regulations and various state laws
regulating the offer and sale of franchises. We must also comply with a number of state and foreign laws that
regulate substantive aspects of the franchisor-franchisee relationship. These laws may limit a franchisors ability to:
x

terminate or not renew a franchise without good cause;

interfere with the right of free association among franchisees;

disapprove the transfer of a franchise; and

discriminate among franchisees with regard to charges, royalties and other fees or place new
dealerships near existing dealerships.

We are also subject, at the state and Federal level to regulations that require franchisors, prior to offering or
selling a franchise, to prepare and disseminate to prospective franchisees, a prospectus-type disclosure document
containing all material information necessary for such prospects to make informed investment decisions and to
promptly amend such disclosure documents to incorporate any material changes to the information set forth therein.
While existing Federal, state or local regulation has not materially adversely affected our franchising
operations, we cannot predict the effect of any future legislation or regulation. Two Canadian provinces, Ontario
and Alberta, have franchise regulations that require disclosure to prospective franchisees and have remedies
available to franchisees that are similar to those in the United States. Our relationships with franchisees in France
and Italy are subject to the franchise laws of those countries, which include disclosure requirements and remedies
for franchisees.
O.

Non-Franchise Regulation

Culligan dealers in the United States who regenerate portable exchange and deionized water tanks are
subject to local, state and Federal requirements regulating the character and volume of the processed water they
discharge.
In many areas, the sale and promotion of water treatment devices is regulated at the state level by product
registration, advertising restriction, water testing, product disclosure and other regulations specific to the water
treatment industry. In some local areas, certain types of water treatment products, including those manufactured by
us, are restricted because of a concern with the character and volume of water discharge.
In addition, the production of bottled water under the Culligan brand for distribution to consumers is
governed by various federal, state and local laws and is regulated by the FDA. Our facilities are subject to
inspections and audits that could result in certain liabilities including the need to make operational changes, incur
costs, penalties, or potential product recalls.
P.

Environmental and Other Regulation

We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws
and regulations, including those governing releases of hazardous substances and the investigation and remediation of
contaminated sites. Our failure to comply with environmental laws or environmental permits issued by regulatory
authorities could result in certain liabilities, including fines and penalties. We are presently, and may in the future

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be, subject to liability for the investigation and remediation of environmental contamination, including
contamination caused by other parties, at properties that we own or operate or that we formerly owned or operated
and at other properties where we or our predecessors have arranged for the disposal of hazardous substances. As a
result, we are involved from time to time in administrative and judicial proceedings and inquiries relating to
environmental matters. We could incur material costs related to any present or future investigations and remedial
efforts and any present or future environmental liabilities.
In connection with the 2004 Acquisition, Water Applications & Systems Corporation is indemnifying us,
subject to certain limitations, for certain contamination issues identified prior to the acquisition of Culligan in
September 2004 by a private equity fund managed by CD&R. This indemnity is guaranteed by Veolia
Environnement. This indemnity only relates to certain identified environmental issues and may not cover future
costs we incur on environmental, health and safety claims entirely or at all.
We do not believe that any known environmental, health and safety issues will have a material adverse
effect on our business, financial condition or results of operations, although it is possible that a known or future
environmental, health or safety issue could have such an effect.
Q.

Legal Proceedings
Tripl-Hull Tank claims

We have been receiving and paying claims intermittently since 2001 relating to ruptures and water leakage
in our Tripl-Hull tanks that have resulted in warranty and/or property damage claims by consumers. We have sold
and installed a significant number of products that include these tanks. However, only a fraction have manifested a
defect. As part of the 2004 Acquisition, WASCO is obligated to indemnify us for claims relating to these tanks.
This indemnity covers 50% of the cumulative cost of such claims up to $5,000,000 and 100% of such costs above
$5,000,000. Veolia Environnement S.A., parent company of WASCO, guarantees the indemnity which is the
subject of a pending arbitration. Disputes have arisen with respect to WASCOs obligations under the indemnity,
which are the subject of a pending arbitration. At the current rates of claim, the costs of settlement are not material
to our results from operations. If the rate increases substantially, the amount we pay to settle the claims could
materially affect our results of operations. Although we have no reason to believe that the rate at which claims are
filed will change, it is possible that the rate will increase and/or that the mitigating effect of the indemnity may
diminish or disappear.
Herrador Settlement
On May 16, 2008, Walter Herrador, on behalf of himself and all others similarly situated, filed a complaint
against Culligan International with respect to certain of its NACOD subsidiaries in California Superior Court in
Orange County (Case No. 00069278). The purported class action alleges that Culligan International failed to pay
wages, provide rest and meal periods, and provide compliant itemized wage statements and violated Californias
unfair competition law. On June 17, 2009, we reached a settlement agreement, which was approved by the court on
August 2, 2010. Culligan International funded this settlement (approximately $0.9 million) in October 2010.
Other
We are subject from time to time to various litigation and claims arising in the ordinary course of our
business. We do not believe that any known litigation or claims pending against us would, if determined in a
manner adverse to us, have a material adverse effect on our business, financial condition or results of operations.
R.

Additional Information

We are not registered with the SEC and therefore, are not required to file reports with the SEC. In addition,
immediately after the Effective Date NewCo will not be registered with the SEC and will not be required to file
reports with the SEC.

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Our website is located at www.culligan.com. The information contained therein is not part of this Offering
Memorandum and Disclosure Statement and you should not rely on any information therein for investment
purposes.

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XVIII. MANAGEMENT
A.

Existing Executive Officers

The following table sets forth certain information regarding our current executive officers as of the date of
this Offering Memorandum and Disclosure Statement.
B.

Directors, Executive Officers and Corporate Governance

Name

Position

Thomas E. Ireland
Kevin M. Dotts
Michael P. Bornhorst
Allan J. Connolly

Chief Executive Officer

Executive Vice President, Chief Financial Officer
Executive Vice President, North America Consumer
Executive Vice President, Engineering, Operations and North
America C&I
Senior Vice President, General Counsel and Secretary
Senior Vice President, North American Franchise and Retail
Senior Vice President, International C&I
General Manager, Culligan France
Senior Vice President, Marketing
Senior Vice President & Chief Human Resources Officer

Susan E. Bennett
Lawrence S. Holzman
Laurence Bower
Florent Carbonneau
Curtis H. Hilliard
Andrea J. Barry

Thomas E. Ireland was elected Chief Executive Officer in April 2012, after acting as a consultant to the Company
since January 2012. From 1997 until 2007 he was an Operating Partner of Clayton, Dubilier, & Rice, Inc. Prior to
that he was a Senior Managing Director of Alvarez & Marsal, Inc. for ten years.
Kevin M. Dotts joined the Company in May 2011 as Executive Vice President and Chief Financial Officer. Before
joining Culligan, he was the Chief Financial Officer at Gas Turbine Efficiency PLC in Atlanta, Georgia from 2009
to 2010. He was Executive Vice President and Chief Financial Officer for Earthlink, Inc. in Atlanta from 2004 to
2009 after serving as its Vice President of Finance from 2002 to 2004. From 1987 to 2002, he held various financial
leadership positions of increasing responsibility, both domestically and internationally, at GE, including roles at GE
Energy, NBC, GE Plastics, GE Corporate and GE Aerospace.
Michael P. Bornhorst assumed his current position as Executive Vice President in charge of North America
Consumer Solutions in 2011 and is also currently leading the Companys NACOD refranchising initiative. He
joined Culligan in 2007 as Senior Vice President of NACOD Operations, and in January 2010 became Executive
Vice President of NACOD. Before his employment with Culligan, he worked for ADT security Services in various
roles from 1991 to 2007. From September 2003 to January 2006 he was a Group General Manager for ADT
Security Services in Indianapolis, Indiana. From January 2007 to August 2007, he was an Area General Manager
for ADT Security Services in Detroit, Michigan.
Allan J. Connolly has been our Executive Vice President, Operations & Engineering since July 2008. Allan joined
Culligan in April of 2006 as Vice President of Global Research, Development and Engineering. From 1997 to 2006,
Allan held various Engineering and Management roles within GEs Global Research and Energy Groups, most
recently serving as General Manager of GEs Integrated Gasification Combined Cycle business within GE Energy.
Allan earned his PhD in Control Systems Engineering and has significant experience developing global engineering
organizations in India and China.
Susan E. Bennett was appointed Senior Vice President in March 2007. She was Vice President from May 2003 to
March 2007. She was also appointed as Secretary in April 2004 and as General Counsel in May 2003. She served
as Assistant General Counsel and Assistant Secretary for Culligan from June 1998 until May 2003. She was
Associate General Counsel at US Filter from May 1999 until September 2004.

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Lawrence S. Holzman assumed his present position as Senior Vice President, North American Franchise and Retail
with the Company in February 2006. From June 2001 to February 2006, he was Vice President, Sales for the
Company. From June 1998 to June 2001, he was General Manager, Household Products for Culligan, and from
1990 to June 19998 he was Director, Advertising and Promotions for Culligan. Mr. Holzman joined Culligan in
1986.
Laurence Bower was promoted to Senior Vice President, International C&I on January 2011 after joining the
Company in December 2009 as its Vice President, International C&I. From 2000 to 2009, he served in a number of
roles for Suez: Vice President, Ondeo Industrial Solutions Corporate SA, Managing Director, Ondeo Industrial
Solutions Ltd and CEO, Purite Ltd from 2003 to 2009; Project Director, Vice President, Marketing, Ondeo IS
Corporate NA from 2001 to 2003 and Business Strategy Director UK from 2000 to 2001. From 1995 to 2000, he
served in various roles for Northumbrian Water Ltd (Lyonnaise des Eaux Group, which became Suez) after holding
several positions for Essex and Suffolk Water from 1990 to 1995.
Florent Carbonneau was elected as the General Manager of Culligan France in September 2008 after serving as the
Companys Director of International Strategy from 2005 to 2008. He also serves as the Companys Vice President
in charge of the International Consumer business. Prior to joining the Company, he was a Manager for AT Kearney
in Paris from 2004-2005 after serving as consultant for AT Kearney in Chicago from 2001 to 2003. He began his
career at Yoplait as a sales representative before moving to Chicago to join Nextel from 1997 to 1999 and then
receiving an MBA from the Kellogg School of Management at Northwestern University.
Curtis H. Hilliard assumed his current position as Senior Vice President, Marketing in May 2011 after leading the
Companys North America Bottle-Free Cooler strategy beginning in 2009. From July 2007 until 2009, he was in
charge of NACOD sales. Before joining the Company, he served as Vice President for Commercial Sales in North
America for ADT Security Services from 2002 to 2007 in Boca Raton, Florida.
Andrea J. Barry was promoted to Senior Vice President & Chief Human Resources Officer for the Company in July
2011. She was the Companys Vice President, Total Rewards and Corporate Human Resources in May 2009 after
joining the Company in 2008 as Vice President, Human Resources. She was Senior Director Human Resources for
Kellogg Company from 2001 to 2006 and served in a variety of human resources roles for Keebler Company in
Chicago from 1995 to 2001 (when it was acquired by Kellogg). She was benefits manager for Borg-Warner
Corporation in Chicago from 1993 to 1995 after serving as Senior Benefits Consultant for United Airlines from
1989 to 1993.
C.

Board of Directors

Immediately following the Restructuring, the New Board of Directors of NewCo will be comprised of
seven members. Because the New Board of Directors of NewCo will be elected by holders of a majority of the
NewCo Stock, and initially Centerbridge will hold a majority of the NewCo Stock, all of the New Directors will be
chosen by Centerbridge. As of the date of this Offering Memorandum and Disclosure Statement, we do not know
who will be initially appointed to the New Board of Directors of NewCo.
D.

Committees of the Board of Directors

Following the Restructuring, the New Board of Directors of NewCo may establish committees of New
Directors and may delegate any of certain powers to such committees. As of the date of this Offering Memorandum
and Disclosure Statement, we do not know which committees the New Directors may establish or who will be
designated to serve on such committees.
E.

Employment Agreements

Previously, we have entered into employment agreements with certain of our employees. As of the date of
this Offering Memorandum and Disclosure Statement, there are no plans to terminate, amend or replace any of these
employment agreements. In the future, NewCo may terminate, amend or replace these employment agreements, or
enter into new employment agreements with other employees.

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F.

Management Incentive Plan

At or following consummation of the Restructuring, NewCo intends to adopt a new management incentive
plan (as defined in more detail in the Glossary, the Management Incentive Plan), which may provide for grants of
options and/or restricted shares/equity reserved for management, directors and employees. The amount, form,
exercise price, allocation and vesting of such equity-based awards, and any limitations thereon, shall be determined
and approved by NewCos New Board of Directors. The aggregate of any such grants shall not exceed 15% of the
aggregate outstanding NewCo Stock.
G.

Director Compensation

Following the Restructuring, the New Board of Directors of NewCo may provide for compensation of the
New Directors. The New Board of Directors of NewCo may establish policies or guidelines regarding such New
Director compensation. As of the date of this Offering Memorandum and Disclosure Statement, we do not know
whether such compensation or related policies will be approved by the New Board of Directors of NewCo.
H.

Related Party Transactions

From time to time after the Effective Date, NewCo or its subsidiaries may enter into one or more
management services, consulting or other similar agreements with Centerbridge or its affiliates. Pursuant to these
agreements Centerbridge or its affiliates may provided services to NewCo or its subsidiaries in exchange for fees,
expense reimbursement and indemnification rights.

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XIX.

DIVIDEND POLICY

We have no current plans to pay dividends on NewCo Stock and the terms of the Post-Restructuring Debt
Facilities restrict our ability to do so. Any other future indebtedness, if any, that we may incur may also restrict
payment of dividends on our common stock.

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XX.

NEWCO

Immediately following the Restructuring, the New Board of Directors of NewCo will be comprised of
seven members, who will be appointed initially by Centerbridge. All parties receiving or retaining NewCo Stock
(and all persons to whom any such parties may sell or transfer their NewCo Stock in the future and all persons who
purchase or acquire NewCo Stock from NewCo in future transactions) will be bound by the Amended and Restated
Memorandum and Articles of Association of NewCo, which will contain, among other things: (a) limited
preemptive rights, (b) transfer restrictions, and (c) drag-along provisions. See the Amended and Restated
Memorandum and Articles of Association of NewCo, a copy of which are attached as Annex M, and Description
of NewCo Stock, which begins on page 182, for further information regarding the Amended and Restated
Memorandum and Articles of Association of NewCo and the rights and restrictions associated with NewCo Stock.

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XXI.

DESCRIPTION OF NEWCO STOCK

The following is a summary of certain provisions of the Amended and Restated Memorandum and Articles
of Association of NewCo. The Memorandum and Articles will be adopted on the Effective Date and will govern the
NewCo Stock. The below summary does not purport to be complete and is subject to, and qualified in its entirety by
reference to, the form of Memorandum and Articles, attached hereto as Annex M. The Memorandum and Articles
will be substantially similar to the Memorandum and Articles attached hereto. After the Restructuring, the
Memorandum and Articles will be the document that governs the NewCo Stock. The NewCo Stock will be initially
evidenced by one class of shares. On the Effective Date, additional NewCo Stock will be issued as set forth herein
and the equity ownership of NewCo will be as set forth herein.
A.

NewCo Stock Generally

Voting. Each share of NewCo Stock entitles the holder to one vote with respect to each matter presented to
the shareholders of NewCo (the Shareholders) on which the Shareholders are entitled to vote. Except as
otherwise provided by the Memorandum and Articles or required by law, all matters to be voted on by the
Shareholders must be approved by a simple majority in voting power of NewCo Stock entitled to be present in
person or represented by proxy at a Shareholders meeting at which a quorum is present (an Ordinary Resolution).
The Memorandum and Articles and applicable law provide that certain matters to be voted on by the Shareholders
must be approved by not less than two-thirds in voting power of NewCo Stock entitled to be present in person or
represented by proxy at a Shareholders meeting at which a quorum is present (a Special Resolution).
Appointment of Directors. The Memorandum and Articles provide that the New Board of Directors of
NewCo shall consist of a minimum of one and a maximum of seven directors (each a Director), subject to
increase or decrease from time to time by the Shareholders. The Shareholders holding a majority of NewCo Stock
may appoint or remove the Directors.
Distribution Rights. Any dividend declared by the New Board of Directors of NewCo shall be paid pro rata
to the holders of NewCo Stock. Upon liquidation or winding up of NewCo, the liquidator may, with approval of a
majority of the Shareholders, divide any assets available for distribution amongst the Shareholders.
The Amended First Lien Facility and the New Second Lien Facility impose restrictions on NewCos ability
to declare dividends. See Dividend Policy, which begins on page 180.
Preemptive Rights. The Memorandum and Articles provide that holders of NewCo Stock who are also
accredited investors will be entitled to participate, pro rata, in certain future issuances of NewCo Stock or securities
convertible into or exchangeable for NewCo Stock, in each case which issuances are for cash and to affiliates of
Centerbridge, subject to certain restrictions.
Registration with the SEC. NewCo will not have been registered with the SEC and there is no current plan
to register the NewCo Stock with the SEC in the future. In the event that the Recapitalization Plan is consummated,
NewCo Stock will be restricted securities as defined in Rule 144 promulgated under the Securities Act and may
not be reoffered, resold or pledged or otherwise transferred, except pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of the Securities Act. In the event that
the Pre-Packaged Plan is consummated, we will rely on Section 1145 of the Bankruptcy Code, to the extent it is
applicable, to exempt NewCo Stock from the registration requirements of the Securities Act (and of any state
securities or blue sky laws). In reliance upon this exemption, NewCo Stock generally will be exempt from the
registration requirements of the Securities Act, and recipients will be able to resell NewCo Stock without
registration under the Securities Act or other federal securities laws, unless the recipient is an underwriter with
respect to such securities, within the meaning of Section 1145(b) of the Bankruptcy Code. However, NewCo Stock
is subject to additional transfer restrictions under the Memorandum and Articles, as described below under
Transfer Restrictions. The certificates evidencing NewCo Stock, if any, will bear a legend describing restrictions
on transfer of NewCo Stock.

