GUIDE TO COMPLIANCE WITH THE ANTITRUST LAWS 9 EMERSON. SEPTEMBER 1, 2002EMERSON. Dawe. Farr Chief Bxcaltive Officer {3000 West Flerssant Ave PO, Box 410. ‘Los, MO 63136-8505 ise 1 (314)353 1850 F (314)553 1248 September 1, 2002 POLICY DIRECTIVE TO: ALL EXECUTIVE AND MANAGERIAL PERSONNEL OF EMERSON ELECTRIC CO. AND ITS SUBSIDIARIES, ‘The antitrust laws of the United States are intended to preserve and promote our free enterprise system by ‘insuring that competition is the prime regulator of the economy. It is and has always been the policy of Emerson Electric Co. to comply strictly with these laws, as well as with comparable laws of the states and of foreign countries. ‘This Guide is part of our compliance program (which also includes antitrust seminars presented from time to time by the Law Department). The Guide is designed to acquaint you with the provisions of federal and state antitrust laws, including the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act, and Emerson's policy conceming these laws. While not intended to discuss the antitrust laws in detail, this Guide will help you recognize potential problem areas. Certain types of conduct are clearly prohibited by the antitrust laws. However, because these laws are complex, other activities which may be illegel in certain circumstance are not so easy to recognize. Tt is therefore quite possible for an individual to violate the antitrust laws inadvertently. THUS, THE MOST IMPORTANT THING YOU SHOULD REMEMBER IS THAT IF YOU ENCOUNTER A POTENTIAL ANTITRUST PROBLEM, YOU SHOULD IMMEDIATELY SEEK ADVICE AND GUIDANCE FROM THE LAW DEPARTMENT. Violations of the antitrust laws may have serious consequences. Certain violations are felonies and subject the individuals involved to prison sentences of up to three years and substantial fines (currently up 10 $350,000 per vielation, or in the alternative, twice the profit or loss resulting from the illegal activity). fan individual employee is found guilty and fined, the Company cannot reimburse him or her. Fines of up to S10 million may be levied against a corporation for each criminal offense. Additionally, persons or companies injured by an antitrust violation may recover three times their actual damages plus their attorneys’ fees. The costs to the Company of defending an action, even ifit is completely vindicated, ean be enormous. In major cases, attorneys’ fees alone can run into millions of dollars. expect each of you to read the attached Guideline to Compliance with the Antitrust Laws and to execute and retum to the Law Department the Statement of Complience found at the end of the Guideline. [also expect you to distribute the Guideline to the appropriate people in your organization (copies can be obtained from the Law Department) and have them execute and retum to the Law Department the Staiement of Complian Very truly yours, que David N. Far1 STATEMENT OF COMPANY POLICY Itis the longstanding policy of Emerson Eleciric Co. and its subsidiaries (*Company’’) to comply in all respects with the letter and spirit of the antitrust laws in the United States and of comparable foreign laws. This means that the ‘Company and its personnel must not only stay within the bounds of the law, but must refrain from engaging in any activity that would give the appearance of impropriety. The Board of Directors and Company management take this policy very seriously and require that each employee do so as well. A comerstone of the Company’s antitrust compliance policy i to educate all employees to recognize potential antitrust problems and to seek guidance of corporate legal counsel with respect to any proposed action which may even remotely involve a possible violation of the antitrust laws. This Guide is designed to perform a part of that education function, u MAJOR PROBLEM AREAS UNDER THE ANTITRUST LAWS A, CONTACT WITH COMPETITORS. The most dangerous area ‘of conduct under the antitrust ws arises from contact with competitors. Agreements among corapetitors which unreasonably restrain competition ar illegal. Agreements ‘on price or on market or customer allocations will usually resalt in criminal prosecutions of those individuals involved. The word “agreement” is used in a very broad sense in the antitrust context, It is not necessary that the Company execute a contract or sign some other written document before there can be an ““agreement’” in violation of the antitrust laws, Oral agreements, and even ‘mutual understandings" arrived at through implicit communications, are sufficient, Itis for these reasons that itis so important to avoid cven the appearance of impropriety. Bearing in mind this broad definition of the word “agreement”, all employees should observe the following rules: — Do not talk with competitors about prices, price levels in general, or anything relating to prices, including the terms or conditions of sales. Do not exchange price information of any sort, including price lists, with competitors. These are the types of conduct that are most clearly forbidden by the antitrust laws. Penalties are automatic, and it is no justifi- cation that the conduct may have some favorable economic, business or social effect. You might believe that the Government would favor an agreement by ‘two competitors to fix prices at a lower level, thereby benefiting the consumer. ‘This is not the case. The Government is concerned with pricing decisions that are not made independently, and will not even listen to your justifications for talking with competitors about prices. DON’T DO IT!This does not mean that you cannot gether information about competitors’ prices