Common use of THE SHAREHOLDER INQUIRY AND THE DISCLOSURES Clause in Contracts

THE SHAREHOLDER INQUIRY AND THE DISCLOSURES. UTC, PWC and HSC (collectively the “UTC Entities”) failed to make a disclosure of the export violations until July 2006. The Shareholder Inquiry On February 15, 2006, UTC’s Investor Relations Department received an email inquiry from a non-governmental organization (“NGO”) that offers advice to investors on what it believes to be socially responsible investments. The email, entitled “Investor analysis of UTC’s activities in China,” stated that “Xxxxx & Xxxxxxx, a fully owned subsidiary of UTC, reportedly participates in the development of a new combat helicopter, commonly referred to as [the] Z-10,” notwithstanding that “[t]he transfer of military equipment to China is prohibited by US and EU arms embargoes.” The email informed UTC that the NGO was “carrying out in-depth research into the nature and degree of the involvement of your company . . . and that such research might result in a recommendation to divest from your company.” The inquiry concluded with a request “for any information you can provide about . . . the sale of military equipment as well as dual use equipment to the Chinese government in light of the arms embargo,” including any “corrective” and “pro-active measures” taken “to ensure that violations that have occurred in the past (with direct or indirect involvement of the company) will not occur in the future.” At the time of the investor inquiry, UTC personnel were in the process of preparing briefing materials for UTC senior management in advance of an annual shareholders meeting in April 2006. One of the issues included in the briefing materials was the inquiry from the NGO, and more generally, PWC’s helicopter programs in China. The information gathered and circulated within UTC in reaction to the shareholder inquiry eventually led to a meeting on April 13, 2006 among lawyers from UTC, P&W, PWC and UTC’s Export, Licensing and Economic Sanctions Office (“ELESO”), to discuss the briefing materials and PWC’s China programs. One of the action items arising out of that meeting was to determine whether UTC would need to make a disclosure regarding the export of the HSC EEC software to China. After further investigation, a subsequent meeting was held on May 1, 2006. By May 8, 2006, following a conference call among lawyers from P&W, PWC, HSC and ELESO, a collective decision was reached that a violation had apparently occurred and that UTC would make a disclosure to the State Department. On July 17, 2006, the UTC Entities submitted to DDTC their initial disclosure letter regarding the export of the EEC software. The UTC Entities also made follow-up submissions to DDTC on August 11, 2006 and September 6, 2006. The thrust of the disclosure letters was that none of the UTC Entities had any idea that the Chinese were developing a military attack helicopter until 2003 or 2004, and that after learning about it, and subsequently recognizing the corresponding export violations, the UTC Entities had taken swift remedial action to address the issue.