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Investors are advised to consult professional advisers regarding the restrictions on transfer and other
restrictions referred to in this Offering Memorandum and Disclosure Statement.
NewCo Stock may, in the discretion of the New Board of Directors of NewCo, be issued in certificated
form. At this time, NewCo does not intend to issue certificated NewCo Stock.
Prior to registering the transfer of any NewCo Stock or paying any distribution on any such transferred
NewCo Stock, NewCo may require that the proposed transferor and transferee or payee provide NewCo certain
information with respect to the direct or indirect ownership interest in such NewCo Stock. Any transferee to whom
NewCo Stock is transferred shall automatically become bound by the Memorandum and Articles upon the
registration of such transfer.
Other Matters. Except as provided in the Memorandum and Articles, holders of NewCo Stock have no
preemptive or other rights to subscribe for additional NewCo Stock. There are no sinking fund provisions
applicable to the NewCo Stock. NewCo may issue redeemable NewCo Stock or may purchase NewCo Stock on
such terms and conditions as the New Board of Directors of NewCo may determine. NewCo, as determined by the
New Board of Directors, may issue fractional shares of NewCo Stock with the corresponding fraction of liabilities,
rights, and other attributes of a whole shares of NewCo Stock.
Other Classes of Shares of NewCo Stock. The Memorandum and Articles provide that NewCo Stock may
be issued from time to time in one or more classes. The New Board of Directors of NewCo or the Shareholders are
authorized to fix the NewCo Stock constituting such classes and the designation of such class, the voting rights, if
any, of NewCo Stock of such class, and the designations, preferences and the relative, participating, optional or
other special rights and any qualifications, limitations and restrictions thereof, applicable to the NewCo Stock of
each class. Although NewCo does not currently intend to issue any NewCo Stock other than the equity issued under
the Management Incentive Plan, NewCo cannot assure you that it will not do so in the future.
B.

Transfer Restrictions

Consent of Directors. A Shareholder must seek the consent of the Directors for any proposed transfer of
NewCo Stock, subject to certain exceptions. The New Board of Directors of NewCo, in its sole discretion, may
refuse to accept any application for transfer of NewCo Stock or decline to register any transfer of NewCo Stock, for
any or no reason.
Certain Transfers. The Memorandum and Articles provide that, subject to the required consent of the
Directors set forth above, no Shareholder holding less than 25%]of the then outstanding NewCo Stock may transfer
its NewCo Stock, other than (a) a transfer of NewCo Stock to a transferee that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with the transferring Shareholder; (b) a
transfer (or deemed transfer) of NewCo Stock by Culligan Ltd. to its shareholders upon or prior to its liquidation (or
deemed liquidation); or (c) if the Shareholder is an individual, a transfer of NewCo Stock to a trust or estate
planning-related entity for estate planning purposes, or in the case of such Shareholders (or in the case of a trust, the
grantors) death, by will, the laws of intestate succession or in accordance with the applicable trust instrument to
executors, administrators, testamentary trustees, legatees or beneficiaries of such Shareholder.
Number of Shareholders. No direct or indirect transfer of NewCo Stock, shall be effective, and any such
transfer of NewCo Stock shall be deemed null and void ab initio, if, as a result of any such transfer, the record
number of Shareholders of NewCo of the applicable class of NewCo Stock (as determined in accordance with Rule
12g5-1 under the Exchange Act or any successor rule or interpretation) would exceed 400.
Tax Matters. NewCo will be taxed as a partnership for U.S. federal and state income tax purposes.
Without the consent of the New Board of Directors of NewCo, any otherwise permitted transfer of NewCo Stock
(other than a transfer or deemed transfer of NewCo Stock by Culligan Ltd. to its shareholders on or prior to its
liquidation or deemed liquidation) shall be deemed null and void ab initio, if such transfer (a) would cause NewCo
to cease to classified as a partnership for U.S. federal or state income tax purposes or (b) would cause NewCo to
become a publicly traded partnership, as such term is defined in Sections 469(k)(2) or 7704(b) of the Internal

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Revenue Code of 1986, as amended (the Code) and the regulations promulgated thereunder (notwithstanding
Section 7704(c) of the Code).
Drag-Along Right. The Memorandum and Articles provide that if a Shareholder or a group of Shareholders
representing 50% or more of the NewCo Stock then outstanding agree to sell 50% or more of their NewCo Stock in
certain transactions, or any merger or similar transaction involving the entire company, then all other Shareholders
shall be subject to certain customary drag provisions. The transfer of the drag-along NewCo Stock shall be subject
to terms and conditions which, in the reasonable, good faith opinion of the Directors, are no less favorable than
those terms and conditions to which the transfer of NewCo Stock of the same class by the dragging Shareholder(s)
will be subject pursuant to such drag-along transaction.
Each dragged Shareholder shall be required to (a) enter into any contract, instrument, undertaking or
obligation, and deliver all documents, necessary or reasonably requested in connection with such drag-along
transaction; (b) vote for any merger or similar action connected to with such drag-along transaction in the same
manner as the dragging Shareholder; (c) in respect of itself and its own NewCo Stock only, to make the same
representations and warranties relating to status, capacity, authorization and title to and ownership of NewCo Stock
that the dragging Shareholder of the same class makes in respect of itself and its NewCo Stock; and (d) join on a pro
rata basis (based on the percentage of the proceeds received by such Shareholder as compared to the aggregate
proceeds received by all Shareholders), severally and not jointly, in any indemnification, escrow or other obligations
that are specified in the drag-along notice, other than any such obligations which relate specifically to a particular
Shareholder such as indemnification with respect to representations and warranties given by a Shareholder regarding
such Shareholders title to and ownership of NewCo Stock.
C.

Certain Provisions of the Memorandum and Articles and Cayman Law

Shareholder Action by Written Consent; General Meetings of Shareholders. The Memorandum and
Articles provide that any action required or permitted to be taken by Ordinary Resolution may be taken without a
meeting and without a vote, if a consent or consents in writing, setting forth the action so taken is distributed to all
Shareholders at the same time, and is signed by the Shareholders holding a simple majority of NewCo Stock. Any
action required or permitted to be taken by Special Resolution may be taken if a consent or consents in writing, is
signed by all the Shareholders entitled to vote at a general meeting of the company. A general meeting of the
Shareholders may be convened by the Directors or upon written request of the Shareholders holding a majority of
the NewCo Stock then outstanding.
Competitive Opportunities. The Memorandum and Articles recognize and anticipate that (a) Shareholders
(other than Shareholders who are employees of the Company or any of its subsidiaries), (b) directors who are not
employees of the Company, and (c) their respective affiliates may now engage, may continue to engage, or may, in
the future, decide to engage, in the same or similar activities, related lines of business, or business activities that
overlap with or compete with those in which NewCo, directly or indirectly, may engage. The Memorandum and
Articles also contain provisions waiving NewCos interest and expectation with respect to certain acquisition or
investment opportunities that may be presented to the Shareholders, the non-employee/officer directors or their
respective affiliates.
Information Rights. The Memorandum and Articles do not provide Shareholders the right to inspect the
books and other records of NewCo, except as may be required by law, the New Board of Directors of NewCo or an
Ordinary Resolution of the Shareholders.
Registration Rights. The Memorandum and Articles do not provide for registration rights.
D.

Limitation of Liability of Shareholders, Directors and Officers; Indemnification

The Memorandum and Articles limit the liability of directors, officers and Shareholders, but fiduciary
duties have not been disclaimed. The liability of the Shareholders is limited to the amount, if any, unpaid on the
NewCo Stock respectively held by them. The NewCo Stock issued pursuant to the Restructuring will be fully paid
up.

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The Memorandum and Articles provide that NewCo shall indemnify its Directors, Secretary, assistant
Secretary, or other officers of NewCo (not including NewCos auditors) and the personal representatives of the same
(each an Indemnified Person) against all actions, proceedings, costs, charges, expenses, losses, damages or
liabilities incurred or sustained by such Indemnified Person, other than by reason of such Indemnified Persons own
dishonesty, willful default or fraud, in or about the conduct of the companys business or affairs (including as a
result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretion.
No Indemnified Person shall be responsible: (a) for the acts or omissions of any other Director, officer or agent of
NewCo; (b) for any loss on account of defect of title to any property of NewCo; (c) on account of the insufficiency
of any security in or upon which any money of NewCo shall be invested; (d) for any loss incurred through any bank,
broker or other similar person; (e) for any loss occasioned by any negligence, default, breach of duty, breach of trust,
error of judgment or oversight on such Indemnified Persons part; or (f) for any loss, damage or misfortune
whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities, or
discretions of such Indemnified Persons office or in relation thereto.
In addition, NewCo shall indemnify, defend and hold harmless each controlling person of NewCo as
such term is defined in the Securities Act and the Exchange Act (together, the Securities Laws), and all current
and former direct and indirect equityholders, members, partners, subsidiaries, affiliates, funds, managers, managing
members, officers, directors, employees, advisors, principals, attorneys, professionals, accountants, investment
bankers, consultants, agents, and other representatives of any such controlling person, and each of their respective
successors and permitted assigns (each, an Indemnified Securities Party) from and against, and shall promptly
reimburse each Indemnified Securities Party for, any and all losses, damages, liabilities, claims, costs, and expenses,
including, interest, court costs, and reasonable attorneys fees and expenses relating to, arising out of, resulting from
or in connection with any action, suit, or proceeding by a third party arising out of or related to the Securities Laws
based on the offering of securities of NewCo on or prior to the Effective Date, other than by reason of such
Indemnified Securities Partys own dishonesty, willful misconduct or fraud.
NewCo currently expects that, from and after the Effective Date, it will maintain liability insurance for its
directors and officers.
Although we currently intend for the Amended and Restated Memorandum and Articles of Association of
NewCo in the form attached hereto as Annex M to be adopted on the Effective Date, we may, after the date of this
Offering Memorandum and Disclosure Statement but before the Effective Date, change the Amended and Restated
Memorandum and Articles of Association of NewCo to reflect additional or different provisions that will not, in the
aggregate, be materially worse for NewCo Shareholders on the Effective Date than the form attached hereto.

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XXII.

THE POST-RESTRUCTURING DEBT FACILITIES

The following is a summary of certain provisions of the instruments evidencing the Post-Restructuring Debt
Facilities. This summary does not purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the agreements, including the definitions of certain terms therein that are not
otherwise defined in this Offering Memorandum and Disclosure Statement.
A.

Post-Restructuring Debt Facilities

On the Effective Date, Culligan Investments and Culligan, as borrower, will enter into the Amended First
Lien Facility, the New Revolving Facility, the New Second Lien Facility, the New Bridge Loan and the New
Intercreditor Agreement. Forms of the Amended First Lien Facility and the New Second Lien Facility are attached
Annexes H and I to this Offering Memorandum and Disclosure Statement, respectively, and terms sheets of the
New Revolving Facility and the New Bridge Loan are attached Annexes J and K to this Offering Memorandum and
Disclosure Statement, respectively. The following is a summary description of certain terms of the PostRestructuring Debt Facilities. The following summaries are qualified in their entirety by reference to the Annexes.
To the extent there is any inconsistency between these summaries and the applicable agreements pertaining to the
Post-Restructuring Debt Facilities, the terms of such definitive agreements will control.
After giving effect to the First Lien Paydown and the exchange of $175 million principal amount of First
Lien Debt for $175 million principal amount of indebtedness under the New Second Lien Facility, the principal
amount outstanding under the Amended First Lien Facility will be approximately $180 million.
The Amended First Lien Facility and the New Second Lien Facility shall each include a Euro tranche
available to any First Lien Lender that, immediately prior to the Effective Date, holds First Lien Lender Claims in
Euros and is restricted from receiving payments on account of its Lender Claim in currency other than Euros,
provided such Euro tranches shall be equal to and no greater than an amount equal to the ratable portion of such
restricted First Lien Lenders Lender Claims.
The Revolving Facility is expected to be replaced by the New Revolving Facility, which will provide for
$50 million of revolving extensions of credit outstanding at any time (including revolving loans and letters of
credit). There are no outstanding revolving loans under the Revolving Facility, but approximately $10.2 million in
undrawn letters of credit, which are cash collateralized in an amount equal to 110% of their face amount. On the
Effective Date, letters of credit are expected to be issued (or deemed issued) under the New Revolving Facility in
order to backstop, replace or roll-over the letters of credit issued under the Revolving Facility (with the amount of
any backstop letter of credit equal to 110% of the face amount of the related letter of credit), and the cash collateral
securing the existing letters of credit will be released. If the Restructuring is consummated after May 31, 2012 but
on or before June 30, 2012, not more than $10 million of revolving loans may be drawn under the New Revolving
Facility on the Effective Date to fund the First Lien Paydown.
The New Bridge Loan in a principal amount equal to an estimated $10.5 million, subject to reduction as
described in The RestructuringPotential Adjustments to Equity Ownership, which begins at page 68, will be
extended by Second Lien Lenders that elect to participate in the Rights Offering and, if the New Bridge Loan is
undersubscribed, the Backstop Purchasers. The proceeds of the New Bridge Loan, together with the proceeds from
the Rights Offering and a portion of cash on hand, will be used to fund the First Lien Paydown, the cash-out option
under the Second Lien Exchange Offer, Cash payments made in connection with the Current Employee Deferred
Bonus Modification and Former Employee Deferred Bonus Modification, the payment of fees and expenses incurred
in connection with or arising from the Restructuring, and working capital and general corporate requirements of the
Company.
B.

Maturity; Prepayments

The New Revolving Facility will have a five-year maturity. The Amended First Lien Facility will have a
five-and-one-half year maturity. The New Second Lien Facility will have a six-year maturity. The New Bridge
Loan will have a six-and-one-half year maturity.

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The principal amount of the Amended First Lien Facility will amortize in quarterly installments of 0.25%
of the aggregate initial principal amount of the Amended First Lien Facility, with the balance payable at maturity.
The New Revolving Facility, New Second Lien Facility and the New Bridge Loan will not be subject to
amortization. The New Bridge Loan will be prepaid solely with the net proceeds from the sale of NACODs owned
by Culligan Investments or its subsidiaries and the anticipated return of cash collateral to be posted to the lessor of a
certain facility of the Company located in Libertyville, Illinois to be received after the Effective Date.
Subject to certain exceptions, the Amended First Lien Facility will be subject to mandatory prepayments in
amounts equal to:
x

100% of the net cash proceeds from the issuance or incurrence of debt by Culligan Investments or any
of its restricted subsidiaries (other than certain indebtedness permitted by the Amended First Lien
Facility);

50% (stepping down to zero upon the achievement of a specified secured leverage ratio) of the annual
excess cash flow of Culligan Investments and its restricted subsidiaries (reduced by certain
prepayments of loans under the Amended First Lien Facility and the New Revolving Facility (the
Post-Restructuring First Lien Facilities); and

100% of the net cash proceeds from certain insurance proceeds and non-ordinary course sale or other
disposition of assets (including as a result of casualty or condemnation) of Culligan Investments or any
of its restricted subsidiaries, subject to customary reinvestment provisions and certain other exceptions.

The New Second Lien Facility will be subject to mandatory prepayments that are substantially similar to
the mandatory prepayments under the Amended First Lien Facility, but only after the discharge of the indebtedness
under the Post-Restructuring First Lien Facilities or, prior to such discharge, to the extent that available cash is not
applied to prepay indebtedness outstanding under the Post-Restructuring First Lien Facilities or other first priority
obligations.
Voluntary prepayments under the Amended First Lien Facility, the New Revolving Facility and the New
Second Lien Facility will be permitted subject to a minimum threshold and the satisfaction of certain conditions. A
prepayment fee will be assessed in the amount of 1% if the New Revolving Facility is terminated on or prior to the
first anniversary of the Effective Date.
C.