and terms from other sources. You can still rely on public information, press releases, independent third parties and personal observa- tion to assemble information about a competitor's prices. The important point is that you mast act independently ~ separate and apart from the competitor. ‘When you do gather price information, you should make a clear and ‘contemporaneous record of your sources to avoid even the appearance of direct ‘communication with competitors — Do not discuss with a competitor the allocation or division of customers or territories. Agreements to allocate customers or territories between competitors are illegal. This is another area in which the courts will not permit ary justifications the Company may have. Consequently, no employee should ever discuss with a competitor the division of geographic markets, product markets or customer accounts. Do not even do so in jest, as courts may infer an agreement if you jokingly tell a competitor, for exam ple, to “Stay away from customer X, because he's mine.” — Do not agree with competitors, customers or suppliers to boycott or otherwise restrict dealings with other customers or suppliers. Again, independent decision making is essential. Although the Company may decide unilaterally not to deal with a given supplier or customer, it is unlawful for the Company to agree with a third party not to deal with a supplier or customer. — Do not attend formal meetings between competitors, including formal trade association meetings, if independent legal counsel is not present to assure compliance with the antitrust laws, or if'you have not consulted with the Law Department first, Enforcement officials are suspicious of these mectings and are likely to scrutinize their agendas and ‘other documents and correspondence relating to them because the potential for illegal activity is greatest where members of an industry are gathered or are communicating in any way. Itis very important that you consult with the Law Department prior to attending any such meeting among competitors, including participation in trade associations. For formal trade association ‘meetings, i is essential that counsel for the trade association be in attendance. In those instances where you attend such meetings, make absolutely certain that if any questionable topics are about to be discussed, you make your objections known for the record, immediately excuse yourself from the meeting and bring the matter to the attention of the Law Department.‘You must be equally careful at informal gatherings that invariably precede and follow such meetings, or that may take place at trade shows. Committee meetings, cocktail parties, golf games and the like may lead to charges of antitrust violations, and the better practice would be to avoid such contact with competitors entirely. B. CONTACT WITH CUSTOMERS. The following rules should be observed by all Company employees dealing with customers: — _ Donot make comments to customers which even suggest that youare trying to limit that customer's discretion to resell the Company's products at whatever price the customer chooses. The Company may suggest resale prices to its customers, but there is a very fine line between “‘suggestion’” and ‘‘agreement”” which all employees mast be exceptionally careful not to cross. Suggested resale price lists must indicate very clearly that they are just that—suggestions—and are not meant to bind or coerce the customer. — Donot attempt to limit a customer’s discretion to resell the ‘Company’s products wherever the customer chooses, and to whomever the customer chooses, without first consulting the Law Department. Depending on the facts, such restrictions may be reasonable and pro- ‘competitive, or they may constitute Violations of the antitrust laws. —_ Donot agree with a customer to boycott or otherwise restrict dealings with other persons or customers. The Company's policy is decide independently on those to whom it will sell, as well as on prices and other terms of sale, An agreement between the Company and any of its customers not to sel to any other customer or customers, such as “discounters”, i illegal. — Donot make agreements which appear to “tie” together two or more products by requiring a customer to buy product B in order to buy product A from the Company Such arrangements may in eflect force a customer to take the less desirable product B, which it would not normally purchase, in order to have access to the more desirable product A. This type of “tying” arrangement is often illegal — Donot require a customer to purchase the Company's spare parts in order to keep warranties effective without consulting the Law Department. Such conduct may lead to a charge of unfair business practices.— Do not make arrangements which require reciproc: purchases, that is, which appear to require a customer to purchase the ‘Company's products in exchange for the Company’s agreement to purchase products from the customer, without consulting the Law Department Depending on the facts, such “reciprocity”” agreements may be found to be unfair abuses of the Company’s bargaining power. — Do not enter into “requirements” contracts, ie., requiring that a customer buy all or substantially all of its requirements of a product from the Company in order to buy any of the product, without first clearing ic with the Law Department, Such contracts may be illegal, particularly when they extend over a period of years and require a customer to buy substantial ‘quantities. — Do not obligate a customer as a condition of the sale of a product to refrain from handling the products