Security; Guarantees

Our obligations under the Amended First Lien Facility, the New Revolving Facility, the New Second Lien
Facility and the New Bridge Loan will be guaranteed by Culligan Investments, Culligan International S.r.l.,
Culligan Holding and certain of its existing and future direct and indirect domestic and foreign subsidiaries, subject
to certain legal and tax limitations and other agreed exceptions.
Our obligations under the Amended First Lien Facility and the New Revolving Facility, and the guarantees
of these obligations, are secured on a first priority and ratable basis by a perfected security interest in certain assets
of Culligan and certain of the guarantors under the Amended First Lien Facility and the New Revolving Facility,
including:
x

Culligan Internationals and the domestic, Canadian and British guarantors existing and future
accounts receivable, deposit and securities accounts, chattel paper, contracts, documents, equipment
(other than vehicles), general intangibles, instruments, intellectual property, inventory, investment
property, books and records pertaining to the foregoing, certain commercial tort claims, collateral
proceeds accounts, and proceeds of any of the foregoing;

100% of the capital stock of Culligan International, the domestic and Canadian guarantors, Culligan
Investments, Culligan International S.r.l., Culligan Holding and certain of its foreign subsidiaries;

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certain intercompany debt owned by Culligan International and certain of the guarantors; and

certain real property owned by Culligan International and certain of the guarantors.

Our obligations under the New Second Lien Facility and the guarantees of these obligations will be secured
on a second priority basis by a perfected security interest in the same collateral. The priority of the security interests
and related creditor rights among the Amended First Lien Facility, the New Revolving Facility and the New Second
Lien Facility will be governed by the New Intercreditor Agreement.
The New Bridge Loan will be unsecured and junior in payment priority to the Amended First Lien Facility,
the New Revolving Facility and the New Second Lien Facility pursuant to its terms.
D.

Interest

At Culligan Internationals option, the interest rate per annum applicable to the loans under the Amended
First Lien Facility and the New Second Lien Facility will be based on a fluctuating rate of interest determined by
reference to either:
x

a base rate per annum determined by reference to the higher of (a) the greater of (x) the prime rate as
quoted by a bank of recognized standing reasonably selected by the administrative agent and (y) the
federal funds effective rate, plus 0.5%, and (b) 2.50%, plus an applicable margin of 3.75% for the
Amended First Lien Facility and 7.00% for the New Second Lien Facility, or

a Eurodollar rate per annum determined by reference to the higher of (a) LIBOR, adjusted for statutory
reserve requirements, and (b) 1.50%, plus an applicable margin of 4.75% for the Amended First Lien
Facility and 8.00% for the New Second Lien Facility.

At Culligan Internationals option, the interest rate per annum applicable to the loans under the New
Revolving Facility will be based on a fluctuating rate of interest determined by reference to either:
x

a base rate per annum determined by reference to the greatest of (a) the prime rate as quoted by
JPMorgan Chase Bank, (b) the federal funds effective rate plus 0.5% and (c) the 3 month LIBO rate on
such day plus 1%, plus an applicable margin of 3.00%, or

a Eurodollar rate per annum determined by reference to LIBOR, adjusted for statutory reserve
requirements, plus an applicable margin of 4.00%.

Interest on the New Bridge Loan will accrue at a rate of 15% per annum and will be paid in kind.
E.

Fees

We will pay certain recurring fees with respect to the Post-Restructuring Debt Facilities, including an
unused line fee and letter of credit fees under the New Revolving Facility, and administration fees under the
Amended First Lien Facility, the New Revolving Facility and the New Second Lien Facility.
F.

Covenants

The Amended First Lien Facility, the New Revolving Facility and the New Second Lien Facility will
include a number of customary affirmative and negative covenants that, among other things, will restrict our ability
to:
x

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repurchase of certain disqualified or preferred stock);

188

G.

incur liens;

engage in consolidations, mergers, asset sales, sale/leaseback transactions, dispositions of collateral

and transactions with affiliates;

pay dividends or make other distributions, purchases, redemptions or other restricted payments with
respect to capital stock;

prepay indebtedness under the New Second Lien Facility upon a change of control or amend or
refinance certain debt and other agreements; and

incur restrictions on the ability of our restricted subsidiaries to pay dividends or make other
distributions, or make loans, investments or asset transfers.

Intercreditor Agreement

The administrative agent and collateral agent under the Amended First Lien Facility (the Amended First
Lien Agent), the administrative agent and collateral agent under the New Second Lien Facility (the New Second
Lien Agent) and the administrative agent and collateral agent under the New Revolving Facility (the New
Revolving Agent) will enter into the New Intercreditor Agreement (to be acknowledged by Culligan Investments,
Culligan International and the guarantors under each facility), which establishes the relative priority of the liens
securing the Amended First Lien Facility, New Second Lien Facility and New Revolving Facility.
Collateral
The Amended First Lien Agent, New Second Lien Agent and New Revolving Agent will acknowledge and
agree that it is their intention that the collateral securing the Amended First Lien Facility, New Second Lien Facility
and New Revolving Facility be identical. Furthermore, the Amended First Lien Agent, New Second Lien Agent and
New Revolving Agent will agree that they will not acquire or hold any lien on any assets unless a lien on such assets
is granted to each other party to the New Intercreditor Agreement subject to the priority set forth therein.
Subordination
Notwithstanding the date, time, method, manner or order of grant, attachment or perfection of any liens on
any collateral, and notwithstanding any provision of the UCC or any other applicable law, any lien in respect of the
collateral held by the New Second Lien Agent or creditors under the New Second Lien Facility that secures the
obligations under the New Second Lien Facility shall be junior and subordinate in all respects to (a) all liens granted
to the Amended First Lien Agent or creditors under the Amended First Lien Facility in the collateral to secure the
obligations under the Amended First Lien Facility and (b) all liens granted to the New Revolving Agent or creditors
under the New Revolving Facility in the collateral to secure the obligations under the New Revolving Facility.
Notwithstanding the date, time, method, manner or order of grant, attachment or perfection of any liens on
any collateral, and notwithstanding any provision of the UCC or any other applicable law, any lien in respect of the
collateral held by the Amended First Lien Agent or creditors under the Amended First Lien Facility in the collateral
to secure the obligations under the Amended First Lien Facility and any liens granted to the New Revolving Agent
or creditors under the New Revolving Facility in the collateral to secure the obligations under the New Revolving
Facility shall be pari passu and rank equal in priority.
Limitations on Enforcement
The New Second Lien Agent agrees that, until the discharge of all indebtedness under the PostRestructuring First Lien Facilities, the Second Lien Agent will not exercise remedies with respect to the collateral
without the written consent of each of the Amended First Lien Agent and New Second Lien Agent, provided,
however, that the New Second Lien Agent may exercise remedies with respect to the collateral after a period of 180

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consecutive days has elapsed from the date of delivery of written notice by the New Second Lien Agent to each of
the Amended First Lien Agent and New Second Lien Agent stating that an event of default under the New Second
Lien Facility has occurred and is continuing and stating its intention to take action with respect to the collateral, and
then only so long as no event of default relating to the payment of interest, principal, fees or other obligations under
the Amended First Lien Facility or New Revolving Facility has occurred and is continuing and neither the Amended
First Lien Agent nor New Revolving Agent has commenced any action with respect to any collateral.
Until the discharge of all indebtedness under the Post-Restructuring First Lien Facilities, in connection with
the exercise of any remedies taken with respect to the collateral by the Amended First Lien Agent or the New
Revolving Agent, the Amended First Lien Agent or the New Revolving Agent, as applicable, will advise any
purchaser or transferee of any collateral in writing that the sale or other transfer is subject to the liens of the other
agent and the creditors under the other Post-Restructuring First Lien Facility and that such liens shall continue
against the collateral to be sold or transferred. Neither the Amended First Lien Agent nor the New Revolving Agent
may, for a period of 45 days following an event of default under the Amended First Lien Facility or New Revolving
Facility, as applicable, exercise any remedies against any deposit accounts or cash or, after the institution of
springing cash dominion, approve any disbursement from a deposit account without the consent of the other first
lien agent and, if during such 45-day period, there is more than $25 million outstanding under the New Revolving
Facility and springing cash dominion has been instituted, upon prior written notice to the Amended First Lien Agent,
all cash will be deposited into a separate account designated by the New Revolving Agent, subject to the liens of
each of the respective agents and the priorities set forth in the New Intercreditor Agreement, until the earlier of the
expiration of such 45-day period and such time as the Amended First Lien Agent and New Revolving Agent
mutually approve of any disposition. If such 45-day period expires without a mutually approved disposition by the
Amended First Lien Agent and New Revolving Agent, then the New Revolving Agent will have the sole and
exclusive right to take action against the deposit accounts or cash, or approve any disbursements from a deposit
account. If during such 45-day period there is $25 million or less outstanding under the New Revolving Facility, the
Company may have access to any cash in any deposit account unless the Amended First Lien Agent and the New
Revolving Agent jointly agree to freeze or otherwise exercise rights and remedies (including set-off) against such
cash. The New Revolving Agent will be the initial controlling agent under all account control agreements. Subject
to the limitations in the New Intercreditor Agreement, the New Revolving Agent will (between the New Revolving
Agent, Amended First Lien Agent and New Second Lien Agent) exclusively be entitled to give instructions with
respect to all accounts until the discharge of all indebtedness under the New Revolving Facility.
Release of Liens
In the event of (a) any sale of the collateral in connection with any exercise of remedies by or with the
consent of each of the Amended First Lien Agent and New Revolving Agent, (b) any sale of the collateral permitted
by the Amended First Lien Facility and New Revolving Facility (prior to the discharge of all indebtedness under the
Post-Restructuring First Lien Facilities and not in connection with the discharge of all indebtedness under the New
Second Lien Facility) or (c) the release of the liens securing the obligations under the Post-Restructuring First Lien
Facilities, so long as such release has been approved by the requisite lenders under each of the Post-Restructuring
First Lien Facilities (prior to the discharge of all indebtedness under the Post-Restructuring First Lien Facilities and
not in connection with the discharge of all indebtedness under the New Second Lien Facility), the New Second Lien
Agent agrees that the liens securing the obligations under the New Second Lien Facility with respect to such
collateral sold or released shall terminate and be automatically released.
Purchase Right
Upon the acceleration of the obligations under the New Revolving Facility, a payment default under the
New Revolving Facility that is not cured or waived within 60 days or the commencement of an insolvency
proceeding, the creditors under the Amended First Lien Facility shall have the right to purchase all of the obligations
under the New Revolving Facility at par.
Upon the acceleration of the obligations under the Amended First Lien Facility, a payment default under
the Amended First Lien Facility that is not cured or waived within 60 days or the commencement of an insolvency

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proceeding, the creditors under the New Second Lien Facility shall have the right to purchase all of the obligations
under the Amended First Lien Facility at par.
Application of Proceeds
All proceeds of the collateral received by the Amended First Lien Agent, New Second Lien Agent or New
Revolving Agent in connection with any action taken with respect to the collateral (whether in or outside of any
insolvency proceeding) shall be applied in the following manner:
x

first, to the payment, on a pro rata basis, of costs and expenses of the Amended First Lien Agent and
New Revolving Agent, as applicable, in connection with any action taken with respect to the collateral,

second, to the payment, on a pro rata basis, of the obligations under the New Revolving Facility in
accordance with the terms of the New Revolving Facility until the discharge of all obligations under
the New Revolving Facility,

third, to the payment, on a pro rata basis, of the obligations under the Amended First Lien Facility in
accordance with the terms of the Amended First Lien Facility until the discharge of all obligations
under the Amended First Lien Facility,

fourth, to the payment of costs and expenses of the New Second Lien Agent in connection with any
action taken with respect to the collateral,

fifth, to the payment, on a pro rata basis, of the obligations under the New Second Lien Facility in
accordance with the terms of the New Second Lien Facility until the discharge of all obligations under
the New Second Lien Facility, and

sixth, the balance, if any, to Culligan Investments, Culligan International or any other guarantor of the
facilities or to whomsoever may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.

The application of proceeds above will apply and will not be abrogated or impaired in any way in
connection with any insolvency proceeding, restructuring or similar event.
Restrictions on Amendments
The Amended First Lien Agent and the creditors under the Amended First Lien Facility may not amend,
restate, supplement, refinance, or otherwise modify the Amended First Lien Facility, and the New Revolving Agent
and the creditors under the New Revolving Facility may not amend, restate, supplement, refinance, or otherwise
modify the New Revolving Facility, without the consent of the New Second Lien Agent, to increase the principal or
shorten the maturity of the Amended First Lien Facility or the New Revolving Facility, respectively, and to the
extent that the interest rate with respect to either the Amended First Lien Facility or the New Revolving Facility is
increased by more than 0.50%, the interest rate on the New Second Lien Facility shall increase by such amount in
excess of 0.50%; it being understood that interest rate shall include any increases in LIBOR floors and upfront
fees, OID or underwriting discounts (based on the lesser of a 4 year life to maturity and the remaining life of the
applicable indebtedness), but excluding customary and reasonable arrangement and commitment fees.
The New Second Lien Agent and the creditors under the New Second Lien Facility may not amend, restate,
supplement, refinance or otherwise modify the New Second Lien Facility, without the consent of the Amended First
Lien Agent and the New Revolving Agent, other than an amendment, restatement, supplement, refinancing or other
modification that would extend the maturity, reduce the amount of any payment of principal, or reduce the rate or
extend any date for payment of interest under the New Second Lien Facility; provided that there is no payment of a
consent fee in connection with such amendment, restatement, supplement, refinancing or other modification.

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Insolvency
Until the discharge of all indebtedness under the Post-Restructuring First Lien Facilities, the New Second
Lien Agent or any creditor under the New Second Lien Facility will not object and will not support any objection to
any financing under Section 364 of the Bankruptcy Code or any order for the use of cash collateral under Section
363 of the Bankruptcy Code (DIP Financing) provided by or consented to by the Amended First Lien Agent, the
creditors under the Amended First Lien Facility, the New Revolving Agent and the creditors under the New
Revolving Facility, provided that the New Second Lien Agent or any creditor under the New Second Lien Facility
may object to any provision in any DIP Financing relating to any provisions or content of a plan of reorganization.
Until the discharge of all indebtedness under the Post-Restructuring First Lien Facilities, neither the New
Second Lien Agent nor any creditor under the New Second Lien Facility will seek relief from the automatic stay or
any other stay in any insolvency proceeding in respect of the collateral without the prior written consent of the
Amended First Lien Agent and the New Revolving Agent.
Neither the New Second Lien Agent nor any creditor under the New Second Lien Facility will oppose any
sale of any collateral pursuant to Section 363(f) of the Bankruptcy Code (or any similar provisions) consented to by
the Amended First Lien Agent and New Revolving Agent so long as the proceeds are applied in accordance with the
New Intercreditor Agreement.
The Amended First Lien Agent, the creditors under the Amended First Lien Facility, the New Second Lien
Agent and the creditors under the New Second Lien Facility will not exercise their respective rights pursuant to
Section 363(k) of the Bankruptcy Code (or similar provision) without providing for the discharge of all indebtedness
under the New Revolving Facility in connection with any sale or plan of reorganization or liquidation.
The Amended First Lien Agent and New Second Lien Agent will not support a plan of reorganization that
does not provide for the discharge of all indebtedness under the New Revolving Facility.
Any debt or equity securities issued under a plan of reorganization (including any distributions or proceeds
therefrom) shall be subject and distributed in accordance with the application of proceeds provisions under the New
Intercreditor Agreement.
If the Amended First Lien Agent or New Revolving Agent is required in any insolvency proceeding to
turnover to the estate of any person any payment made in satisfaction of the obligations under the Amended First
Lien Facility or New Revolving Facility (a First Priority Recovery), then the obligations under the Amended First
Lien Facility or New Revolving Facility shall be reinstated to the extent of such First Priority Recovery. If the New
Intercreditor Agreement shall have been terminated prior to such First Priority Recovery, the New Intercreditor
Agreement shall be reinstated in full force and effect in the event of such First Priority Recovery.
The term discharge under the New Intercreditor Agreement shall mean, among other things, the payment
in full in cash of the applicable obligations and indebtedness (including 105% cash collateralization of all
outstanding letters of credit) and the irrevocable written termination of all commitments to lend or otherwise extend
credit with respect to such obligations or indebtedness.

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XXIII. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS RELATING TO CERTAIN

HOLDERS OF THE FIRST LIEN DEBT OR THE SECOND LIEN DEBT AND THE DEBTORS
The following is a discussion of certain U.S. federal income tax considerations relating to the Restructuring
relevant to (i) U.S. Holders (as defined below) that hold the First Lien Debt as a capital asset and receive Cash and
interests in the Amended First Lien Facility and the New Second Lien Facility and will hold such interests as capital
assets, (ii) U.S. Holders that hold the Second Lien Debt as a capital asset and receive Cash, NewCo Stock or
interests in the New Bridge Loan and will hold such NewCo Stock and interests in the New Bridge Loan as capital
assets and (iii) the Debtors. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the
Code), U.S. Treasury regulations promulgated or proposed thereunder and administrative and judicial
interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with
retroactive effect, or to different interpretation. This discussion does not address all of the U.S. federal income tax
considerations that may be relevant to specific U.S. Holders in light of their particular circumstances. This
discussion is also not addressed to U.S. Holders subject to special treatment under U.S. federal income tax law (such
as banks, insurance companies, dealers in securities or other U.S. Holders that generally mark their securities to
market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies,
real estate investment trusts, certain former citizens or residents of the United States, U.S. Holders that hold an
interest in the First Lien Debt, the Amended First Lien Facility, the New Second Lien Facility, the Second Lien
Debt, NewCo Stock or the New Bridge Loan as part of a straddle, hedge, conversion or other integrated transaction,
U.S. Holders that have a functional currency other than the U.S. dollar or U.S. Holders that own (or are deemed to
own) 10% or more (by vote or value) of NewCo Stock); to U.S. Holders that acquired their interests in the First Lien
Debt or Second Lien Debt in more than one separate transaction; or to persons other than U.S. Holders. This
discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or
alternative minimum tax considerations.
As used in this discussion, the term U.S. Holder means a beneficial owner of the First Lien Debt or the
Second Lien Debt that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the
United States, (b) a corporation created or organized in or under the laws of the United States, any state thereof or
the District of Columbia, (c) an estate the income of which is subject to U.S. federal income tax regardless of its
source or (d) a trust (i) with respect to which a court within the United States is able to exercise primary supervision
over its administration and one or more United States persons have the authority to control all of its substantial
decisions or (ii) that has in effect a valid election under applicable U.S. Treasury regulations to be treated as a
United States person.
If an entity treated as a partnership for U.S. federal income tax purposes is a holder or beneficial owner of a
claim under the First Lien Debt or the Second Lien Debt (either, a Lender Claim), the U.S. federal income tax
considerations relating to the Restructuring that are relevant to such entity will depend in part upon the status and
activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the
U.S. federal income tax considerations applicable to it and its partners relating to the Restructuring.
No ruling has been or will be sought from the U.S. Internal Revenue Service (the IRS), and no legal opinion of
counsel will be rendered, with respect to any of the U.S. federal income tax considerations discussed below, and no
assurance can be given that the IRS will not take a position contrary to any discussion below or that any such
contrary position would not ultimately be sustained by a court.
The tax considerations relating to the Restructuring (including the ownership and disposition of
interests in the Amended First Lien Facility, the New Second Lien Facility, NewCo Stock and the New Bridge
Loan) are complex and subject to uncertainty. All persons (including all non-U.S. persons) that are holders
or beneficial owners of any Lender Claim should consult their own tax advisors regarding the U.S. federal,
state and local and non-U.S. income, estate and other tax considerations relating to the Restructuring
applicable to them in light of their particular circumstances.
EACH TAXPAYER IS HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL
TAX ISSUES IN THIS OFFERING MEMORANDUM AND DISCLOSURE STATEMENT IS NOT
INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY THE TAXPAYER, FOR THE

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PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE TAXPAYER UNDER U.S.
FEDERAL TAX LAW; (B) ANY SUCH DISCUSSION IS WRITTEN TO SUPPORT THE PROMOTION
OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) THE
TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN
INDEPENDENT TAX ADVISOR.
A.

U.S. Holders of First Lien Debt

Receipt of Cash and Pro Rata Share of the Amended First Lien Facility and the New Second Lien
Facility in Exchange for First Lien Debt

A U.S. Holder of the First Lien Debt that exchanges the First Lien Debt held by it for Cash and its Pro Rata
share of the Amended First Lien Facility and the New Second Lien Facility in connection with the Restructuring
(whether through the Recapitalization Plan or the Pre-Packaged Plan) generally will realize gain or loss in an
amount equal to the difference between (i) the sum of the Cash and the value of such Pro Rata share of the Amended
First Lien Facility and the New Second Lien Facility (other than any amounts attributable to accrued and unpaid
interest) and (ii) such U.S. Holders adjusted tax basis in its First Lien Debt. See the discussion below under
Accrued and Unpaid Interest regarding the U.S. federal income tax considerations relating to the receipt of Cash
or other property attributable to accrued and unpaid interest.
For purposes of determining the amount of gain or loss realized on the exchange of the First Lien Debt, the
value of the interests in the Amended First Lien Facility and in the New Second Lien Facility generally will be
based on their issue price. Generally, the issue price with respect to the Amended First Lien Facility or the New
Second Lien Facility will be its stated principal amount if neither such applicable facility nor the First Lien Debt is
treated as a publicly traded debt instrument for U.S. federal income tax purposes. If, however, such applicable
facility or the First Lien Debt is treated as a publicly traded debt instrument for U.S. federal income tax purposes,
then the issue price with respect to such facility generally will be determined by reference to the fair market value of
such facility or the First Lien Debt, as applicable, on the Effective Date. Under U.S. Treasury regulations, a debt
instrument generally will be treated as a publicly traded debt instrument if, at any time during the 60-day period
ending 30 days after its issue date, such debt instrument is traded or listed on a national securities exchange, an
interdealer quotation system or certain foreign exchanges, or price quotations are readily available from dealers,
brokers or traders. However, proposed U.S. Treasury regulations promulgated in 2011, if finalized as proposed, will
significantly broaden the scope of debt instruments that are treated as publicly traded debt instruments for purposes
of determining the issue price of a debt instrument. U.S. Holders should consult their own tax advisors regarding
the issue price of the Amended First Lien Facility and of the New Second Lien Facility.
The extent to which a U.S. Holder will be required to recognize any gain or loss realized on the exchange
of the First Lien Debt depends on a number of factors, including whether the exchange of the First Lien Debt is
treated as a recapitalization for U.S. federal income tax purposes and whether the receipt of Cash and other
consideration in exchange for the First Lien Debt is treated as a separable transaction. U.S. Holders that hold the
First Lien Debt denominated in Euro should consult their own tax advisors regarding the U.S. federal income tax
considerations relating to the exchange of their First Lien Debt in connection with the Restructuring (including the
amount of gain or loss realized or recognized on the exchange and the ownership and disposition of an interest
denominated in Euro, if any, in the Amended First Lien Facility or the New Second Lien Facility).
If the exchange of the First Lien Debt is not treated as a recapitalization for U.S. federal income tax
purposes, then such U.S. Holder generally will recognize all gain or loss realized on such exchange. Such exchange
will not be treated as a recapitalization if the First Lien Debt is (or the interests in the Amended First Lien Facility
and the New Second Lien Facility are) not considered a security for U.S. federal income tax purposes. Whether a
debt instrument is considered a security for U.S. federal income tax purposes is determined based on all of the facts
and circumstances. Certain authorities have held that one factor to be considered is the length of the initial term of
the debt instrument. A debt instrument with a term of less than five years generally is not considered, and a debt
instrument with a term of ten years or more generally is considered, a security for such purposes. The treatment of a
debt instrument with an initial term of five to ten years is uncertain.

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The following discussion assumes that for U.S. federal income tax purposes (a) the First Lien Debt and
interests in the Amended First Lien Facility and the New Second Lien Facility are considered securities and (b) the
receipt of Cash and other consideration in exchange for the First Lien Debt is not treated as a separable transaction.
In such case, such U.S. Holder generally will not be permitted to recognize any loss realized on such
exchange, but will be required to recognize any gain realized on such exchange to the extent of any Cash (other than
any Cash attributable to accrued and unpaid interest) received by such U.S. Holder. Subject to the discussion below
under Additional Market Discount Considerations and Foreign Currency Gain or Loss regarding the character
of any gain recognized on such exchange and foreign currency gain, and depending upon whether such U.S. Holder
has previously claimed a bad debt deduction with respect to its First Lien Debt, any gain recognized on such
exchange generally will be capital gain and will be long-term capital gain if such U.S. Holder held such First Lien
Debt for more than one year at the time of such exchange. Net long-term capital gain of certain non-corporate U.S.
Holders is generally subject to preferential rates of tax. Such U.S. Holders holding period for its Pro Rata share of
the Amended First Lien Facility and the New Second Lien Facility (other than any amounts attributable to accrued
and unpaid interest) generally will include its holding period for its First Lien Debt. Such U.S. Holders tax basis in
its Pro Rata share of the Amended First Lien Facility and the New Second Lien Facility (other than any amounts
attributable to accrued and unpaid interest) generally will include the applicable portion of such U.S. Holders
adjusted tax basis in its First Lien Debt, decreased by the applicable portion of any Cash received (other than any
amounts attributable to accrued and unpaid interest) and increased by the applicable portion of any gain recognized
on such exchange by such U.S. Holder. If such U.S. Holder has accrued market discount on such First Lien Debt,
the applicable portion of such accrued market discount, to the extent not otherwise included in income by such U.S.
Holder, generally will be treated as accrued market discount with respect to such U.S. Holders interests in the
Amended First Lien Facility and the New Second Lien Facility if such interests are interests in market discount
bonds.
U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax considerations
relating to the receipt of Cash and their Pro Rata shares of the Amended First Lien Facility and the New Second
Lien Facility in connection with the Restructuring and the ownership and disposition of their Pro Rata shares of the
Amended First Lien Facility and the New Second Lien Facility.
Accrued and Unpaid Interest
The extent to which the consideration received by a U.S. Holder in connection with the Restructuring will
be attributable to accrued and unpaid interest is unclear. U.S. Treasury regulations generally treat a payment under a
debt instrument first as a payment of accrued and unpaid interest and then as a payment of principal. To the extent
treated as attributable to accrued and unpaid interest, such consideration generally will be taxable to a U.S. Holder as
interest income (if such accrued and unpaid interest has not previously been included in such U.S. Holders income).
A U.S. Holder may be entitled to recognize a loss to the extent any accrued interest previously included in its
income is not paid in full. U.S. Holders should consult their own tax advisors regarding the allocation of
consideration received in connection with the Restructuring and the tax treatment of accrued and unpaid interest.
Additional Market Discount Considerations
Any gain recognized by a U.S. Holder in connection with the Restructuring from the disposition of a
Lender Claim that was acquired at a market discount generally will be treated as ordinary income to the extent of the
market discount that accrued thereon while such Lender Claim was considered held by such U.S. Holder (unless
such U.S. Holder elected to include market discount in income currently as it accrued). Generally, a U.S. Holder has
a market discount on a Lender Claim to the extent that the sum of all amounts (other than payments of qualified
stated interest) payable on such Lender Claim after its acquisition by such U.S. Holder exceeds such U.S. Holders
adjusted tax basis in such Lender Claim immediately after such acquisition by no less than a statutory de minimis
amount.

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Foreign Currency Gain or Loss

A U.S. Holder of a Lender Claim denominated in Euro generally will realize foreign currency gain or loss
upon the exchange of such Lender Claim for Cash or other consideration in connection with the Restructuring as
ordinary income or loss if there is any difference between (a) the spot rate of exchange on the date such U.S. Holder
acquired such Lender Claim or the exchange rates used by such U.S. Holder to translate any accrued interest or
original issue discount, if any, on such Lender Claim into U.S. dollars and (b) the spot rate of exchange on the date
such Lender Claim is exchanged for such Cash or other consideration. Such foreign currency gain or loss generally
will be realized only to the extent of the total gain or loss realized by such U.S. Holder on the exchange of such
Lender Claim. U.S. Holders of Lender Claims denominated in Euro should consult their own tax advisors regarding
the extent to which such realized foreign currency gain or loss is required to be recognized by them for U.S. federal
income tax purposes.
B.

U.S. Holders of Second Lien Debt

The Rights Offering

Although not free from doubt, the issuance of, and the exercise or failure to exercise, the rights to
participate in the Rights Offering should collectively be treated for U.S. federal income tax purposes as a transaction
separate from the exchange of the Second Lien Debt for Cash or NewCo Stock pursuant to the Recapitalization Plan
or for NewCo Stock pursuant to the Pre-Packaged Plan. The following discussion assumes that for U.S. federal
income tax purposes the Rights Offering is treated as a transaction separate from the exchange of the Second Lien
Debt for Cash or NewCo Stock pursuant to the Recapitalization Plan or for NewCo Stock pursuant to the PrePackaged Plan.
A U.S. Holder of the Second Lien Debt that receives rights to acquire NewCo Stock and interests in the
New Bridge Loan in the Rights Offering generally is not expected to recognize gain or loss upon the exercise of
such rights. Such U.S. Holder generally should have a tax basis in the interests in the New Bridge Loan acquired
pursuant to the Rights Offering equal to the acquisition cost allocated therefor, and such U.S. Holders holding
period for such interests generally should not include its holding period for its Second Lien Debt. In addition, such
U.S. Holder may be required to include items (for example, certain in-kind interest payments) in gross income as
ordinary interest income for U.S. federal income tax purposes prior to the receipt of corresponding amounts of cash
with respect to such U.S. Holders interests in the New Bridge Loan because the New Bridge Loan will be issued
with original issue discount. See the discussion below under Ownership and Disposition of NewCo StockTax
Basis in and Holding Period for NewCo Stock regarding such U.S. Holders tax basis in and holding period for
NewCo Stock acquired pursuant to the Rights Offering.
U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax considerations
relating to the Rights Offering (including the ownership and the disposition of NewCo Stock and interests in the
New Bridge Loan acquired pursuant to the Rights Offering).
Receipt of Cash or NewCo Stock in Exchange for Second Lien Debt
Exchange for Cash. A U.S. Holder of the Second Lien Debt that exchanges the Second Lien Debt held by
it for Cash in connection with the Recapitalization Plan generally will recognize gain or loss in an amount equal to
the difference between (a) the amount of such Cash (other than any amounts attributable to accrued and unpaid
interest) and (b) such U.S. Holders adjusted tax basis in such Second Lien Debt. See the discussion above under
U.S. Holders of First Lien DebtAccrued and Unpaid Interest regarding the U.S. federal income tax
considerations relating to the receipt of Cash or other property attributable to accrued and unpaid interest.
Subject to the discussion above under U.S. Holders of First Lien DebtAdditional Market Discount
Considerations and Foreign Currency Gain or Loss regarding the character of any gain recognized on the
exchange of the Second Lien Debt and foreign currency gain or loss, and depending upon whether such U.S. Holder
has previously claimed a bad debt deduction with respect to its Second Lien Debt, any gain or loss recognized on
such exchange generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder

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held such Second Lien Debt for more than one year at the time of such exchange. Net long-term capital gain of
certain non-corporate U.S. Holders is generally subject to preferential rates of tax. The deductibility of capital
losses is subject to limitations.
Exchange for NewCo Stock. A U.S. Holder of the Second Lien Debt that exchanges the Second Lien Debt
held by it for NewCo Stock in connection with the Restructuring (whether through the Recapitalization Plan or the
Pre-Packaged Plan) generally will realize gain or loss in an amount equal to the difference between (i) the value of
such NewCo Stock (other than any amounts attributable to accrued and unpaid interest) and (ii) such U.S. Holders
adjusted tax basis in such Second Lien Debt. See the discussion above under U.S. Holders of First Lien Debt
Accrued and Unpaid Interest regarding the U.S. federal income tax considerations relating to the receipt of Cash or
other property attributable to accrued and unpaid interest.
Subject to the discussion above under U.S. Holders of First Lien DebtForeign Currency Gain or Loss,
the extent to which a U.S. Holder will be required to recognize such gain or loss realized on the exchange of its
Second Lien Debt may be affected by the transactions undertaken by the Debtors to implement the Restructuring.
The Debtors may effect the exchange of the Second Lien Debt for NewCo Stock by requiring a holder of the Second
Lien Debt to contribute all of its interests in the Second Lien Debt to NewCo in exchange for NewCo Stock (such
contribution, the NewCo Contribution). Alternatively, the Debtors may effect such exchange by requiring
Culligan International to discharge the Second Lien Debt with NewCo Stock acquired by Culligan International
(such discharge, the Culligan Discharge).
If such U.S. Holder exchanges its Second Lien Debt for NewCo Stock through the NewCo Contribution,
then such U.S. Holder generally will not recognize gain or loss realized on such exchange, except to the extent of
any accrued market discount (which, to the extent not previously included in income, will be required to be included
as ordinary income by such U.S. Holder as a result of the Restructuring). If, instead, such exchange is effected
through the Culligan Discharge, then such U.S. Holder generally will be required to recognize all gain or loss
realized on such exchange. See the discussion below under Ownership and Disposition of NewCo StockTax
Basis in and Holding Period for NewCo Stock regarding such U.S. Holders tax basis in and holding period for
NewCo Stock acquired pursuant to the NewCo Contribution or the Culligan Discharge.
Subject to the discussion above under U.S. Holders of First Lien DebtAdditional Market Discount
Considerations and Foreign Currency Gain or Loss regarding the character of any gain recognized on the
exchange of the Second Lien Debt and foreign currency gain or loss, and depending upon whether such U.S. Holder
has previously claimed a bad debt deduction with respect to its Second Lien Debt, any gain or loss recognized on
such exchange generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder
held such Second Lien Debt for more than one year at the time of such exchange. Net long-term capital gain of
certain non-corporate U.S. Holders is generally subject to preferential rates of tax. The deductibility of capital
losses is subject to limitations.
Ownership and Disposition of NewCo Stock
Although NewCo is organized as a corporate entity under Cayman Islands law, the Debtors intend to treat
NewCo as a partnership for U.S. federal income tax purposes as of the date of its formation, and an election to effect
such treatment will be made prior to the consummation of the Restructuring under the applicable U.S. Treasury
regulations. The discussion in this section Ownership and Disposition of NewCo Stock is limited in scope and
does not intend to provide a summary of all U.S. federal income tax considerations relating to an investment in an
entity treated as a partnership for U.S. federal income tax purposes. The U.S. federal income tax considerations
relating to such an investment are complex and subject to uncertainties and, in certain circumstances, a U.S. Holder
could be subject to special reporting requirements, failure to comply with which may subject such U.S. Holder to
substantial penalties. U.S. Holders are urged to consult their own tax advisors regarding the U.S. federal income tax
considerations relating to an investment in a non-U.S. entity treated as a partnership for U.S. federal income tax
purposes (including the ownership and the disposition of equity interests in such an entity, applicable reporting
requirements relating to such an investment and the penalties for failure to comply therewith).