of a competitor, without first consulting the Law Department. While such “exclusive dealings” contracts are sometimes pro-competitive, in certain circumstances they can be illegal. — Do not grant price differentials or different promotional allowances on the sale of like goods or commodities to customers of the same functional category (i., wholesalers, retailers, OEM customers, ete.), unless the policy has been cleared with the Law Department. Differential prices, such as the granting of quantity discounts, are subject to the Robinson- Patman Act, Which is a very complex law. Itis therefore most important that you work with the Law Department before adopting a differential pricing policy or signing major sales contracts which might be construed as granting an advantageous price to one customer as compared to another. Promotional allowances, services and credit terms are considered in determining if a price differential has been given. It should be noted that it also may be illegal for a purchaser to knowingly induce or reccive iscriminatory prices C. MONOPOLIZATION AND ATTEMPTS TO MONOPOLIZE. ‘The mere possession of ‘monopoly power” (i., the power to control market, prices or to exclude competition) is not by itself illegal. What the antitrust Jaws prohibit is obtaining, attempting to obtain, or maintaining monopoly power through anticompetitive means. While these antitrust offenses are complex, it should be kept in mind that violations of the law can occur in narrow geographic areas and in small segments of a broad industry. Monopolypower (plus anticompetitive conduct) is required to be guilty of monopolization Monopoly power is not required for the offense of “attempt to monopolize”. Unfair or predatory business practices may constitute an “attempt to monopolize" Such practices may include sales below cost, disparagement of a competitor's products, or localized price cutting. Sales below cost and localized price cutting should never be done without prior consultation with the Law Department. With regard to disparage- ‘ment, our employees should, whenever possible, stress the virtues of our own goods and services, rather than attack the goods and services of our competitors. When comparisons are made, they must be based upon facts, not speculation. ‘Unfair monopoly charges also may be triggered by the use of patent licenses. A patent creates a limited ‘legal monopoly”, but the Company may not take unfair advantage of that legal monopoly. Do not attempt to expand a patent license beyond the claims of the patent or to extend patent protection beyond its expiration, even by agreement with a licensee. Again, this is a complicated area ‘of the law, and the Law Department should be consulted before you grant or withhold 4 patent license. D. JOINT VENTURES. Another area of antitrust law relates to joint ventures between the Company and other corporations, partnerships or individuals. In particular, if the joint venture is with a company that makes products similar to ours, violations of the antitrust laws may result. All employees should make cern that the Law Department becomes involved with any negotiations for the forma- tion of a joint venture even before a letter of intent is signed, and with any major actions or policy changes by existing joint ventures in which the Company participates. E, LICENSING OF TECHNOLOGY. The licensing of both patented and unpatented technology, particularly restrictions on the use of technology by a licensee, is an area which can present substantial legal risk. Licensing agreements are often carefully scrutinized by the antitrust enforcement authorities and the courts in light of their effect upon present or potential competition in a market. Licensing arrangements with competitors, potential competitors, customers or vendors mast be carefully analyzed from an antitrust viewpoint.mm ANTITRUST INVESTIGATIONS If anyone representing the Antitrust Division of the Department of Justice, the Federal Trade Commission, any state antitrust enforcement agency, or similar foreign governmental authority should contact any employee, the governmental representative should be treated with courtesy and referred to the Law Department. No information, whether writen or oral, should be given without prior consultation with the Law Department Vv CONCLUSION The antitrust laws govern numerous types of business conduct. As this Guide indicates, while certain conduct such as price fixing is clearly illegal, in many instances the requirements of the law are not obvious, and the Law Department must be consulted in advance to determine whether a proposed course of action is proper. This Guide, if carefully studied, will alert you to the “danger signals" in the antitrust area. It is not imended to teach you the intricacies of the law, but it will help you to know when to seek the guidance of the Law Depart- ‘ment. The Law Department is anxious to foster a close working relationship with all employees in order to guarantee, to the greatest extent possible, that the antitrust laws are observed in letter and spirit and that the criminal and monetary liability that could result from their violation is avoided. Your constant attention to this policy is required to assure that you and the Company commit no violations of the antitrust lawsEMERSON ELECTRIC CO. STATEMENT OF COMPLIANCE WITH ANTITRUST LAWS: Ihave received a copy of the Company's Guide to Compliance with the Antitrust Laws, dated September 1, 2002. Thave carefully read the foregoing document and I agree to comply with its purposes and provisions. ignature (Please Print) Division Date