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Treatment as a Partnership. As a partnership, NewCo generally will not be subject to U.S. federal income
tax. Instead, a U.S. Holder that owns NewCo Stock generally will be required to take into account its distributive
share, whether or not distributed, of items of NewCos income, gain, loss, deduction or credit. As a consequence, a
U.S. Holder of NewCo Stock generally will be required to include in income amounts such as actual or deemed
distributions received by NewCo or gain recognized by NewCo on actual or deemed dispositions of its assets,
regardless of whether NewCo distributes cash corresponding to such amounts. In addition, under the terms of the
Post-Restructuring Debt Facilities, the Debtors generally face restrictions on their ability to make distributions to
NewCo to enable it to make distributions to its equity holders while a loan under the Post-Restructuring Debt
Facilities remains outstanding. It is possible that in any given year, a U.S. Holders U.S. federal income tax liability
arising from holding NewCo Stock could significantly exceed the distributions, if any, made by NewCo to such U.S.
Holder. NewCo intends to provide each U.S. Holder that owns NewCo Stock with the necessary information to
report its distributive share of NewCos items of income, gain, loss, deduction or credit for U.S. federal income tax
purposes. However, no assurance can be given that NewCo will be able to provide such information prior to the
initial due date of a U.S. Holders U.S. federal income tax return, and a U.S. Holder that owns NewCo Stock may,
therefore, be required to apply to the IRS for an extension of time to file its U.S. federal income tax return.
Certain Transfer Restrictions. Subject to certain exceptions, NewCo generally would be treated as a
publicly traded partnership and, therefore, as a corporation for U.S. federal income tax purposes if interests in
NewCo were considered to be publicly traded. In general, a publicly traded partnership is defined as any partnership
if interests in such partnership are (a) traded on an established securities market or (b) readily tradable on a
secondary market or the substantial equivalent thereof. To preserve NewCos partnership status for U.S. federal
income tax purposes, the Memorandum and Articles will prohibit certain transfers of NewCo Stock that would result
in NewCo being treated as a publicly traded partnership. Any purported transfer in violation of such provisions will
be null and void and will not be recognized by NewCo. There is no assurance that NewCo will be treated as a
partnership for U.S. federal income tax purposes.
Restrictions on Deductibility of Expenses or Losses. NewCos expenses may be treated as miscellaneous
itemized deductions, rather than trade or business expenses, with the result that a U.S. Holder owning NewCo Stock
who is an individual may be limited in claiming a U.S. federal income tax deduction for such expenses. In addition,
if NewCo is treated as being engaged in a trade or business for U.S. federal income tax purposes, certain U.S. tax
rules relating to amounts at risk and passive activity losses could limit the deductibility of losses derived by certain
U.S. Holders from investments in NewCo Stock.
Distributions on NewCo Stock. Distributions, if any, made by NewCo to a U.S. Holder in respect of
NewCo Stock generally will not be taxable to such U.S. Holder for U.S. federal income tax purposes. However, to
the extent that any cash distributed by NewCo to such U.S. Holder exceeds such U.S. Holders adjusted tax basis in
NewCo Stock immediately before the distribution, such U.S. Holder generally will recognize gain that will be
taxable in the manner described below under Disposition of NewCo Stock.
Tax Basis in and Holding Period for NewCo Stock. Under IRS guidance, for U.S. federal income tax
purposes a holder of a partnership interest generally has a single adjusted tax basis in such interest. Accordingly, a
U.S. Holders adjusted tax basis in NewCo Stock immediately after the Restructuring generally will be the sum of
(a) such U.S. Holders adjusted tax basis in its Second Lien Debt, increased by any income or gain or decreased (but
not below zero) by any loss recognized by such U.S. Holder in connection with the exchange of its Second Lien
Debt for NewCo Stock and (b) such U.S. Holders acquisition cost for the shares of NewCo Stock, if any, acquired
pursuant to the Rights Offering. In addition, a U.S. Holder may have a divided holding period in its NewCo Stock
if, for example, such U.S. Holder acquired its NewCo Stock in part through the NewCo Contribution and in part
through the Rights Offering. In such case, such U.S. Holders holding period in the portion of its NewCo Stock
acquired through the NewCo Contribution will generally include such U.S. Holders holding period in its Second
Lien Debt and such U.S. Holder will generally have a different holding period in the portion of its NewCo Stock
acquired through the Rights Offering.
Disposition of NewCo Stock. A U.S. Holder that owns NewCo Stock generally will be required to
recognize gain or loss on a disposition of NewCo Stock in an amount equal to the difference between such U.S.
Holders amount realized and its adjusted tax basis in NewCo Stock disposed of. Subject to certain exceptions, any

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gain or loss so recognized generally will be capital gain or loss. As discussed above under Tax Basis in and
Holding Period for NewCo Stock, a U.S. Holder may have a divided holding period in its NewCo Stock. In such
circumstance, any capital gain or loss recognized will be divided between long-term and short-term capital gain or
loss in the same proportions as such U.S. Holders holding period for its NewCo Stock is divided between the
portion of its NewCo Stock held for more than one year and the portion of its NewCo Stock held for one year or
less, as discussed above under Tax Basis in and Holding Period for NewCo Stock. Net long-term capital gain
of certain non-corporate U.S. Holders is generally subject to preferential rates of tax. The deductibility of capital
losses is subject to limitations.
Certain Reporting Requirements. A U.S. Holder that owns NewCo Stock may be subject to special
reporting requirements relating to its investment in NewCo Stock, and additional requirements may apply to
NewCo. Failure to comply with these requirements could subject such U.S. Holder or NewCo to substantial
penalties. For example, a U.S. Holder may be required to file IRS Form 8865 reporting the transfer of the
acquisition price or the Second Lien Debt to NewCo in exchange for NewCo Stock or other information relating to
NewCo. A U.S. Holder may also be required to file IRS Form 926 reporting certain transfers by NewCo of cash or
other property to its subsidiaries treated as foreign corporations for U.S. federal income tax purposes. Individual
U.S. Holders (and certain U.S. entities specified in U.S. Treasury guidance) who, during any taxable year, hold any
interest in any specified foreign financial asset generally will be required to file with their U.S. federal income tax
returns certain information on IRS Form 8938 if the aggregate value of all such assets exceeds certain specified
amounts. Specified foreign financial asset may include NewCo Stock. Substantial penalties may be imposed in the
event of a failure to comply, if required. U.S. Holders that own NewCo Stock should consult their own tax advisors
as to the possible application to them of these requirements.
To avoid the imposition of a 30% U.S. federal withholding tax with respect to certain distributions from,
and gross proceeds from certain dispositions of, NewCos subsidiaries, NewCo may be required to enter into an
agreement (an FFI Agreement) with the IRS that would require NewCo to comply with certain reporting and
other requirements. A U.S. Holder may be required to provide certain information or take certain actions in order to
enable NewCo to comply with its FFI Agreement. A U.S. Holders failure to provide such information or take such
actions may result in a 30% U.S. federal withholding tax being imposed with respect to certain distributions from,
and gross proceeds from certain dispositions of, NewCos subsidiaries.
C.

Information Reporting and Backup Withholding

Information reporting may apply to payments of Cash or other consideration made to a U.S. Holder in
connection with the Restructuring unless such U.S. Holder is an entity that is exempt from information reporting
and, when required, demonstrates this fact. Any such payments to a U.S. Holder that are subject to information
reporting generally will also be subject to backup withholding, unless such U.S. Holder provides the appropriate
documentation (generally, IRS Form W-9) to the applicable withholding agent certifying that, among other things,
its taxpayer identification number (which for an individual would be such individuals Social Security number) is
correct, or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules
generally will be allowed as a refund or a credit against a U.S. Holders U.S. federal income tax liability if the
required information is furnished by the U.S. Holder on a timely basis to the IRS.
D.

The Debtors
Cancellation of Indebtedness Income and Attribute Reduction

A debtor generally will realize cancellation of indebtedness (COD) income if the sum of the Cash and the
value of other property received by a creditor in connection with the discharge of the debt owed by the debtor to
such creditor is less than the amount of such debt. The Debtors expect that the amount of COD income realized by
Culligan International upon the consummation of the Restructuring will be significant. However, the amount of
COD income that may ultimately be realized by Culligan International is uncertain and will depend in part on the
value of NewCo Stock on the Effective Date.

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To the extent Culligan International is considered insolvent for U.S. federal income tax purposes
immediately before the consummation of the Restructuring, any such COD income generally will be excluded from
the Debtors U.S. federal taxable income (the Insolvency Exception). If, however, the discharge of Culligan
Internationals debt occurs pursuant to the Pre-Packaged Plan, any COD income resulting from such discharge
generally will be excluded from the Debtors U.S. federal taxable income (the Bankruptcy Exception).
If and to the extent any COD income is excluded from the Debtors U.S. federal taxable income pursuant to
the Insolvency Exception or the Bankruptcy Exception, the Debtors generally will be required to reduce certain of
their U.S. federal income tax attributes, generally in the following order: (a) net operating loss carryforwards;
(b) most tax credits and capital loss carryforwards; (c) tax basis in assets; and (d) foreign tax credits. Any such
attribute reduction generally will be made after the determination of the U.S. federal income tax liability of the
Debtors for the taxable year in which the Debtors recognize such COD income.
If any COD income is not excluded from the Debtors U.S. federal taxable income and the Debtors do not
have sufficient U.S. federal losses to fully offset such COD income, the Debtors may incur tax liability.
Other Income
The Debtors may incur other income for U.S. federal income tax purposes in connection with the
Restructuring that, unlike COD income, generally will not be excluded from the Debtors U.S. federal taxable
income. For example, Culligan International may recognize foreign currency gain for U.S. federal income tax
purposes upon the payment or discharge of any Lender Claim denominated in Euro in connection with the
Restructuring if the spot rate of exchange on the date such Lender Claim was incurred by Culligan International or
the exchange rates used by Culligan International to translate any accrued interest or original issue discount, if any,
on such Lender Claim into U.S. dollars are different from the spot rate of exchange on the date such Lender Claim is
paid or discharged. In addition, the U.S. federal income tax considerations relating to the Restructuring are complex
and subject to uncertainties. No assurance can be given that the IRS will agree with the Debtors interpretations of
the tax rules applicable to, or tax positions taken with respect to, the transactions undertaken to effect the
Restructuring. If the IRS were to successfully challenge any such interpretation or position, the Debtors may
recognize additional taxable income for U.S. federal income tax purposes, and the Debtors may not have sufficient
U.S. federal losses to fully offset such income.
Potential Limitations on Net Operating Loss Carryforwards and Other Tax Attributes
If a corporation or a consolidated group with net operating losses, loss carryforwards or certain other tax
attributes (a Loss Corporation) undergoes an ownership change for U.S. federal income tax purposes, the Loss
Corporations use of its pre-ownership change net operating losses, loss carryforwards and certain other tax
attributes generally will be subject to certain limitations in the post-ownership change period. The Debtors expect
that the Restructuring will result in an ownership change with respect to certain Debtors for U.S. federal income tax
purposes. However, the Debtors do not anticipate that following the Restructuring they will have any significant net
operating loss carryforwards or other tax attributes that will be subject to such limitations.
Applicable High Yield Discount Obligation with Respect to the New Bridge Loan
The New Bridge Loan is expected to be an applicable high yield discount obligation for U.S. federal
income tax purposes. If the New Bridge Loan is an applicable high yield discount obligation, any deduction with
respect to original issue discount (including certain in-kind interest payments) that the Debtors would otherwise be
entitled to for U.S. federal income tax purposes will be deferred until the Debtors pay such original issue discount,
except that the deduction with respect to original issue discount will be permanently disallowed to the extent the
yield to maturity on the New Bridge Loan exceeds the applicable federal rate plus six percentage points.

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XXIV. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS RELATING TO CURRENT

EMPLOYEES AND FORMER EMPLOYEES
The following is a discussion of certain U.S. federal income tax considerations relating to the Restructuring
relevant to (i) Current Employees who participate in the Current Employee Deferred Bonus Modification and will
hold NewCo Stock as capital assets and (ii) Former Employees who participate in the Former Employee Deferred
Bonus Modification and will hold their portions, if any, of the Former Employee Note as capital assets. This
discussion is based on the Code, U.S. Treasury regulations promulgated or proposed thereunder and administrative
and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change,
possibly with retroactive effect, or to different interpretation. This discussion does not address all U.S. federal
income tax considerations that may be relevant to specific Current Employees or Former Employees in light of their
particular circumstances (such as former citizens or residents of the United States or individuals who will hold
NewCo Stock or their respective portions of the Former Employee Note as part of a straddle, hedge, conversion or
other integrated transaction) or any U.S. federal estate, gift or alternative minimum tax considerations. This
discussion does not address any U.S. state or local or non-U.S. tax considerations.
As used in this discussion, (i) the term U.S. Current Employee means a Current Employee who for U.S.
federal income tax purposes is a citizen or resident of the United States, (ii) the term Non-U.S. Current Employee
means a Current Employee who is not a U.S. Current Employee, (iii) the term U.S. Former Employee means a
Former Employee who for U.S. federal income tax purposes is a citizen or resident of the United States and (iv) the
term Non-U.S. Former Employee means a Former Employee who is not a U.S. Former Employee.
All Current Employees and Former Employees are urged to consult their own tax advisors regarding
the U.S. federal, state and local and non-U.S. tax considerations relating to the Current Employee Deferred
Bonus Modification, the Former Employee Deferred Bonus Modification and the ownership and disposition
of NewCo Stock and the Former Employee Note applicable to them in light of their particular circumstances.
EACH TAXPAYER IS HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL
TAX ISSUES IN THE OFFERING MEMORANDUM AND DISCLOSURE STATEMENT AND THIS
SUPPLEMENT THERETO IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED
BY THE TAXPAYER, FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON
THE TAXPAYER UNDER U.S. FEDERAL TAX LAW; (B) ANY SUCH DISCUSSION IS WRITTEN TO
SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS
ADDRESSED HEREIN; AND (C) THE TAXPAYER SHOULD SEEK ADVICE BASED ON ITS
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
A.

Certain U.S. Federal Income Tax Considerations Relating to Current Employees

Receipt of Cash and NewCo Stock in Satisfaction of Current Employee Deferred Bonus Obligations

Each Current Employee who agrees to the Deferred Bonus Modification Agreement will receive a certain
amount of Cash and NewCo Stock in satisfaction of his or her Current Employee Deferred Bonus Obligation. The
Debtors intend, for U.S. federal income tax purposes, to treat the full amount of the Current Employee Deferred
Bonus Obligation due to a Current Employee (whether paid in Cash or NewCo Stock) as a transfer of property, not
subject to a substantial risk of forfeiture, to such Current Employee in connection with the performance of services
in the taxable year of such Current Employee during which the Cash and NewCo Stock are delivered, and to report
in a manner consistent with such treatment. As a result, a U.S. Current Employee generally will be required to
include the amount reported by the Debtors described in the preceding sentence in such taxable year in determining
the amount of his or her U.S. federal income tax liability for such taxable year. Income earned in connection with
the performance of services by a Non-U.S. Current Employee generally will not be subject to U.S. federal income
tax if, among other circumstances, such income does not relate in any way to services performed by such Non-U.S.
Current Employee in the United States.
Payments of the Current Employee Deferred Bonus Obligation to each Current Employee will be reduced
by all withholding taxes applicable to such Current Employee. Such payments (after reduction for such withholding

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taxes) will be delivered within ten days of the Effective Date to such Current Employee as follows: (a) 50% of such
net amount in the form of Cash and (b) 50% of such net amount in the form of NewCo Stock.
Transfer Restrictions on NewCo Stock
In addition to other transfer restrictions in the Memorandum and Articles, a Current Employee will not be
permitted to transfer or dispose of any NewCo Stock received in connection with the satisfaction of the Current
Employee Deferred Bonus Obligations prior to the date on which NewCo Stock becomes publicly traded on an
established securities exchange, subject to any applicable lock-up restrictions in connection with NewCo Stock
becoming publicly traded. In the event, however, that a Current Employee ceases to be employed by the applicable
Debtor at any time and for any reason, NewCo has the right, but not the obligation, to repurchase some or all of such
Current Employees NewCo Stock at fair market value. Special rules under Section 83 of the Code generally apply
to the transfer of property to a person in connection with the performance of services if such property is transferred
subject to a substantial risk of forfeiture and certain transfer restrictions. The Debtors intend to treat the transfer of
NewCo Stock to a Current Employee in connection with the satisfaction of the Current Employee Deferred Bonus
Obligations as not subject to a substantial risk of forfeiture or such transfer restrictions as described in Section 83 of
the Code.
The discussion below under Ownership and Disposition of NewCo Stock assumes that the transfer of
NewCo Stock to a Current Employee in connection with the satisfaction of the Current Employee Deferred Bonus
Obligations is not subject to a substantial risk of forfeiture or certain transfer restrictions as described in Section 83
of the Code.
Ownership and Disposition of NewCo Stock
Although NewCo is organized as a corporate entity under Cayman Islands law, the Debtors intend to treat
NewCo as a partnership for U.S. federal income tax purposes as of the date of its formation. The U.S. federal
income tax considerations relating to the ownership and disposition of NewCo Stock are complex and subject to
uncertainties and, in certain circumstances, a Current Employee could be subject to special reporting requirements,
failure to comply with which may subject such Current Employee to substantial penalties. Current Employees are
urged to consult their own tax advisors regarding the U.S. federal income tax considerations relating to the
ownership and disposition of NewCo Stock.
Treatment as a Partnership. Because of NewCos partnership status for U.S. federal income tax purposes,
a Current Employee that owns NewCo Stock generally will be required to take into account his or her distributive
share of items of NewCos income, gain, loss, deduction or credit (which may include amounts such as actual or
deemed distributions received by NewCo or gain recognized by NewCo on actual or deemed dispositions of its
assets), regardless of whether NewCo distributes cash corresponding to such items. In addition, under the terms of
the Post-Restructuring Debt Facilities, the Debtors generally face restrictions on their ability to make distributions to
NewCo to enable it to make distributions to its equity holders while a loan under the Post-Restructuring Debt
Facilities remains outstanding. Therefore, it is possible that in any given year, a Current Employees U.S. federal
income or withholding tax liability arising from holding NewCo Stock could significantly exceed the distributions,
if any, made by NewCo to such Current Employee. NewCo intends to provide each Current Employee who owns
NewCo Stock with the necessary information to report his or her distributive share of NewCos items of income,
gain, loss, deduction or credit for U.S. federal income tax purposes. However, no assurance can be given that
NewCo will be able to provide such information prior to the initial due date of a Current Employees U.S. federal
income tax return, and a Current Employee who owns NewCo Stock may, therefore, be required to apply to the IRS
for an extension of time to file its U.S. federal income tax return.
Distributions on NewCo Stock. Distributions, if any, made by NewCo to a Current Employee in respect of
NewCo Stock generally will not be taxable to such Current Employee for U.S. federal income tax purposes.
However, to the extent that any cash distributed by NewCo to such Current Employee exceeds such Current
Employees adjusted tax basis in NewCo Stock immediately before the distribution, such Current Employee
generally will recognize gain that will be taxable in the manner described below under Certain U.S. Federal Income
Tax Considerations Relating to Current Employees and Former EmployeesCertain Tax Considerations Relating to

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U.S. Current EmployeesDisposition of NewCo Stock or Certain U.S. Federal Income Tax Considerations
Relating to Current Employees and Former EmployeesCertain Tax Considerations Relating to Non-U.S. Current
Employees, as the case may be. See pages 201 and 204
Certain Tax Considerations Relating to U.S. Current Employees.
(a)
Certain Restrictions on Deductibility of Expenses or Losses. A U.S. Current Employees
distributive share of NewCos expenses may be treated as miscellaneous itemized deductions, rather than trade or
business expenses, and accordingly such U.S. Current Employee may be limited in claiming a U.S. federal income
tax deduction for such expenses. In addition, if NewCo is treated as being engaged in a trade or business for U.S.
federal income tax purposes, certain U.S. tax rules relating to amounts at risk and passive activity losses could limit
the deductibility of losses derived by a U.S. Current Employee from investments in NewCo Stock.
(b)
Disposition of NewCo Stock. A U.S. Current Employee generally will be required to recognize
gain or loss on a disposition of his or her NewCo Stock in an amount equal to the difference between such U.S.
Current Employees amount realized and its adjusted tax basis in NewCo Stock disposed of. Subject to certain
exceptions, any gain or loss so recognized generally will be capital gain or loss and will be long-term capital gain or
loss if such U.S. Current Employee has held its NewCo Stock for more than one year at the time of such disposition.
Net long-term capital gain of a U.S. Current Employee is generally subject to preferential rates of tax. The
deductibility of capital losses is subject to limitations.
Certain Tax Considerations Relating to Non-U.S. Current Employees. Subject to the discussion below
under Certain Reporting Requirements, if a Non-U.S. Current Employee does not hold NewCo Stock in
connection with the conduct of a trade or business within the United States and NewCo is not treated as being
engaged in the conduct of a trade or business within the United States, then such Non-U.S. Current Employees
distributive share of NewCos income and his or her gain recognized as a result of a distribution on, or disposition
of, NewCo Stock generally will not be subject to U.S. federal income or withholding tax, unless, for example, (i)
NewCos income constitutes U.S. source income, which generally includes interest and dividend from a U.S.
corporation or (ii) such Non-U.S. Current Employee is present in the United States for 183 days or more during the
taxable year of such distribution or disposition and certain other conditions are met (in each case, subject to the
provisions of an applicable tax treaty). If NewCo were to engage in a trade or business within the United States, a
Non-U.S. Current Employees distributive share of NewCos income and his or her gain recognized as a result of a
distribution on, or disposition of, NewCo Stock may be subject to U.S. federal income and, under certain
circumstances, withholding tax. Because some of the Debtors are U.S. corporations, NewCos income from such
Debtors may be U.S. source income, which may subject a Non-U.S. Current Employee to U.S. federal income and
withholding tax.
Certain Reporting Requirements. Current Employees who own NewCo Stock may be subject to special
reporting requirements relating to their investment in NewCo Stock, and additional requirements may apply to
NewCo. Failure to comply with these requirements could subject certain Current Employees or NewCo to
substantial penalties. For example, a U.S. Current Employee may be required to file IRS Form 926 reporting certain
transfers by NewCo of cash or other property to its subsidiaries treated as foreign corporations for U.S. federal
income tax purposes. A U.S. Current Employee who, during any taxable year, holds any interest in any specified
foreign financial asset generally will be required to file with his or her U.S. federal income tax returns certain
information on IRS Form 8938 if the aggregate value of all such assets exceeds certain specified amounts. Specified
foreign financial asset may include NewCo Stock. Substantial penalties may be imposed in the event of a failure to
comply, if required. U.S. Current Employees who own NewCo Stock should consult their own tax advisors as to the
possible application to them of these requirements.
To avoid the imposition of a 30% U.S. federal withholding tax with respect to certain distributions from,
and gross proceeds from certain dispositions of, NewCos subsidiaries, NewCo may be required to enter into an
agreement (an FFI Agreement) with the IRS that would require NewCo to comply with certain reporting and
other requirements. A Current Employee may be required to provide certain information or take certain actions in
order to enable NewCo to comply with its FFI Agreement. A Current Employees failure to provide such

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information or take such actions may result in a 30% U.S. federal withholding tax being imposed with respect to
certain distributions from, and gross proceeds from certain dispositions of, NewCos subsidiaries.
B.

Certain U.S. Federal Income Tax Considerations Relating to Former Employees

Receipt of Cash and, if any, a Portion of the Former Employee Note in Exchange for Former Employee
Deferred Bonus Obligations

Each Former Employee who agrees to the Deferred Bonus Modification Agreement will receive in full
satisfaction of his or her Former Employee Deferred Bonus Obligation, based on such Former Employees election,
either (a) 80% of his or her Former Employee Deferred Bonus Obligation in Cash or (b) a portion of his or her
Former Employee Deferred Bonus Obligation in Cash and a portion of his or her Former Employee Deferred Bonus
Obligation in the form of a portion of the Former Employee Note.
Election to Receive Cash Only. If a Former Employee elects to receive 80% of his or her Former
Employee Deferred Bonus Obligation in Cash, the amount of such Cash will be reported by the Debtors as
compensation income earned in connection with the performance of services in the taxable year of such Former
Employee during which the Cash is paid. As a result, a U.S. Former Employee generally will be required to include
the amount reported by the Debtors described in the preceding sentence in gross income in such taxable year in
determining the amount of his or her U.S. federal income tax liability for such taxable year. Income earned in
connection with the performance of services by a Non-U.S. Former Employee generally will not be subject to U.S.
federal income tax if, among other circumstances, such income does not relate in any way to services performed by
such Non-U.S. Former Employee in the United States.
Payments of the Former Employee Deferred Bonus Obligation to each Former Employee will be reduced
by all withholding taxes applicable to such Former Employee. Such payments (after reduction for such withholding
taxes) will be delivered within ten days of the Effective Date to such Former Employee in Cash in an amount equal
to 80% of the Former Employee Deferred Bonus Obligation due to such Former Employee, reduced by all
applicable withholding taxes.
Election to Receive Cash and a Portion of the Former Employee Note. If, instead, a Former Employee
elects to receive a portion of his or her Former Employee Deferred Bonus Obligation in Cash and a portion in the
form of a portion of the Former Employee Note, the Debtors intend, for U.S. federal income tax purposes, to treat
the full amount of the Former Employee Deferred Bonus Obligation due to such Former Employee (whether paid in
Cash or in the form of a portion of the Former Employee Note) as compensation income earned in connection with
the performance of services in the taxable year of such Former Employee during which the Cash and Former
Employee Note are delivered, and to report in a manner consistent with such treatment. As a result, a U.S. Former
Employee generally will be required to include the amount reported by the Debtors described in the preceding
sentence in gross income in such taxable year in determining the amount of his or her U.S. federal income tax
liability for such taxable year. Income earned in connection with the performance of services by a Non-U.S. Former
Employee generally will not be subject to U.S. federal income tax if, among other circumstances, such income does
not relate in any way to services performed by such Non-U.S. Former Employee in the United States.
Payments of the Former Employee Deferred Bonus Obligation to each Former Employee will be reduced
by all withholding taxes applicable to such Former Employee. Such payments (after reduction for such withholding
taxes) will be delivered within ten days of the Effective Date to such Former Employee as follows: (a) 50% of such
net amount in the form of Cash and (b) 50% of such net amount in the form of a portion of the Former Employee
Note (with the result that the stated principal amount of such Former Employees portion of the Former Employee
Note will equal 50% of the excess of the Former Employee Deferred Bonus Obligation due to such Former
Employee over all applicable withholding taxes).
The discussion below under Ownership and Disposition of the Former Employee Note by U.S. Former
Employees and Ownership and Disposition of the Former Employee Note by Non-U.S. Former Employees
assumes that for U.S. federal income tax purposes a Former Employee is required to treat the stated principal
amount of his or her portion, if any, of the Former Employee Note received in connection with the satisfaction of his

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or her Former Employee Deferred Bonus Obligation as income in the taxable year of such Former Employee during
which the payments with respect thereto are made pursuant to the Recapitalization Plan or the Pre-Packaged Plan.
Ownership and Disposition of the Former Employee Note by U.S. Former Employees
Interest. In general, interest payable on the Former Employee Note will be taxable to a U.S. Former
Employee as ordinary interest income when it is received or accrued in accordance with such U.S. Former
Employees method of accounting for U.S. federal income tax purposes.
Sale, Exchange, Retirement or Other Disposition of the Former Employee Note. Upon the sale, exchange,
retirement or other disposition by a U.S. Former Employee of his or her portion of the Former Employee Note, such
U.S. Former Employee generally will recognize gain or loss in an amount equal to the difference between the
amount realized on such sale, exchange, retirement or other disposition (other than any amount attributable to
accrued interest, which, if not previously included in such U.S. Former Employees income, will be taxable as
interest income to such U.S. Former Employee) and such U.S. Former Employees adjusted tax basis in such
portion. Any gain or loss so recognized generally will be capital gain or loss and will be long-term capital gain or
loss if such U.S. Former Employee has held such portion for more than one year at the time of such sale, exchange,
retirement or other disposition. Net long-term capital gain of certain U.S. Former Employees is generally subject to
preferential rates of tax. The deductibility of capital losses is subject to limitations.
Information Reporting and Backup Withholding. Information reporting generally will apply to a U.S.
Former Employee with respect to payments of interest on, or proceeds from the sale, exchange, retirement or other
disposition of, such U.S. Former Employees portion of the Former Employee Note. Any such payments or
proceeds made to a U.S. Former Employee generally will also be subject to backup withholding, unless such U.S.
Former Employee provides the appropriate documentation (generally, IRS Form W-9) to Culligan International
certifying that, among other things, his or her taxpayer identification number (which would be such U.S. Former
Employees Social Security number) is correct. Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Former
Employees U.S. federal income tax liability if the required information is furnished by the U.S. Former Employee
on a timely basis to the IRS.
Ownership and Disposition of the Former Employee Note by Non-U.S. Former Employees
Interest, Principal, and Sale, Exchange, Retirement or Other Disposition of the Former Employee Note.
Subject to the discussion below concerning backup withholding, and provided a Non-U.S. Former Employee does
not hold his or her portion of the Former Employee Note in connection with the conduct of a trade or business
within the United States:
(a)

payments of principal and interest with respect to such Non-U.S. Former Employees portion of
the Former Employee Note generally will not be subject to U.S. federal income or withholding
tax; provided that, in the case of amounts treated as payments of interest, (i) such Non-U.S.
Former Employee does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of Culligan Internationals stock entitled to vote and (ii) the
certification requirements described below are satisfied; and

(b)

such Non-U.S. Former Employee generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale, exchange, retirement or other disposition of his
or her portion of the Former Employee Note, unless such Non-U.S. Former Employee is present in
the United States for 183 days or more during the taxable year of such sale, exchange, retirement
or other disposition and certain other conditions are met (in each case, subject to the provisions of
an applicable tax treaty).

The certification requirements referred to in clause (a)(ii) above generally will be satisfied if such Non-U.S.
Former Employee provides Culligan International or the other applicable withholding agent, if any, with a statement

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(generally on IRS Form W-8BEN) signed under penalties of perjury, stating, among other things, that such NonU.S. Former Employee is not a United States person.
If the requirements set forth in clause (a) above are not satisfied with respect to a Non-U.S. Former
Employee, amounts treated as payments of interest generally will be subject to U.S. federal withholding tax at a rate
of 30%, unless another exemption is applicable. For example, an applicable tax treaty may reduce or eliminate this
withholding tax if such Non-U.S. Former Employee provides the appropriate documentation (generally, IRS
Form W-8BEN) to Culligan International or the other applicable withholding agent, if any.
Information Reporting and Backup Withholding. Generally, amounts treated as payments of interest on the
Former Employee Note to a Non-U.S. Former Employee and the amount of any tax withheld from such payments
must be reported annually to the IRS and to such Non-U.S. Former Employee. The information reporting and
backup withholding rules that apply to payments of interest to a U.S. Former Employee generally will not apply to
amounts treated as payments of interest to a Non-U.S. Former Employee if such Non-U.S. Former Employee
certifies under penalties of perjury that he or she is not a United States person (generally by providing an IRS
Form W-8BEN). In addition, proceeds from the sale, exchange, retirement or other disposition by a Non-U.S.
Former Employee of his or her portion of the Former Employee Note generally will be subject to information
reporting and backup withholding, unless such Non-U.S. Former Employee certifies under penalties of perjury that
he or she is not a United States person (generally by providing an IRS Form W-8BEN).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules
generally will be allowed as a refund or a credit against a Non-U.S. Former Employees U.S. federal income tax
liability if the required information is furnished by such Non-U.S. Former Employee on a time.

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XXV.

LEGAL MATTERS

Culligan is being represented by Debevoise & Plimpton LLP, New York, New York, and Young Conaway
Stargatt & Taylor, LLP, Wilmington, Delaware.

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XXVI. INDEPENDENT ACCOUNTANTS

Culligans auditors are KPMG LLP, Chicago, Illinois.

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Exhibit I
Glossary of Terms
Administrative Claim

Any Claim against any Debtor for an administrative expense pursuant to

sections 328, 330, 363, 365, 503(b), 507(a)(2) or 507(b) of the Bankruptcy
Code, including (a) the actual and necessary costs and expenses incurred after
the Commencement Date and through the Effective Date of preserving the
Estates and operating the businesses of the Debtors, (b) any indebtedness or
obligations incurred or assumed by the Debtors during the Chapter 11 Cases,
(c) any amount required to be paid under section 365(b)(1) of the Bankruptcy
Code in connection with the assumption of executory contracts or unexpired
leases, (d) Professional Fee Claims and (e) fees, if any, due to the United States
Trustee under 28 U.S.C. 1930(a)(6).

Allowed

With reference to any Claim or Interest: (a) any Claim or Interest listed in the
Debtors book and records as due and owing and as to which no objection to
allowance has been interposed (either in the Bankruptcy Court or in the
ordinary course of business) on or before the applicable period of limitation
fixed by the Pre-Packaged Plan, Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court, or as to which any objection has been determined by a Final
Order, either before or after the Effective Date, to the extent such objection is
determined in favor of the respective holder; (b) any Claim or Interest as to
which any objection has been settled, waived, withdrawn or denied by Final
Order, (c) any Claim or Interest as to which the liability of the Debtors and the
amount thereof are determined by a Final Order of a court of competent
jurisdiction other than the Bankruptcy Court, either before or after the
Effective Date; (d) if there are any Schedules, any Claim or Interest listed by a
Debtor in the Schedules, as such Schedules may be amended by the Debtors
from time to time in accordance with Bankruptcy Rule 1009, as liquidated in
amount and not disputed or contingent and for which no contrary proof of
Claim has been filed, or (e) any Claim or Interest expressly deemed allowed by
the Pre-Packaged Plan. Allowed in reference to such Claim or Interest shall
not include, unless otherwise set forth herein, (i) any interest on the amount of
such Claim or Interest accruing from and after the Commencement Date, (ii)
any punitive or exemplary damages, or (iii) any fine, penalty or forfeiture.
Any Claim listed in the Schedules as disputed, contingent, or unliquidated, and
for which no proof of Claim has been timely filed, is not considered Allowed
and shall be expunged without further action and without any further notice to
or action, order, or approval of the Bankruptcy Court.

Amended First Lien Facility

The Amended and Restated Credit Agreement, to be entered into on the

Effective Date, among Culligan Investments, Culligan International and the
several Lenders from time to time party thereto, the exact principal amount of
which shall, on the Effective Date, equal principal amount and accrued interest
outstanding under the First Lien Credit Agreement immediately prior to the
Effective Date and prior to giving effect to the First Lien Paydown, less
$355,000,000 (i.e., the amount of the First Lien Paydown plus the principal
amount of the New Second Lien Facility), and having terms and conditions
substantially similar to the draft set forth as Annex H to the Offering
Memorandum and Disclosure Statement.

Backstop Agreement

The Backstop Agreement, dated as of the date of this Offering Memorandum

and Disclosure Statement, among Culligan Ltd. and the Backstop Purchasers
and attached as Annex G to the Offering Memorandum and Disclosure

23633137v19

D-1

Statement.
Backstop Purchasers

Centerbridge Special Credit Partners, L.P., CCP Credit Acquisition Holdings,

LLC and CCP Acquisition Holdings, LLC, and/or one or more of their
respective affiliates and assigns, in each case, to the extent permitted under the
Backstop Agreement.

Ballot

A ballot to vote to accept or reject the Pre-Packaged Plan.

Bankruptcy Code

Title 11 of the United States Code, as now in effect and as may hereafter be
amended from time to time.

Bankruptcy Rules

The Federal Rules of Bankruptcy Procedure, as applicable to the Chapter 11

Cases, promulgated pursuant to 28 U.S.C. 2075, together with the local rules
of the Bankruptcy Court.

Business Day

Any day, other than a Saturday, a Sunday or a legal holiday, as defined in

Bankruptcy Rule 9006(a).

Cash

The legal tender of the United States of America.

Causes of Action

All actions, causes of action, Claims, liabilities, obligations, rights, suits, debts,
damages, judgments, remedies, demands, setoffs, defenses, recoupments, cross
claims, counterclaims, third-party claims, indemnity claims, contribution
claims or any other claims disputed or undisputed, suspected or unsuspected,
foreseen or unforeseen, direct or indirect, choate or inchoate, existing or
hereafter arising, in law, equity or otherwise, based in whole or in part upon
any act or omission or other event occurring prior to the Commencement Date
or during the course of the Chapter 11 Cases, including through the Effective
Date and also includes, without limitation: (a) any right of setoff, counterclaim
or recoupment and any claim on contracts or for breaches of duties imposed by
law or in equity; (b) the right to object to Claims or Interests; (c) any claim
pursuant to section 362 of the Bankruptcy Code; (d) any claim or defense
including fraud, mistake, duress and usury and any other defenses set forth in
section 558 of the Bankruptcy Code; and (e) any and all actual or potential
claims and causes of action to avoid a transfer of property or an obligation
incurred by the Debtors pursuant to any applicable section of the Bankruptcy
Code, including sections 502, 510, 542, 544, 545, 547 through 553, and 724(a)
of the Bankruptcy Code or under similar or related state or federal statutes and
common law, including fraudulent transfer laws.

CD&R

Clayton, Dubilier & Rice, LLC and its affiliates.

Centerbridge

As applicable, Centerbridge Partners, L.P., Centerbridge Special Credit Parties,

L.P., CCP Credit Acquisition Holdings, L.L.C. and/or CCP Acquisition
Holdings, LLC.

Chapter 11 Cases

The chapter 11 cases that may be commenced by the Debtors if the Company,
subject to the terms of the Restructuring Support Agreement, determines to
consummate the Restructuring through the Pre-Packaged Plan.

Claim

Any claim against any Debtor within the meaning of section 101(5) of the
Bankruptcy Code.

Commencement Date

The date on which each of the respective Debtors files a voluntary petition for
relief under chapter 11 of the Bankruptcy Code, if the Company, subject to the

23633137v19

terms of the Restructuring Support Agreement, determines to consummate the

Restructuring through the Pre-Packaged Plan.
Company

Culligan.

Confirmation Date

If the Company, subject to the terms of the Restructuring Support Agreement,

determines to consummate the Restructuring through the Pre-Packaged Plan,
the date on which the clerk of the Bankruptcy Court enters the Confirmation
Order on the docket of the Chapter 11 Cases.

Confirmation Order

If the Company, subject to the terms of the Restructuring Support Agreement,

determines to consummate the Restructuring through the Pre-Packaged Plan,
the order entered by the Bankruptcy Court confirming the Pre-Packaged Plan
in accordance with the provisions of chapter 11 of the Bankruptcy Code, which
must be in form and substance satisfactory to the Debtors and the Initial
Lenders.

Consents

The consent form for participation in the Offerings.

Culligan

Culligan Investments and its subsidiaries.

Culligan Holding

Culligan Holding S.r.l., a Luxembourg socit responsibilit limite, and its

subsidiaries.

Culligan International

Culligan International Company, a Delaware corporation.

Culligan Investments

Culligan Investments S.r.l., a Luxembourg socit responsibilit limite.

Current Employee

Any person employed by the Company as of May 15, 2012 who has a claim to
a vested bonus arising under, or relating to, the Special Bonus Plan.

23633137v19

Current Employee Cash

Amount

With respect to each holder of an Allowed Current Employee Deferred Bonus

Claim, Cash in an amount equal to fifty percent (50%) of such holders
Allowed Current Employee Deferred Bonus Claim, net of applicable
withholding taxes.

Current Employee Deferred

Bonus Claims

All Claims of any Person employed by the Debtors as of May 15, 2012 arising
under, or relating to, the Special Bonus Plan.

Current Employee Deferred

Bonus Obligations

All obligations owed to Current Employees under the Special Bonus Plan.

Current Employee NewCo

Stock Amount

With respect to each holder of an Allowed Current Employee Deferred Bonus

Claim, NewCo Stock, subject to dilution for the Management Incentive Plan,
with a value, based on the assumed equity value upon which the Rights
Offering is based (and subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, which begins on
page 68, and dilution for the Management Incentive Plan), equal to fifty
percent (50%) of such holders Claim, net of applicable withholding taxes.

Debtors

If the Company determines to consummate the Restructuring through the PrePackaged Plan, Culligan International Company; Colorado Water
Technologies, Inc; Culligan Dealer Co., LLC; Culligan Finance Corporation
B.V.; Culligan Holding Company B.V.; Culligan Holding Inc.; Culligan
Holding S.r.1; Culligan International S. r.1; Culligan Investments S. r.1;
Culligan of Canada, Ltd.; Culligan of Florida, Inc.; Culligan Sales Company,
LLC; Culligan Store Solutions, LLC; Culligan Transport, Inc.; Culligan (UK)
Limited; Culligan Water Company, LLC; Culligan Water Company of
Connecticut, Inc.; Culligan Water Company of Delaware, Inc.; Culligan Water
Company of Indiana, Inc.; Culligan Water Company of Maryland, Inc.;
Culligan Water Company of Michigan, Inc.; Culligan Water Company of
Nebraska, Inc.; Culligan Water Company of Nevada, Inc.; Culligan Water
Company of New England, LLC; Culligan Water Company of New Jersey,
Inc.; Culligan Water Company of New York, Inc.; Culligan Water Company of
Northern California, Inc.; Culligan Water Company of Ohio, Inc.; Culligan
Water Company of Pennsylvania, Inc.; Culligan Water Company of Rhode
Island, Inc.; Culligan Water Company of San Diego, Inc.; Culligan Water
Company of Tennessee, Inc.; Culligan Water Company of Virginia, Inc.;
Culligan Water Company of Washington, Inc.; Culligan Water Conditioning,
LLC; Culligan Water Conditioning of Orange County; CWC Finance Corp.;
CWC International, Inc.; Greater Culligan of Texas, Inc.; Hydrotech, Inc.;
Petwa Ltd.; Puro Water Group, Inc.; Santa Barbara Dealership Property, Inc.;
Ultra Pure Systems, Inc.; WaterGroup Companies Inc.; and WaterGroup Inc. in
their capacity as debtors and debtors in possession under chapter 11 of the
Bankruptcy Code.

Deferred Bonus Modifications

The Current Employee Deferred Bonus Modification and the Former

Employee Deferred Bonus Modification

Deferred Bonus Modification

Agreement

The Deferred Bonus Modification Agreement to be entered into by NewCo and

each Current Employee and each Former Employee, which governs the
proposed treatment of the Current Employee Deferred Bonus Obligations and
the Former Employee Deferred Bonus Obligations, and pursuant to which, the
Current Employees consent to the Current Employee Deferred Bonus
Modification and the Former Employees Consent to the Former Employee
Deferred Bonus Modification and make their elections thereunder.

23633137v19

Disputed

With respect to any Claim or Interest, any (a) Claim or Interest, if there are
Schedules, that is listed on the Schedules as unliquidated, disputed, or
contingent, (b) Claim or Interest as to which the Debtors or any other party in
interest have interposed a timely objection or request for estimation in
accordance with the Bankruptcy Code, the Bankruptcy Rules and any orders of
the Bankruptcy Court or which is otherwise disputed in accordance with
applicable law, which objection, request for estimation or dispute has not been
withdrawn or determined by Final Order, (c) any Claim or Interest evidenced
by a proof of claim or interest which amends a Claim or Interest scheduled by
the Debtors as contingent, unliquidated, or disputed, or (d) any Claim or
Interest, or any portion thereof, that is not Allowed.

DSUs

Deferred Share Units of Culligan Ltd.

Effective Date

The first business day after the date on which all of the conditions to the
Recapitalization Plan or the Pre-Packaged Plan, as applicable, have been
satisfied or waived by the required parties and the Restructuring is
consummated.

Employee Compensation Grant

Agreement

The Employee Compensation Grant Agreement to be entered into by NewCo

and Current Employee pursuant to which NewCo shall issue NewCo Stock to
such Current Employee.

Entity

An entity as defined in section 101(15) of the Bankruptcy Code.

Equity Separation Agreement

As to each applicable Former Employee, the Stock, Deferred Bonus, Option

Exercise and Deferred Share Unit Cancellation Agreement to which the
Former Employee and the Company are parties.

Estate

As to each Debtor, the estate created pursuant to section 541(a) of the

Bankruptcy Code upon the commencement of its Chapter 11 Case, if the
Company determines, in accordance with the terms of the Restructuring
Support Agreement, to consummate the Restructuring through the PrePackaged Plan.

Existing Credit Facilities

The First Lien Facility, the Second Lien Facility and the Revolving Credit
Facility.

Existing Equity Interests

All interests in Culligan Investments, whether characterized as equity or debt

under local law, issued and outstanding immediately prior to the Effective
Date.

Existing Equityholder

Culligan Ltd., a Bermuda limited company, in its capacity as the direct parent
and sole equityholder of Culligan Investments.

Existing Intercreditor
Agreement

The Intercreditor Agreement, dated as of May 24, 2007, by and between the
First Lien Agent, the Second Lien Agent, and the Revolving Agent as
amended, supplemented, or modified from time to time.

Final Order

A judgment, order, ruling or other decree issued and entered by the Bankruptcy
Court that has not been reversed, vacated or stayed and (a) as to which (i) the
time to appeal, petition for certiorari, or move for reargument or rehearing has
expired and no appeal, petition for certiorari, or other proceedings for
reargument or rehearing shall then be pending or (ii) any right to appeal,
petition for certiorari, reargue, or rehear shall have been waived in writing in
form and substance satisfactory to the Debtors and Centerbridge or (b) in the

23633137v19

event that an appeal, writ of certiorari, or reargument or rehearing thereof has

been sought, such appeal, petition for certiorari, or motion for reargument or
rehearing shall have been resolved by the highest court to which such
judgment, order, ruling or other decree was appealed or from which certiorari
was sought and the time to take any further appeal, petition for certiorari or to
move for reargument or rehearing shall have expired; provided, however, that
the possibility that a motion under Rule 59 or 60 of the Federal Rules of Civil
Procedure or any analogous rule under the Bankruptcy Rules may be filed with
respect to such order shall not cause such order not to be a Final Order.
First Lien Agent

Bank of America, N.A., in its capacity as successor administrative agent and

collateral agent under the First Lien Facility.

First Lien Credit Agreement

The Credit Agreement, dated as of May 24, 2007, among Culligan

International, as Borrower, Culligan Holding, as Parent, the First Lien Lenders,
the First Lien Agent, BNP Paribas, as Syndication Agent, and LaSalle Bank
National Association and Natixis as Co-Documentation Agents, as amended,
supplemented, or modified from time to time prior to the Effective Date.

First Lien Debt

Obligations owed under the First Lien Credit Agreement.

First Lien Exchange Offer

The offer to exchange each First Lien Lenders pro rata share of the First Lien
Debt for a Pro Rata share of the First Lien Paydown, the New Second Lien
Facility and the Amended First Lien Facility.

First Lien Facility

The dollar loans in the amount of $530 million and the euro loans in the
amount of 25 million under the First Lien Credit Agreement.

First Lien Lender Claims

All Claims of the First Lien Lenders and the First Lien Agent arising under,
relating to, or in connection with the First Lien Credit Agreement and any
guarantee, security agreement or other agreement executed in connection
therewith, including, without limitation, all accrued and unpaid interest and any
fees and expenses (including fees and expenses of attorneys and advisors)
owing thereunder through the Effective Date.

First Lien Lenders

The several lenders from time to time party to the First Lien Credit Agreement.

First Lien Paydown

A repayment of the First Lien Debt, paid in cash on the Effective Date, in the
amount of $180 million.

First Lien Paydown Amount

Cash in the amount of $180 million, to be used on the Effective Date to satisfy
a portion of the First Lien Lender Claims, with such amount being first applied
to satisfy First Lien Lender Claims of accrued but unpaid interest under the
First Lien Credit Agreement, and then to outstanding principal thereunder.

Former Employee

Any person who has a claim to a vested bonus arising under, or relating to, the
Special Bonus Plan who was formerly employed by the Company or its
subsidiaries but who is not a Current Employee.

Former Employee Adjusted

Cash Amount

With respect to each holder of an Allowed Former Employee Deferred Bonus

Claim, Cash in an amount equal to 50% of such holders Allowed Former
Employee Deferred Bonus Claim, net of applicable withholding taxes.

Former Employee Cash

Amount

With respect to each holder of an Allowed Former Employee Deferred Bonus

Claim, Cash in an amount equal to 80% of such holders Allowed Former

23633137v19

Employee Deferred Bonus Claim, net of applicable withholding taxes.

Former Employee Deferred
Bonus Claim

All Claims of any Person formerly employed by the Debtors arising under, or
relating to, the Special Bonus Plan.

Former Employee Deferred

Bonus Obligations

All obligations owed to Former Employees under the Special Bonus Plan.

Former Employee Note

A promissory note in the amount of $2.759 million less 62.5% of the pre-tax
amount of the aggregate Cash amount paid by the Debtors or the Reorganized
Debtors to Former Employees who elect the 80% cash option for treatment of
their Former Employee Deferred Bonus Obligations, which note shall be an
unsecured seven-year note with a 5% cash coupon junior in payment and
priority to the New Revolving Facility, the Amended First Lien Facility, the
New Second Lien Facility and the New Bridge Loan.

Former Employee Note Amount

An electing Former Employees transferable proportionate participation in the

Former Employee Note.

Governmental Unit

Any domestic, foreign, provincial, federal, state, local or municipal

(a) government, (b) governmental agency, commission, department, bureau,
ministry or other governmental entity, (c) natural resource trustee agency or (d)
any other governmental unit as defined in section 101(27) of the Bankruptcy
Code.

Initial Lenders

Silver Oak Capital, L.L.C. (and any of its designees), Centerbridge Special
Credit Partners, L.P., CCP Credit Acquisition Holdings, L.L.C. and CCP
Acquisition Holdings, LLC.

Insurance Policies

Any insurance policies, insurance settlement agreements, coverage-in-place

agreements or other agreements related to the provision of insurance entered
into by or issued to or for the benefit of any of the Debtors or their
predecessors.

Intercompany Claim

(a) Any account reflecting intercompany book entries by one Debtor with
respect to any other Debtor, (b) any Claim that is not reflected in such book
entries and is held by a Debtor against any other Debtor, including any Claim
arising from an intercompany note or similar instrument, and (c) any other
Claim of any Debtor against any other Debtor.

Interest

The interest of any holder of equity securities in any Debtor, or any affiliate of
any Debtor, that is represented by any issued and outstanding common stock,
preferred stock, limited liability company interest, partnership interest, or any
other instrument evidencing an ownership interest in such Debtor prior to the
Effective Date (including prior to the Commencement Date), whether or not
transferable, and any restricted stock units, calls, rights, puts, awards,
commitments, repurchase rights, unvested or unexercised options, rights of
conversion, warrants, unvested common interests, unvested preferred interests
or any other agreements of any character related to the common or preferred
interests of any such Debtor, obligating any such Debtor to issue, transfer,
purchase, redeem, or sell any equity interests or other equity securities, any
rights under any equity incentive plans, voting agreements and registration
rights agreements regarding equity securities of any such Debtor, or any
affiliate of such Debtor, any preferred equity certificates and the rights
associated therewith of any such Debtor or any affiliate of such Debtor, any
claims arising from the rescission of a purchase, sale or other acquisition of

23633137v19

any outstanding common stock, preferred stock or other equity securities (or
any right, claim, or interest in and to any common stock, preferred stock or
other equity securities) of any such Debtor or any affiliate of such Debtor, any
Claims for the payment of any distributions with respect to any common stock,
preferred stock, or other equity interests in or securities of such Debtor, and
any claims for damages or any other relief arising from the purchase, sale, or
other acquisition of any such Debtors or such Debtors affiliates outstanding
common stock, preferred stock, or other equity interests or securities.
Lien

As defined in section 101(37) of the Bankruptcy Code; except that a lien that
has been avoided in accordance with section 544, 545, 546, 547, 548 or 549 of
the Bankruptcy Code shall not constitute a Lien.

Management Incentive Plan

The management equity incentive plan of the Reorganized Debtors which shall
provide for grants of options and/or restricted units/equity reserved for
management, directors and employees for up to (at the New Board of Directors
of NewCos option) 15% of NewCo Stock, with time-based vesting to be
effective as of the Effective Date on terms determined by the New Board of
Directors of NewCo. The amount, form, exercise price, allocation and vesting
of equity awards under the Management Incentive Plan, and any limitations
thereon, shall be determined and approved by Centerbridge. The terms of the
Management Incentive Plan shall be designed to ensure the Reorganized
Debtors do not become subject to the reporting requirements of the U.S.
Securities and Exchange Commission.

Memorandum and Articles

The amended and restated Memorandum and Articles of Association of

NewCo to be adopted on the Effective Date.

NACOD

North American Company-Owned Dealers.

New Board of Directors of

NewCo

The new board of directors of NewCo immediately following the

Restructuring, comprised of seven members initially chosen by Centerbridge.

New Bridge Loan

The unsecured subordinated bridge loan in an estimated principal amount of up

to $10.5 million (subject to reduction as set forth in The Restructuring
Potential Adjustments to Equity Ownership, which begins on page 68), the
terms of which are set forth in the New Bridge Loan Notes.

New Bridge Loan Notes

The promissory notes issued by Culligan International to certain Second Lien

Lenders having terms and conditions which are set forth in the term sheet
attached as Annex K to the Offering Memorandum and Disclosure Statement

New Directors
New Intercreditor Agreement

New Revolving Facility

23633137v19

Each of the members of the New Board of Directors of NewCo.

The intercreditor agreement to be entered into as of the Effective Date by each
of the administrative agents for the Post-Restructuring Debt Facilities and
acknowledged by the Reorganized Debtors.
The New Revolving Credit Agreement, to be entered into on the Effective
Date, among Culligan Investments, Culligan International and the several
Lenders from time to time party thereto, amending and restating the Revolving
Credit Agreement or pursuant to new documentation, and having terms and
conditions as set forth in the term sheet attached as Annex J to the Offering
Memorandum and Disclosure Statement.

New Second Lien Facility

The new Second Lien Credit Agreement, in a principal amount of $175

million, to be entered into on the Effective Date, among Culligan Investments,
Culligan International and the several lenders from time to time party thereto
and having terms and conditions substantially similar to the draft set forth as
Annex I to the Offering Memorandum and Disclosure Statement.

NewCo

Culligan Newco Ltd., a Cayman Islands limited company formed and, before
consummation of the Restructuring, wholly-owned by the Existing
Equityholder, which will become the parent company of Culligan Investments,
and the indirect parent of all other entities making up the Company, as a result
of the Restructuring.

NewCo Assumed Liabilities

Any and all liabilities and obligations (whether contingent or otherwise) of

Culligan Ltd. under the Power of Attorney, dated May 8, 2012, made by
Culligan Ltd. to appoint Walkers Nominees Limited to undertake certain
matters in respect of, or relating to, NewCo (whether prior to or after its
formation) and any and all liabilities and obligations (whether contingent or
otherwise) of Culligan Ltd. owed or due to Culligan Investments or any of its
direct or indirect subsidiaries; provided, for the avoidance of doubt, that the
obligations of Culligan Ltd., the Company and NewCo and its subsidiaries to
be carried out at the consummation of the Restructuring shall not be affected
by such assumption; and further provided that the NewCo Assumed Liabilities
shall not include any liabilities or obligations (contingent or otherwise) owed
or due to any person other than Culligan Investments or any of its direct or
indirect subsidiaries.

NewCo Governing Documents

The Memorandum and Articles, and any other governing corporate document
with respect to NewCo.

NewCo Stock

The shares of NewCo, par value $0.01 per share.

NewCo Transferred Receivables

Any and all liabilities and obligations (whether contingent or otherwise) of

NewCo, Culligan Investments or any of its direct or indirect subsidiaries owed
or due to the Existing Equityholder, other than obligations arising directly from
the Restructuring (including the contemplated Cash payment of $474,193, the
retention by the Existing Equityholder following implementation of the
Restructuring of 2.27%, subject to adjustment as set forth in The
RestructuringPotential Adjustments to Equity Ownership, of NewCo Stock,
and the contemplated releases); provided, for the avoidance of doubt, that the
obligations of Culligan Ltd., the Company and NewCo and its subsidiaries to
be carried out at the consummation of the Restructuring shall not be affected
by such assignment.

Offering Memorandum and

Disclosure Statement

This Offering Memorandum and Disclosure Statement dated as of May 15,

2012, as it may be amended, modified or supplemented from time to time.

Offerings

The First Lien Exchange Offer and the Second Lien Exchange Offer.

Plan Supplement

If the Company determines, in accordance with the terms of the Restructuring

Support Agreement, to consummate the Restructuring through the PrePackaged Plan, one or more separate volumes, to be filed with the clerk of the
Bankruptcy Court, including, among other things, the designation of the New
Board, and all of which shall be in form and substance acceptable to the
Debtors and the Initial Lenders, in each case, to the extent set forth in the
Restructuring Support Agreement. If the Chapter 11 Cases are filed, in
accordance with the terms of the Restructuring Support Agreement, the Plan

23633137v19

Supplement will be filed with the clerk of the Bankruptcy Court as early as
practicable, but in no event later than 10 days prior to the commencement of
the Confirmation Hearing or on such other date as the Bankruptcy Court may
establish.
Post-Restructuring Debt
Facilities

The Amended First Lien Facility, the New Revolving Facility Documents, the
New Second Lien Facility and the New Bridge Loan.

Pre-Packaged Plan

The Joint Pre-Packaged Plan of Reorganization of the Debtors, attached hereto

as Annex A.

Priority Tax Claim

Any Claim for any Tax to the extent that it is entitled to priority in payment
under sections 502(i) and 507(a)(8) of the Bankruptcy Code.

Pro Rata

If the Company determines to consummate the Restructuring through the

Recapitalization Plan, Pro Rata means, with respect to any distribution
pursuant to the Recapitalization Plan on account of an obligation of the
Company, proportionately, so that the ratio of (a) (i) the amount of property
distributed to a holder of an obligation on account of such obligation to (ii) the
total amount distributed by the Company on account of such obligation, is the
same as the ratio of (b) (i) the amount of such holders obligation to (ii) the
total amount of such obligation.
If the Company determines to consummate the Restructuring through the PrePackaged Plan, Pro Rata means, with respect to any distribution in respect of
any Allowed Claim or Interest, proportionately, so that the ratio of (a) (i) the
amount of property distributed on account of such Allowed Claim or Interest to
(ii) the amount of such Allowed Claim or Interest, is the same as the ratio of
(b) (i) the amount of property distributed on account of all Allowed Claims or
Interest of the Class or Classes sharing in such distribution to (ii) the amount of
all Allowed Claims or Interest in such Class or Classes.

Professional Fee Claim

If the Company determines, in accordance with the terms of the Restructuring

Support Agreement, to consummate the Restructuring though the Pre-Packaged
Plan, any Claim against any Debtor asserted by a Professional for
compensation or reimbursement of fees and expenses arising pursuant to
sections 327, 328, 329, 330, 331, 363 or 1103 of the Bankruptcy Code in
connection with the Chapter 11 Cases for services provided or expenses
incurred on or after the Commencement Date and prior to and including the
Effective Date.

Released Claims

Any claims and causes of action based on or relating to, or in any manner
arising from, in whole or in part, the Company, the Restructuring, the
Recapitalization Plan, the Chapter 11 Cases, the Restructuring Support
Agreement, the Offering Memorandum and Disclosure Statement, the PrePackaged Plan, the purchase sale or rescission of the purchase or sale of any
security of the Company or NewCo, the subject matter of, or the transactions or
events giving rise to, the business or contractual arrangements between the
Company and any of the Released Parties, the negotiation, formulation or
preparation of the Restructuring Support Agreement, the Pre-Packaged Plan
the Offering Memorandum and Disclosure Statement or related agreements,
instruments or other documents, or upon any other act or omission, transaction,
agreement, event or other occurrence related thereto taking place on or before
the Effective Date.

23633137v19

10

Released Party

If the Company determines to consummate the Restructuring through the PrePackaged Plan: (a) each of the Debtors, NewCo and the Reorganized Debtors,
and each such Entities current and former direct and indirect equityholders,
subsidiaries, affiliates, members, managing members, funds, managers,
officers, directors, agents, financial advisors, principals, accountants,
investment bankers, consultants, attorneys, professionals, partners and other
representatives (and each of their direct and indirect equityholders,
subsidiaries, affiliates, members, managing members, funds, managers,
officers, directors, agents, financial advisors, principals, accountants,
investment bankers, consultants, attorneys, professionals, partners and other
representatives); (b) the Initial Lenders; (c) the Existing Equityholder; (d) the
First Lien Lenders; (e) the First Lien Agent, (f) the Second Lien Lenders; (g)
the Second Lien Agent, (h) the Revolving Lenders, (i) the Revolving Agent,
and (j) the Backstop Purchasers and (k) with respect to each of the foregoing
Entities in clauses (b) through (j), such Entities current and former direct and
indirect equityholders, subsidiaries, affiliates, members, managing members,
funds, managers, officers, directors, agents, financial advisors, principals,
accountants, investment bankers, consultants, attorneys, professionals,
employees, partners and other representatives (and each of their direct and
indirect equityholders, subsidiaries, affiliates, members, managing members,
funds, managers, officers, directors, agents, financial advisors, principals,
accountants, investment bankers, consultants, attorneys, professionals,
employees, partners and other representatives), in each case with respect to (a)
through (k), in their capacity as such, but excluding any holder of a Claim or
Interest, entitled to vote to accept or reject the Pre-Packaged Plan, which does
not vote to accept the Pre-Packaged Plan.
If the Company determines to consummate the Restructuring through the
Recapitalization Plan, each of: (a) the Company and each of such Entities
current and former direct and indirect equityholders, subsidiaries, affiliates,
members, managing members, funds, managers, officers, directors, agents,
financial advisors, principals, accountants, investment bankers, consultants,
attorneys, professionals, partners and other representatives (and each of their
direct and indirect equityholders, subsidiaries, affiliates, members, managing
members, funds, managers, officers, directors, agents, financial advisors,
principals, accountants, investment bankers, consultants, attorneys,
professionals, partners and other representatives); (b) the current and former
directors and officers of the Debtors; (c) the Existing Equityholder; (d) the
Initial Lenders; (e) the First Lien Lenders; (f) the Second Lien Lenders; and (g)
the Backstop Purchasers, and (h) with respect to each of the foregoing Entities
in clauses (b) through (g), such Entities direct and indirect equityholders,
subsidiaries, affiliates, members, managing members, funds, managers,
officers, directors, agents, financial advisors, principals, accountants,
investment bankers, consultants, attorneys, professionals, employees, partners
and other representatives (and each of their direct and indirect equityholders,
subsidiaries, affiliates, members, managing members, funds, managers,
officers, directors, agents, financial advisors, principals, accountants,
investment bankers, consultants, attorneys, professionals, employees, partners
and other representatives), in each case with respect to (a) through (h), in their
capacity as such.

Reorganized

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With respect to the Debtors (if the Company determines to consummate the
Restructuring through the Pre-Packaged Plan), any Debtor or any successor
thereto, by merger, consolidation or otherwise, on or after the Effective Date.

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Revolving Agent

Bank of America, N.A. in its capacity as successor administrative agent and

collateral agent under the Revolving Credit Agreement.

Revolving Credit Agreement

The Revolving Credit Agreement, dated as of May 24, 2007, among Culligan
International, as Borrower, Culligan Holding, as Parent, the foreign subsidiary
borrowers from time to time party thereto, the Revolving Lenders, the
Revolving Agent, BNP Paribas, as Syndication Agent, and LaSalle Bank
National Association as Issuing Lender and Co-Documentation Agent and
Natixis as Co-Documentation Agent as amended, supplemented or modified
from time to time prior to the Effective Date.

Revolving Debt

Obligations owed under the Revolving Credit Agreement.

Revolving Facility

The dollar loans in the aggregate commitment amount of $110 million under
the Revolving Credit Agreement.

Revolving Lender Claims

All Claims of the Revolving Lenders and the Revolving Agent against any
Debtor arising under, relating to, or in connection with the Revolving Credit
Agreement and any guarantee, security agreement or other agreement executed
in connection therewith, including, without limitation, issued and undrawn
letters of credit, all accrued and unpaid interest and any fees and expenses
(including fees and expenses of attorneys and advisors) owing thereunder
through the Effective Date.

Revolving Lenders

The lenders from time to time party to the Revolving Credit Agreement.

Rights Offering

The offering of the Subscription Rights (a) to the holders of Allowed Second
Lien Lender Claims in accordance with the procedures set forth in the
Subscription Approval Order or (b) pursuant to the Second Lien Exchange
Offer.

Second Lien Agent

Wilmington Trust, National Association, in its capacity as successor

administrative agent and collateral agent under the Second Lien Facility.

Second Lien Credit Agreement

The Second Lien Credit Agreement, dated as of May 24, 2007, among Culligan
International, as Borrower, Culligan Holding, as Parent, the Second Lien
Lenders, the Second Lien Agent, BNP Paribas, as Syndication Agent, and
LaSalle Bank National Association and Natixis as Co-Documentation Agents
as amended, supplemented, or modified from time to time.

Second Lien Debt

Obligations owed under the Second Lien Credit Agreement.

Second Lien Facility

The Euro term loan in the amount of 175 million under the Second Lien
Credit Agreement.

Second Lien Lender Claims

All Claims of the Second Lien Lenders and the Second Lien Agent against any
Debtor arising under the Second Lien Credit Agreement and any guarantee,
security agreement or other agreement executed in connection therewith,
including, without limitation, all accrued and unpaid interest and any fees and
expenses (including fees and expenses of attorneys and advisors) owing
thereunder through the Commencement Date.

Second Lien Lenders

The several lenders from time to time party to the Second Lien Credit
Agreement.

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Secured Claim

Any Claim of any Person that is secured by a Lien on property in which the
Estate of any Debtor against which the Claim is asserted has an interest (which
Lien is valid, perfected and enforceable pursuant to applicable law or by reason
of a Bankruptcy Court order) (a) to the extent of the value of such Persons
interest in such Estates interest in the property, determined pursuant to section
506(a) of the Bankruptcy Code, or (b) subject to setoff under section 553 of the
Bankruptcy Code, to the extent of the value of the property subject to setoff.
The First Lien Lender Claims and the Second Lien Lender Claims are Secured
Claims.

Securities Act

The Securities Act of 1933, as amended.

Solicitation, Voting and

Exchange Agent

GCG, Inc., located at 190 South LaSalle Street, Suite 1520, Chicago, Illinois
60603.

Special Bonus Plan

The 2007 Special Bonus Plan adopted by the Board of Directors of Culligan
Ltd. on May 9, 2007.

Subscription Approval Order

The order of the Bankruptcy Court that, among other things, confirms the
applicability of section 1145 of the Bankruptcy Code to the Rights Offering,
which order may be part of the Confirmation Order.

Subscription Rights

The (i) non-transferable, non-certificated rights to subscribe for NewCo Stock,

and (ii) non-transferable rights to subscribe to the New Bridge Loan, in each
case, on the terms and subject to the conditions and adjustments set forth in the
Subscription Approval Order or as part of the Second Lien Exchange Offer, as
applicable.

Tax

Any tax, charge, fee, levy, impost or other assessment (including any interest
or additions attributable to, imposed on or with respect to such tax, charge, fee,
levy, impost or other assessment) by any federal, state, local or foreign taxing
authority, including, without limitation, income, excise, property, sales,
transfer, employment, payroll, franchise, profits, license, use, ad valorem,
estimated, severance, stamp, occupation and withholding tax.

U.S. Trustee

The Office of the United States Trustee.

Voting Record Date

May 14, 2012.

Waivers

Waivers dated April 4, 2012 with respect to the First Lien Credit Agreement,
the Second Lien Credit Agreement and the Revolving Credit Agreement, as
amended or supplemented from time to time.

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